UNIVERSAL ACCESS INC, 424B1, 2000-03-17

UNIVERSAL ACCESS INC
424B1, 2000-03-17
RADIOTELEPHONE COMMUNICATIONS

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<PAGE> 1

Filed Pursuant to Rule 424(b)(1)
Registration Statement No. 333-93039
11,000,000 Shares

[UNIVERSAL ACCESS LOGO]

Common Stock

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

This is an initial public offering of shares of common stock of Universal
Access, Inc. All of the 11,000,000 shares of common stock are being sold by
Universal Access.

Prior to this offering, there has been no public market for the common
stock. Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "UAXS".

See "Risk Factors" beginning on page 8 to read about certain factors you
should consider before buying shares of the common stock.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Initial public offering price............................... $14.00 $154,000,000
Underwriting discount....................................... $ 0.98 $ 10,780,000
Proceeds, before expenses, to Universal Access.............. $13.02 $143,220,000
</TABLE>

To the extent that the underwriters sell more than 11,000,000 shares, the
underwriters have the option to purchase up to an additional 1,650,000 shares
from Universal Access at the initial public offering price less the underwriting
discount.

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

The underwriters expect to deliver the shares against payment in New York,
New York on March 22, 2000.

GOLDMAN, SACHS & CO.
CHASE H&Q
ROBERTSON STEPHENS

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

Prospectus dated March 16, 2000.
<PAGE> 2

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information about us, the common stock we are selling in this offering and our
consolidated financial statements, including the notes to those statements,
included elsewhere in this prospectus.

OUR BUSINESS

We are a business-to-business intermediary that facilitates the buying and
selling of capacity on communications networks. We facilitate the process
through which users of communications circuits obtain circuits dedicated for
their specific use from multiple vendors. We refer to this process as
"provisioning a circuit". We also facilitate the installation and servicing of
these dedicated circuits. Our clients are communications service providers, such
as telecommunications service providers, internet service providers and
application service providers, who buy capacity on communications circuits for
use by their customers. We obtain the communications capacity from transport
suppliers, who are the owners of the communications infrastructure over which
information is transmitted.

Through our services, we provide our clients with an outsourced, integrated
solution to obtaining communications network capacity within a fragmented
network services market. The services we provide include:

- assembling detailed information about available network capacity from
multiple suppliers;

- operating facilities where communications networks can be physically
interconnected;

- providing ongoing access to dedicated circuits; and

- providing client support services.

We offer our clients the ability to obtain pricing quotes and circuit
availability information and to order circuits over the Internet. We intend to
expand our Internet service offering to include network management, monitoring
and restoration. Through these services, we provide our clients with an
outsourced, integrated solution to the challenges they face within a fragmented
network services market.

As an independent intermediary, we have been able to collect and assemble
network information from multiple transport suppliers. Our Universal Information
Exchange, or UIX, consists of several proprietary, interconnected databases
containing capacity, availability, physical location and pricing information
from over 35 transport suppliers and more than 75,000 physical sites. Through
our UIX we efficiently and cost-effectively provide our clients with dedicated
circuits that connect across the networks of multiple suppliers. In addition, we
operate network interconnection facilities called Universal Transport Exchanges,
or UTXs, where various transport suppliers can easily connect to the networks of
any other transport supplier in that facility. As of March 15, 2000 we had
operational UTX facilities in Chicago and Santa Clara. In addition, we had UTX
facilities under construction in Dallas, Los Angeles, Miami, San Francisco and
Washington, D.C. We also provide a single point of contact for network
management services, including network monitoring, maintenance and restoration.

As of December 31, 1999, we provided services to over 100 clients,
including AboveNet Communications (MFN), BCE Nexxia, Cable & Wireless, Teleglobe
Communications and UUNET, each of which represented at least 1% of our monthly
recurring revenues as of December 31, 1999.

THE OPPORTUNITY

The communications network services market is competitive, complex and
fragmented. Domestic and international deregulation, combined with growth in
Internet usage, has spawned a rapid increase in the number of transport
suppliers and service providers as well as the strategies they employ to build
networks and reach customers. This diversity of industry participants and
business strategies

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<PAGE> 3

has resulted in the development of multiple networks serving various geographic
regions. It is difficult to connect these networks together due to the fact that
transport suppliers and service providers do not have access to pricing,
capacity, availability and location information for the networks of other
suppliers. Because transport suppliers compete with each other, they have little
incentive to share this information or to locate their equipment within
competitors' facilities. To date, we believe that major transport suppliers have
not been able to effectively support dedicated circuits that connect across the
networks of multiple suppliers on their own networks, or through efficient
interconnection with other suppliers, to fully meet their customers'
requirements.

Communications service providers and transport suppliers face a number of
challenges, as outlined below, due to the number of vendors in the market.

<TABLE>
<CAPTION>
CHALLENGES FOR SERVICE PROVIDERS CHALLENGES FOR TRANSPORT SUPPLIERS
-------------------------------- ----------------------------------
<S> <C>
- - significant time and expense related to - inability to efficiently fulfill customer
pricing, obtaining and installing demand for dedicated circuits due to the
circuits; limited coverage of their networks;
- - difficulty determining the availability of - costs associated with selling excess
capacity in a timely manner, which may network capacity; and
result in significant backlog of customer
orders and possibly lost revenues; and - inability to provide a consistent level of
service over multiple network segments.
- - inability to maintain, monitor and restore
connections.
</TABLE>

OUR SOLUTION

Our integrated solution addresses these challenges and provides the
following key benefits to our clients:

- Single Point of Contact for Supplying and Installing Circuits and
Providing Network Management Services. As a third-party provider, we
allow our clients to outsource the obtaining, installing and providing of
their communications infrastructure. Our solution provides significant
time, effort and cost savings to our clients who would otherwise be
forced to independently analyze the capacity, availability and pricing of
circuits from multiple vendors to construct and maintain circuits. In
addition, we maintain a network management service organization through
which we provide a single point of contact for 24-hour-a-day,
seven-day-a-week network monitoring, maintenance and restoration across
multiple vendor networks.

- Efficient, Cost Effective Provision and Installation of Circuits Across
Multiple Vendor Networks. We use the information contained in our UIX
databases to efficiently and cost-effectively provide and install
circuits across geographically dispersed, multiple vendor networks.

- Easily Extended Network Coverage. Our clients are able to easily extend
the coverage of their networks by purchasing dedicated circuits from us
which access the networks of over 35 network transport suppliers.

- Significant Source of Demand for Transport Capacity Suppliers. We
represent a significant source of demand for transport suppliers because
we purchase a large volume of circuits. We believe our transport
suppliers consider us to be a valuable partner because we provide them
efficient access to the capacity requirements of our clients.

- Ongoing Client Support. We provide ongoing technical and administrative
support during the circuit planning, ordering, provisioning and
installation processes.

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<PAGE> 4

OUR STRATEGY

Our objective is to facilitate the creation of a seamlessly connected,
global communications network by improving the overall efficiency of the market
for transport capacity and infrastructure services. To achieve this objective,
we intend to:

- continue to enhance the Internet functionality of our UIX;

- continue to expand and populate our UIX databases with network
information;

- continue to develop UTX facilities;

- optimize circuit configurations to gain efficiencies;

- expand UIX, UTX and client support services internationally; and

- enhance capabilities through acquisitions and partnerships.

CORPORATE INFORMATION

Our principal executive offices are located at 100 North Riverside Plaza,
Suite 2200, Chicago, Illinois 60606, and our telephone number is (312) 660-5000.
We do not intend for information contained on our website,
www.universalaccess.net, to constitute part of this prospectus. We were
incorporated in Illinois in October 1997. We reincorporated in Delaware in June
1999.

TRADEMARKS

Universal Access, the Universal Access logo, Universal Transport Exchange,
Universal Information Exchange, UTX and UIX are service marks and ProVision and
Stuff Software are trademarks of Universal Access. Each trademark, trade name or
service mark of any other company appearing in this prospectus belongs to its
holder.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered.................................. 11,000,000 shares
Common stock which will be outstanding after the
offering(1)......................................... 85,809,264 shares
Use of proceeds....................................... For general corporate purposes, including
working capital, capital expenditures and
potential acquisitions of complementary
products, technologies and businesses.
Nasdaq National Market symbol......................... "UAXS"
</TABLE>

At our request the underwriters have reserved at the initial public
offering price up to 2,300,000 shares of our common stock for sale to an
existing stockholder of Universal Access.
- ---------------
(1) Based on the number of shares outstanding as of December 31, 1999. This
number excludes:

- 13,000,000 shares of common stock reserved for issuance under our Amended
1998 Employee Stock Option Plan, of which 10,465,750 shares were subject
to outstanding options with a weighted average exercise price of $0.99
per share, and 934,250 shares were available for future grants;

- 1,943,400 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $0.59 per share; and

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<PAGE> 5

- 11,000,000 shares available for issuance under our 1999 Stock Plan, 1999
Employee Stock Purchase Plan and 1999 Director Plan.

Except where we state otherwise, the information in this prospectus:

- gives effect to the conversion of all of our outstanding shares of
preferred stock into 42,834,243 shares of common stock upon the closing
of this offering, and assumes that each share of Series E preferred stock
converts into three shares of common stock. For a description of the
conversion terms of the Series E preferred stock, please read
"Description of Capital Stock";

- assumes no exercise of the underwriters' option to purchase additional
shares in this offering; and

- reflects a 500 for 1 forward stock split that our board approved on July
10, 1998, a 2 for 1 forward stock split that our board approved on
February 17, 1999, a 3 for 2 forward stock split that our board approved
on June 23, 1999 and a 2 for 1 forward stock split that our board
approved and effected as a stock dividend on September 15, 1999.

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<PAGE> 6

SUMMARY FINANCIAL INFORMATION

The pro forma statement of operations data give effect to the Pacific Crest
Networks, Inc. and Stuff Software, Inc. acquisitions as if they had occurred on
January 1, 1998. The pro forma financial data set forth below may not be
indicative of our financial condition or results of operations had these
acquisitions actually occurred on the dates assumed, nor do they purport to be
indicative of our future financial position or results of operations.

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

<TABLE>
<CAPTION>
PRO FORMA
INCEPTION PRO FORMA YEAR
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999 1999
------------ ------------ ------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................... $ 77 $ 1,629 $ 2,294 $ 14,259 $ 14,906
---- ------- ------- -------- --------
Total operating expenses..... 246 3,508 5,090 34,603 36,079
---- ------- ------- -------- --------
Operating loss............... (169) (1,879) (2,796) (20,344) (21,173)
---- ------- ------- -------- --------
Net loss......................... (170) (1,998) (2,960) (19,653) (20,482)
Pro forma basic and diluted net
loss per share................. $ (0.07) $ (0.50)
Shares used in computing pro
forma basic and diluted net
loss per share................. 30,069 56,855
</TABLE>

The pro forma balance sheet data as of December 31, 1999 gives effect to
the conversion of all outstanding shares of preferred stock into common stock
and all preferred stock warrants to common stock warrants upon the closing of
the offering. The pro forma as adjusted balance sheet data as of December 31,
1999 also give effect to the sale of 11,000,000 shares of common stock by us in
this offering at the initial public offering price of $14.00 per share, after
deducting the underwriting discount and estimated offering expenses.

<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
DECEMBER 31,
1999
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash........................................................ $179,744
Total assets................................................ 205,985
Total long-term debt, net of current portion................ 2,369
Total stockholders' equity.................................. 193,762
</TABLE>

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RISK FACTORS

An investment in our common stock involves a high degree of risk. Before
you invest in our common stock, you should consider carefully the risks
described below, together with all of the other information included in this
prospectus. If any of the risks described below were to occur, our business,
financial condition and results of operations could be materially adversely
affected. In that case, the trading price of our common stock could decline and
you could lose part or all of your investment.

WE HAVE INCURRED SUBSTANTIAL LOSSES SINCE OUR INCEPTION, AND IF WE FAIL TO
INCREASE OUR REVENUES, WE WILL BE UNABLE TO ACHIEVE AND MAINTAIN PROFITABILITY.

We have incurred significant losses since inception and expect to continue
to incur losses in the future. As of December 31, 1999, we had an accumulated
deficit of $23.0 million. Although our revenues have grown from $899,000 in the
quarter ended December 31, 1998 to $5.7 million in the quarter ended December
31, 1999, we cannot be certain that our revenues will continue to grow, or that
we will achieve sufficient revenues to achieve profitability. We expect to
continue to incur significant and increasing expenses in order to:

- expand sales and marketing activities to increase market acceptance;

- expand our operational activities to further develop our business model;

- expand our administrative organization to support the anticipated growth
of our business;

- expand and enhance our UIX databases; and

- build out our UTX facilities.

As a result, we will need to generate significantly higher revenues to
achieve and maintain profitability. If we fail to generate higher revenues, we
may continue to incur operating losses and net losses.

OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT.

We have a limited operating history and, therefore, limited meaningful
historical financial data upon which to base our planned operating expenses.
Specifically, our UTX business model is relatively new, and we have not operated
our UIX databases in conjunction with our UTX facilities long enough to
accurately predict trends in our business. Moreover, we have not built out
enough UTX facilities to be able to test whether our strategy to utilize these
facilities will work. Accordingly, we are subject to all of the risks that are
associated with companies in an emerging industry and in an early stage of
development, including:

- undercapitalization;

- cash shortages;

- the unproven nature of our business model;

- the new and unproven nature of the market for our services;

- the need to make significant expenditures and incur significant expenses
as we develop our business, infrastructure and operations;

- the lack of sufficient clients and revenues to sustain our operations and
growth without additional financing;

- difficulties in managing growth; and

- limited experience in providing some of the services that we offer or
plan to offer.

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<PAGE> 8

For example, from time to time we enter into long-term agreements with
communications transport suppliers for the supply and installation of
communications network capacity. These agreements generally provide for monthly
minimum revenue commitments from us, which we must negotiate based on forecasts
of our future network capacity requirements. As of March 15, 2000, we were party
to contracts that will impose minimum purchase commitments that we anticipate
will total approximately $1.8 million per month by September 2000. If we fail to
forecast our network capacity requirements accurately or fail to accurately
forecast other aspects of our business, it will be difficult for us to become
profitable, and you may lose part or all of your investment.

WE HAVE AN UNPROVEN BUSINESS MODEL, AND WE CANNOT BE SURE THAT CLIENTS WILL
WIDELY ACCEPT OUR SERVICES.

Our business strategy is unproven. To be successful, we must convince
prospective clients to entrust their network capacity data and transport
requirements to a company without a long and proven track record. We are not
aware of any companies that have a directly comparable business, and we cannot
be sure that clients will widely accept our services.

Our ability to expand our client base may be limited by the following
factors:

- the speed, reliability and cost effectiveness of our services;

- the willingness of clients to outsource the obtaining of circuits;

- our ability to market our services effectively; and

- the growth of the Internet.

We may not be able to execute our business model if the markets for our
services fail to develop or grow more slowly than anticipated, if competitors
enter the market or if we are unable to expand our client base.

OUR ABILITY TO IMPLEMENT AND MAINTAIN OUR UIX DATABASES IS UNPROVEN. IF WE
CANNOT INCREASE THE SCOPE AND ACCURACY OF THESE DATABASES AS PLANNED, OUR
ABILITY TO COST-EFFECTIVELY FACILITATE THE OBTAINING OF CIRCUITS FOR OUR CLIENTS
WILL BE AT RISK.

To be successful, we must increase and update information about pricing,
capacity, availability and location of circuits contained in our databases. Our
ability to cost effectively facilitate the supplying of circuits and to provide
ongoing dedicated line circuit access depends upon the information we collect
from our transport suppliers regarding their networks, which we include in our
UIX databases. Our suppliers are not obligated to provide us with this
information and could decide to stop providing this information to us at any
time. Moreover, we cannot be certain that the information that our suppliers
share with us is completely accurate or current. If we cannot continue to
maintain and expand our UIX databases as planned, we may be unable to increase
our revenues or to cost-effectively facilitate the supplying of the circuits,
and we may never achieve profitability.

THE MARKET FOR OUR UTX SERVICES IS NEW AND UNPROVEN, AND WE HAVE LIMITED
EXPERIENCE PROVIDING OUR UTX SERVICES.

The market for our UTX services is new and unproven. Our ability to
generate revenues will suffer if the market for these services fails to develop,
or develops more slowly than we expect. The growth of this market depends on
several uncertain events or occurrences including:

- our ability to remain a neutral intermediary between transport suppliers
and the willingness of these suppliers to install their equipment in our
UTX facilities;

- our ability to successfully and cost-effectively market our services to a
sufficiently large number of clients; and

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- the increased need for high speed communications network services.

To date, we have derived substantially all of our revenues from providing
on-going circuit access, and we have only limited experience providing our UTX
services. At March 15, 2000, we had two operational UTX sites and seven UTX
clients. However, these clients may terminate their UTX contracts at any time,
and our ability to generate revenues will suffer if we fail to maintain our
existing clients and to attract new clients for our UTX services.

CONSTRUCTION OF UTX FACILITIES IS EXPENSIVE AND TIME-CONSUMING AND WILL CAUSE A
SIGNIFICANT STRAIN ON THE CAPITAL RESOURCES AND OPERATION OF OUR BUSINESS.

One of our key strategies is to expand our business by opening additional
UTX facilities in geographically diverse locations. As of March 15, 2000 we had
operational UTX facilities in Chicago and Santa Clara and UTX facilities under
construction in San Francisco, Los Angeles, Miami, Dallas and Washington, D.C.
We expect to begin the construction of eight additional UTX facilities in the
United States in 2000.

If we are unable to generate sufficient cash flows or raise sufficient
funds, we may have to delay or abandon some or all of our development and
expansion plans. A delay in the expansion of our UTX facilities may make it more
difficult for us to respond to competitive pressures and establish our presence
in the market.

It usually takes us at least six months to select an appropriate location
for a new UTX facility, construct the facility, install equipment and
communications network infrastructure and hire operations and sales personnel.
We must incur these costs before we have clients who purchase our services to be
delivered from the UTX facilities. If the demand does not develop as we
anticipate, we will have fixed costs without corresponding revenue and our
business will be harmed. Once a UTX facility becomes operational, we expect it
to experience losses for at least one year.

Our ability to open UTX facilities is subject to a number of risks,
including the following:

- the availability of appropriate space for these facilities on reasonable
terms;

- competition for limited space in desirable locations from large,
well-capitalized companies that may be more attractive tenants for
potential landlords;

- construction delays;

- cost overruns;

- equipment and material delays; and

- inability to obtain necessary permits on a timely basis.

In addition, our costs will increase as we open additional UTX facilities.
These increased costs include:

- leasing additional real estate;

- expenses associated with hiring, training and managing new employees;

- purchasing new equipment;

- implementing power and redundancy systems;

- implementing multiple communications connections; and

- depreciation expense.

An inability to establish additional UTX facilities as planned, to
effectively manage our expansion or to attract sufficient clients to our UTX
facilities would harm our ability to generate revenues.

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<PAGE> 10

IF WE CANNOT SUCCESSFULLY IMPLEMENT OUR NETWORK OPERATIONS CENTER, WE WILL BE
UNABLE TO PROVIDE MONITORING, MAINTENANCE AND RESTORATION SERVICES TO OUR
CLIENTS.

One of our primary business objectives is to provide our clients with
network monitoring, maintenance and restoration services 24 hours a day, seven
days a week through a network operations center. However, we have not fully
developed this capacity and currently provide network management services
through an outsourcing arrangement with a third party, until our own facility
becomes operational. We recently acquired a network operations facility, but
have not yet upgraded this facility or begun hiring employees, and we have only
limited experience implementing services of this type. As a consequence, we
cannot be sure that our efforts to provide these services will be successful.
Our ability to implement this strategy will depend on many factors, including
our ability to upgrade the facility, install new equipment and hire, train and
manage employees.

If we fail to successfully implement a network operations center, we may
not be able to monitor network operations effectively or troubleshoot circuits
in a cost-effective manner, which would cause us to lose clients and make it
difficult for us to attract new clients.

ALTHOUGH WE PLAN TO EXPAND INTERNATIONAL OPERATIONS, WE HAVE NO EXPERIENCE
OPERATING INTERNATIONALLY.

An important component of our strategy is to expand into international
markets, such as Europe, Asia and South America. However, we have no experience
operating internationally. The risks inherent in conducting our business
internationally include:

- unexpected changes in regulatory requirements and trade barriers;

- unexpected changes in national and international (including European
Union and World Trade Organization) regulatory requirements and trade
barriers;

- challenges in staffing and managing foreign operations;

- differences in technology standards;

- employment laws and practices in foreign countries;

- longer payment cycles and problems in collecting accounts receivable;

- inability to obtain access to transport capacity;

- political instability;

- fluctuations in currency exchange rates and imposition of currency
exchange controls; and

- potentially adverse tax consequences.

In addition, in order to expand internationally, we may enter into joint
ventures or outsourcing agreements with third parties, acquire complementary
businesses or operations, or establish and maintain new operations outside of
the United States. We may not control or manage some or all of these operations.
As a result, we may be required to depend on third parties for the management of
these international operations. If these foreign operations are not successful,
they could significantly damage our reputation, which would harm our ability to
attract new clients and retain existing clients.

COMPETITION IN OUR INDUSTRY IS INTENSE AND GROWING, AND WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.

The market for the services we provide is highly fragmented. In addition,
the market in which we operate is new, rapidly evolving and highly competitive.
We believe that at this time no single competitor competes directly with us with
respect to all of the services we offer; however, we

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currently or potentially compete with a variety of companies, including some of
our transport suppliers, with respect to our products and services individually,
including:

- national and local carriers, such as AT&T, Broadwing, MCI WorldCom and
Williams Communications;

- companies that provide collocation facilities, such as AboveNet
Communications (MFN), AT&T, Equinix, Exodus Communications, Frontier
Global Center, and Intel;

- competitive local exchange carriers, such as AT&T, ELI, ICG
Communications, MCI WorldCom, NextLink Communications, and Pathnet; and

- incumbent local exchange carriers, such as GTE and Sprint, and regional
Bell operating companies such as BellSouth and SBC Communications.

We expect to face additional competition from new market entrants in the
future as there are few substantial barriers to entry in our market. Significant
new competitors could arise from increased consolidation and strategic alliances
in the telecommunications industry. Other new entrants could enter the market
with a business model similar to ours. Our target markets may support only a
limited number of competitors. Operations in such markets with multiple
competitive providers may be unprofitable for one or more of such providers.
Prices in both the long distance business and the data transmission business
have declined significantly in recent years and are expected to continue to
decline.

Moreover, while recent regulatory initiatives allow carriers such as us to
interconnect with incumbent local exchange carrier facilities and to obtain
unbundled network elements from incumbent local exchange carriers, certain
initiatives also provide increased pricing flexibility for, and relaxation of
regulatory oversight of, the incumbent local exchange carrier. This may present
incumbent local exchange carriers with an opportunity to subsidize services that
compete with our services with revenues generated from non-competitive services.
This would allow incumbent local exchange carriers to offer competitive services
at lower prices. Existing laws also restrict the regional Bell operating
companies from fully competing with us in the market for interstate and
international long distance telecommunications services, but also permit the
Federal Communications Commission, the FCC, to lessen or remove some
restrictions. If FCC decisions under existing law, or future amendments to
Federal telecommunications laws, permit the regional Bell operating companies to
compete fully with us in this market, our revenues from these services could be
reduced if these companies are able to attract a substantial portion of our
customers.

We must distinguish ourselves through the quality of our client service,
our service offerings and brand name recognition. We may be unsuccessful in
doing this.

Many of our potential competitors have certain advantages over us,
including:

- substantially greater financial, technical, marketing and other
resources, including brand or corporate name recognition;

- larger customer bases;

- longer operating histories; and

- more established relationships in the industry.

Our competitors may be able to use these advantages to:

- expand their offerings more quickly;

- adapt to new or emerging technologies and changes in customer
requirements more quickly;

- take advantage of acquisitions and other opportunities more readily;

- enter into strategic relationships to rapidly grow the reach of their
networks and capacity;

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<PAGE> 12

- devote greater resources to the marketing and sale of their services; and

- adopt more aggressive pricing and incentive policies, which could drive
down margins.

If we are unable to compete successfully against our current and future
competitors, our gross margins could decline and we could lose market share,
either of which could materially and adversely affect our business.

IF WE HAVE DIFFICULTIES OR DELAYS IN DELIVERING CIRCUITS TO OUR CLIENTS, OUR
ABILITY TO GENERATE REVENUE WILL SUFFER AND WE MAY LOSE EXISTING AND POTENTIAL
NEW CLIENTS.

It typically takes 30 to 90 days to supply a circuit for a client, and we
do not begin to recognize revenue until a circuit has been installed and
accepted by the client. Once we agree to facilitate the supply of a circuit for
a client, we negotiate with one or more transport suppliers and manage the
personnel and field technicians of multiple vendors. A client can withdraw its
order with minimal liability at any time before accepting the circuit. We may
experience difficulties in facilitating the supply of circuits if our transport
suppliers run out of capacity, forcing us to look for alternative sources of
capacity at the last minute. If we are unable to facilitate the supply of a
circuit in a timely manner or fail to obtain client acceptance of the circuit,
we will be unable to recognize access revenues for that circuit, and our
operating results would be adversely affected. Furthermore, the ability of our
clients to cancel orders at any time before accepting the circuit may make it
difficult for us to forecast revenue and plan our expenses accordingly.

THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT THE TRADING
PRICE OF OUR COMMON STOCK.

Our revenues and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which we cannot control and any of
which may cause our stock price to fluctuate. These factors include the
following:

- uncertainty regarding timing for supplying circuits or failure to obtain
client acceptance of circuits;

- timing of the completion of new UTX facilities;

- decisions by end-users to reallocate their information resources to other
purposes, including year 2000 preparedness;

- costs related to acquisitions of technology or businesses;

- decisions by existing clients not to renew services on a timely basis
when existing client contracts terminate;

- the amount of unused circuit capacity that we hold;

- general economic conditions as well as those specific to the Internet and
related industries; and

- Internet growth and demand for Internet infrastructure.

In addition, we depend on decisions by our clients to expand their Internet
infrastructure, which decisions in turn depend upon the success and expected
demand for the services these clients offer.

We expect our operating expenses to increase significantly in future
periods. Our operating expenses are largely based on anticipated revenue trends,
and a high percentage of our expenses are, and will continue to be, fixed in the
short term due in large part to our construction of our UTX facilities. As a
result, fluctuations in our revenue for the reasons set forth above, or for any
other reason, could cause significant variations in our operating results from
quarter to quarter and could result in substantial operating losses.

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<PAGE> 13

Because of these factors, we believe that quarter-to-quarter comparisons of
our operating results are not, and will not be, a good indication of our future
performance. It is likely that, in some future quarters, our operating results
may not meet the expectations of public market analysts and investors. In that
event, the price of our common stock may fall.

OUR FACILITIES AND THE NETWORKS ON WHICH WE DEPEND MAY FAIL, WHICH WOULD
INTERRUPT THE CIRCUIT ACCESS WE PROVIDE AND MAKE IT DIFFICULT FOR US TO RETAIN
AND ATTRACT CLIENTS.

Our clients depend on our ability to provide ongoing dedicated circuit
access. The operation of these circuits depends on the networks of third party
transport suppliers, such as MCI WorldCom or Williams Communications. The
networks of transport suppliers and clients who may use our UTX facilities, may
be interrupted by failures in or damage to these facilities. Our facilities and
the ongoing circuit access we provide may be interrupted as a result of various
events, many of which we cannot control, including:

- fire;

- human error;

- earthquakes, floods and other natural disasters;

- train derailments or similar disasters along communications
rights-of-way;

- power loss;

- telecommunications failures; or

- sabotage or vandalism.

We may be subject to legal claims and be liable for losses suffered by our
clients for disruptions to circuits or damage to client equipment resulting from
failures at our facilities or on the networks of third party providers. In
addition, we may be subject to legal claims and be liable for losses suffered by
clients and carriers who use our UTX facilities. Our contracts with our clients
and with carriers who use our UTX facilities attempt to eliminate our liability
for consequential or punitive damages and for damage to client equipment not
caused by our gross negligence or willful acts. However, those provisions may
not protect us from being held liable for those damages.

We generally provide outage credits to our clients if circuit disruptions
occur. If our circuit failure rate is high, we may incur significant expenses
related to circuit outage credits, which would reduce our revenues. We would
also have to incur significant expenses in investigating and addressing the
causes of such circuit failures, which would divert resources from the expansion
of our services and cause our business to suffer. Clients may seek to terminate
their contracts with us if there is a circuit failure. In addition, if our
circuit failure rate is high, our reputation could be harmed, which would make
it difficult for us to retain and attract clients.

WE DEPEND ON SEVERAL LARGE CLIENTS, AND THE LOSS OF ONE OR MORE OF THESE
CLIENTS, OR A SIGNIFICANT DECREASE IN TOTAL REVENUES FROM ANY OF THESE CLIENTS,
COULD SIGNIFICANTLY REDUCE OUR REVENUE AND INCOME.

Historically, a substantial portion of our revenues has come from a limited
number of clients. For example, for the year ended December 31, 1998 two clients
accounted for approximately 29% of our total revenues, and for the year ended
December 31, 1999, one client accounted for approximately 38% of our total
revenues. We have a number of significant revenue contracts with this customer.
These contracts expire on various dates between May 2000 and April 2007.

If we lose one or more large clients, or if one or more of our large
clients reduces the services they purchase from us and we fail to add new
clients, our revenues could decline and our results of operations would suffer.

14
<PAGE> 14

OUR CLIENTS MAY FAIL TO PAY OR BE UNABLE TO PAY THEIR OBLIGATIONS TO US IN A
TIMELY MANNER OR AT ALL.

Some of our clients may have limited operating histories and may have
inadequate financial resources to meet all of their obligations. We recorded a
substantial bad debt expense during the year ended December 31, 1999 primarily
in connection with the failure by one of our clients to pay its bills. If other
of our clients are unable to meet their obligations to us, we may incur
additional bad debt expenses, which could harm our cash flows and results of
operations.

THE REGULATORY FRAMEWORK UNDER WHICH WE OPERATE AND NEW REGULATORY REQUIREMENTS
OR NEW INTERPRETATIONS OF EXISTING REGULATORY REQUIREMENTS COULD REQUIRE
SUBSTANTIAL TIME AND RESOURCES FOR COMPLIANCE, WHICH COULD MAKE IT DIFFICULT FOR
US TO OPERATE OUR BUSINESS.

Our communications services are subject to both federal and state
regulation. In providing our interstate and international communications
services, we must comply with federal telecommunications laws and regulations
prescribed by the FCC. At the state level, we are subject to state laws and to
regulation by state public utility commissions. As we expand internationally, we
will also become subject to regulation by foreign authorities and, in some
markets, supra-national authorities, such as the European Union.

These laws and regulations are subject to frequent changes and different
interpretations, and therefore, it is difficult for us to assess the impact of
these factors on our operations. The current domestic and international trend is
toward deregulation of telecommunications and Internet services. However, we
cannot assure you that this trend will continue, and it is possible that changes
in regulatory policies could limit our ability to compete in some markets. The
implementation, modification, interpretation and enforcement of laws and
regulations vary and can limit our ability to provide many of our services.

We will need to obtain authorization from the FCC and many state public
utilities commissions to offer particular types of telecommunications services.
Once we receive this authorization, we will have to comply with a variety of
regulatory obligations on an ongoing basis. We cannot assure you that the FCC or
state commissions will grant the required authority (or do so in a timely
manner), or refrain from taking action against us if we are found to have
violated any requirements of their rules. If authority is not obtained or if our
schedules of prices, terms, and conditions are not filed, or are not updated, or
otherwise do not fully comply with the rules of the FCC or state regulatory
agencies, third parties or regulators could challenge our ability to offer our
services. Such challenges could cause us to incur substantial legal and
administrative expenses.

For additional information on governmental regulations affecting us, see
"Business -- Governmental Regulation."

REQUIRED REGULATORY APPROVALS MAY INTERFERE WITH OR DELAY CORPORATE
TRANSACTIONS.

As a regulated company, we are required to obtain the approval of the FCC
and certain state regulators before engaging in certain types of transactions,
including mergers, acquisitions of other regulated companies, sales of all or
substantial parts of our business, issuance of stock, and incurrence of debt
obligations. The particular types of transactions that require approval differ
in each jurisdiction. In several states, any transaction that results in a
transfer of 10% or more of our voting stock may require prior approval. If we
cannot obtain the required approvals, or if we encounter substantial delays in
obtaining them, we may not be able to enter into transactions on favorable terms
and our flexibility in operating our business will be limited. If our
flexibility is limited, we may not be able to optimize our operating results.

15
<PAGE> 15

TELECOMMUNICATIONS REGULATIONS OF OTHER COUNTRIES MAY RESTRICT OUR OPERATIONS.

We will be subject to the regulatory regimes in each of the countries in
which we conduct business. Local regulations range from permissive to
restrictive, depending upon the country. Changes to existing regulations of
foreign countries may decrease the opportunities that are available for us to
enter into those markets, or may increase our legal, administrative or
operational costs, or may constrain our activities in other ways that we cannot
necessarily anticipate. Any of these developments could impair our efforts to
develop foreign operations.

WE EXPECT TO INCUR OPERATIONAL AND MANAGEMENT INEFFICIENCIES WHEN WE ACQUIRE NEW
BUSINESSES.

Part of our expansion strategy includes acquiring businesses and
technologies that we believe will complement our existing business. For example,
in 1999 we acquired two companies, and we may acquire additional companies in
the future. These acquisitions will likely involve some or all of the following
risks:

- difficulty of assimilating acquired operations and personnel and
information systems;

- potential disruption of our ongoing business;

- diversion of resources;

- possible inability of management to maintain uniform standards, controls,
procedures and policies;

- possible difficulty of managing our growth;

- risks of entering markets in which we have little experience; and

- potential impairment of relationships with employees or clients.

We may need to complete these transactions in order to remain competitive.
We cannot be sure that we will be able to obtain required financing for these
transactions or that these transactions will occur.

WE EXPECT TO REQUIRE ADDITIONAL THIRD-PARTY FINANCING, AND IF WE CANNOT OBTAIN
THIS FINANCING ON COMMERCIALLY REASONABLE TERMS, OUR ABILITY TO EXPAND OUR
BUSINESS WILL SUFFER.

Our ability to meet our planned growth will require substantial cash
resources. We expect that the anticipated expansion of our UTX facilities,
including the completion of five UTX facilities currently under construction,
and the beginning of the construction of eight additional facilities during the
year 2000 (at an estimated average cost of $3.2 million per facility), and our
anticipated funding of negative cash flow from operating activities, will
require substantial capital. In addition, part of our expansion strategy
includes acquiring complementary businesses and technology, which may require us
to raise additional funds. We do not expect to generate significant cash flow
from operations in the near term. Accordingly, our ability to meet our
additional future capital needs will depend upon our ability to renegotiate,
extend or replace our credit facilities, obtain supplemental financing or raise
additional capital. Additional debt financing may limit our financial and
operating flexibility. We may not be able to renegotiate or replace our credit
and equipment lease facilities on a timely basis, on acceptable terms or at all.
Additional equity financing may not be available or may be dilutive to existing
stockholders. If we are unable to obtain future financing when needed or on
acceptable terms we may have to delay or abandon our development and expansion
plans, which could materially adversely affect our growth and ability to
compete.

16
<PAGE> 16

WE MUST EXPAND OUR MARKETING AND SALES OPERATIONS SUBSTANTIALLY TO INCREASE
MARKET AWARENESS AND SALES OF OUR SERVICES.

Our services require a sophisticated sales effort that targets key people
within our prospective clients' organizations. This sales effort requires the
efforts of select personnel as well as specialized system and consulting
engineers within our organization. We have recently expanded our sales force and
plan to hire additional marketing and sales personnel and system and consulting
engineers, particularly individuals with experience in the telecommunications
industry. Competition for these individuals is intense, and we may not be able
to hire the number of qualified sales personnel and system and consulting
engineers we need. In addition, we may substantially increase our budget as part
of our marketing program. If we are unable to expand our marketing and sales
operations, we may not be able to increase market awareness or sales of our
products and services, which may prevent us from achieving and maintaining
profitability.

IF WE DO NOT EXPAND OUR CLIENT SUPPORT ORGANIZATION SUBSTANTIALLY, CLIENTS MAY
SIGNIFICANTLY REDUCE PURCHASES OF OUR SERVICES.

We currently have a small client support organization and will need to
increase our staff to support new clients and the expanding needs of existing
clients. Our client support organization is responsible for providing our
clients with technical and operational support, and for identifying and
developing opportunities to provide additional services to our existing clients.
Competition for qualified client support personnel is intense because few people
have the necessary level of technical skills and experience in
telecommunications provisioning and network management. If we fail to expand our
client support organization, we may be limited in our ability to gain more
business from existing clients, and we may be unable to obtain or maintain
current information regarding our clients' and suppliers' communications
networks, which could limit our ability to provision future circuits for our
clients.

IF WE DO NOT ESTABLISH AND MAINTAIN KEY CLIENT RELATIONSHIPS, OUR REVENUES MAY
DECLINE.

Our success will depend upon our ability to develop and manage key client
relationships in order to generate additional revenues from existing clients.
Our ability to develop and manage our client relationships depends on, among
other things:

- our ability to maintain the timeliness and quality of our services in
facilitating the supply of circuits;

- our ability to deliver our clients additional services, such as network
monitoring, maintenance and troubleshooting services;

- our ability to expand our client support organization with additional,
qualified personnel; and

- performance by the transport suppliers with whom we contract to provide
circuits to our clients.

If we fail to establish and maintain these client relationships, our
revenues may stagnate or decline.

IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR ABILITY TO INCREASE OUR SERVICES
AND CLIENT BASE COULD SUFFER.

Our ability to successfully offer our services and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations and have
substantially increased the number of our employees. At December 31, 1997, we
had a total of five employees and at March 15, 2000, we had approximately 250
full-time employees. In addition, we plan to continue to hire a significant
number of employees. This growth has placed, and our anticipated growth in
future operations will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures, and will
need to continue to

17
<PAGE> 17

expand, train and manage our work force. Furthermore, we expect that we will be
required to manage multiple relationships with various clients, suppliers and
other third parties. We cannot be sure that we will be able to manage our
expansion effectively.

IF WE FAIL TO SUCCESSFULLY COMPLETE THE IMPLEMENTATION OF OUR MANAGEMENT
INFORMATION SYSTEMS, WE MAY NOT BE ABLE TO OPERATE OR MANAGE OUR BUSINESS
EFFECTIVELY.

We are in the process of augmenting our management information systems to
facilitate management of client orders, client service, billing and financial
applications. Our ability to manage our business could be harmed if we fail to
successfully and promptly:

- implement all applications of our management information systems;

- integrate all the client records and the billing, ordering, inventory,
management, accounting and other financial information systems of the
businesses we have acquired or may acquire into our management
information systems;

- identify all of our information and processing needs;

- repair "bugs" and design defects that may exist in our management
information systems;

- implement a wide area network connecting our main offices and our UTX
facilities in different geographic locations; or

- maintain and upgrade our management information systems as necessary.

In addition, our ability to efficiently operate our business could suffer
if the software which runs our information systems malfunctions.

WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND OUR ABILITY TO GENERATE REVENUES WILL SUFFER IF WE ARE
UNABLE TO RETAIN OUR KEY PERSONNEL AND HIRE ADDITIONAL PERSONNEL.

Our future success depends upon the continued services of our executive
officers and other key sales, marketing and support personnel. In particular, we
rely upon the services of our President and Chief Executive Officer, Patrick C.
Shutt, and Chief Operating Officer, Robert J. Pommer, Jr. We do not have "key
person" life insurance policies covering any of our employees.

In addition, we depend on the ability of a relatively new management team
to effectively execute our strategies. We recently hired several of our key
employees. Between June and February 2000, we hired our Executive Vice President
of Marketing and Executive Vice President of Client Services. Because some
members of our management team have worked together only for a short period of
time, we need to integrate these officers into our operations.

We will need to hire additional personnel in our communications
provisioning, sales, marketing and support areas in the future, and we believe
our success depends, in large part, upon our ability to attract and retain these
key employees. Competition for these persons is intense, especially in the
communications provisioning area. In particular, we have experienced difficulty
in hiring qualified network engineers, and we may not be successful in
attracting and retaining these individuals. The loss of the services of any of
our key employees, the inability to attract or retain qualified personnel in the
future, or delays in hiring required personnel could limit our ability to
generate revenues.

BECAUSE WE HAVE NO PATENTED TECHNOLOGY AND HAVE LIMITED ABILITY TO PROTECT OUR
PROPRIETARY INFORMATION, COMPETITORS MAY MORE EASILY ENTER OUR MARKET AND HARM
OUR ABILITY TO GENERATE REVENUES.

We have no patented technology that would preclude or inhibit competitors
from entering our market. We rely on a combination of copyright, trademark,
service mark and trade secret laws and contractual restrictions to establish and
protect our intellectual property. We have no federally
18
<PAGE> 18

registered trademarks or service marks, although we have applied for
registration of certain of our service marks. Even if registration is granted,
we may be limited in the scope of services for which we may exclusively use our
service marks. We enter into confidentiality agreements with our employees,
consultants and partners, and we control access to, and distribution of, our
proprietary information. Our intellectual property may be misappropriated or a
third party may independently develop similar intellectual property. Moreover,
the laws of certain foreign countries may not protect our intellectual property
rights to the same extent as do the laws of the United States. Unauthorized use
of any of our proprietary information could expose us to competition which would
harm our ability to attract new and existing clients and generate revenues.

UNDETECTED COMPUTER ERRORS ASSOCIATED WITH THE YEAR 2000 PROBLEM COULD DISRUPT
OUR OPERATIONS.

The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. To
date, we have not encountered any problems relating to the well-publicized year
2000 computer problem. While we do not anticipate a material business
interruption, there remain risks that not all year 2000 problems have been
discovered. For example, the year 2000 is a leap year, which could cause
problems for computer hardware and software. If not fully resolved, the year
2000 computer problem could result in a system failure or miscalculations
causing disruptions of operations, including a temporary inability to process
transactions, send invoices or engage in similar normal business activities.

We have designed our UIX databases for use in the year 2000 and beyond, and
we believe they are year 2000 compliant. Although we are past January 1, 2000,
and we believe that our UIX databases will function during the year 2000, we may
yet discover that our UIX databases may have problems because of the year 2000
calendar change. In addition, we may still find problems with our internal
systems. In either event, our ability to generate revenues could suffer. If our
suppliers, vendors, major distributors, partners, clients and service providers
fail to correct their year 2000 problems, these failures could disrupt our
operations, damage our relationships with our clients and harm our business. If
a year 2000 problem occurs, it may be difficult to determine which party's
products caused the problem. Due to the general uncertainty inherent in the year
2000 readiness of third-party suppliers and vendors, we are unable to determine
at this time whether year 2000 failures could harm our business and our
financial results.

Our clients' purchasing plans could be affected by year 2000 issues if they
need to expend significant resources to fix their existing systems to become
year 2000 compliant. This situation may reduce funds available to employ our
services. In addition, some clients may wait to purchase our services until
after the year 2000, which may reduce our revenues in the short term. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance".

THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND A PUBLIC MARKET MAY NOT
DEVELOP OR BE SUSTAINED.

Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to the price at which our common stock will trade upon completion
of this offering. The initial public offering price will be determined based on
negotiations between us and the representatives of the underwriters, based on
factors that may not be indicative of future market performance. See
"Underwriting".

19
<PAGE> 19

CERTAIN STOCKHOLDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER UNIVERSAL
ACCESS AFTER THIS OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE
CONTROL.

We anticipate that Internet Capital Group, Inc., funds affiliated with
ComVentures and other stockholders, directors and officers will, in the
aggregate, beneficially own approximately 56.92% of our outstanding common stock
following the completion of this offering assuming these entities and
individuals do not purchase additional shares in the offering. We have requested
the underwriters reserve up to 2,300,000 shares in this offering for purchase by
Internet Capital Group, Inc., although it has no obligation to buy any shares in
the offering. These stockholders, acting alone or together, would be able to
influence significantly all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. See "Principal and Selling Stockholders".

PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD
PREVENT A CHANGE IN CORPORATE CONTROL.

Provisions of our amended and restated certificate of incorporation,
bylaws, and Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be a benefit to our stockholders. See
"Description of Capital Stock".

THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER THIS
OFFERING THAT COULD CAUSE OUR STOCK PRICE TO FALL.

Our current stockholders hold a substantial number of shares of our common
stock, which they will be able to sell in the public market in the near future.
All of the 11,000,000 shares sold in this offering will be freely tradable. The
remaining 76,419,716 shares outstanding, based on the number of shares
outstanding as of March 15, 2000, are restricted securities as defined in Rule
144 of the Securities Act of 1933. Approximately 4,993,772 shares will be
tradable, subject to certain conditions described in "Shares Eligible for Future
Sale", three business days after we publicly announce financial results for the
full fiscal quarter next following the fiscal quarter in which the date of this
prospectus falls. Approximately 60,876,456 of these shares will be tradable
beginning 180 days after the effective date of this offering, and the remainder
will become freely tradable at various times thereafter subject to certain
conditions described in "Shares Eligible for Future Sale". Sales of a
substantial number of shares of our common stock after this offering, or market
expectations that these sales may occur, could cause our stock price to fall. In
addition, the sale of these shares could impair our ability to raise capital by
selling additional common stock. See "Shares Eligible for Future Sale".

WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT.

The market price of our common stock may fluctuate significantly in
response to 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 Internet-related companies;

- announcements by us or our competitors of new products and services or of
significant acquisitions, strategic partnerships or joint ventures;

- any loss of a major customer;

- additions or departures of key personnel;

- any deviations in net revenues or in losses from levels expected by
securities analysts;

20
<PAGE> 20

- future sales of common stock; and

- volume fluctuations, which are particularly common among highly volatile
securities of Internet-related companies.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.

The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $11.77 per share. You will incur further
dilution if outstanding stock options and warrants are exercised. See
"Dilution".

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate", "plan" and "continue" or similar words. You
should read statements that contain these words carefully because they: (1)
discuss our future expectations; (2) contain projections of our future results
of operations or of our financial condition; or (3) state other
"forward-looking" information. We believe that it is important to communicate
our future expectations to our investors. However, there may be events in the
future that we have not accurately predicted or which we cannot control. These
events may include our future operating results, our ability to implement our
business plan, our efforts to address Year 2000 issues and potential
competition, among other things. The risk factors listed under "Risk Factors",
as well as any cautionary language in this prospectus, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.

21
<PAGE> 21

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the 11,000,000
shares of common stock we are selling in the offering will be approximately
$141.7 million (or $163.2 million if the underwriters' option to purchase
additional shares as described in "Underwriting" is exercised in full), based on
the initial public offering price of $14.00 per share and after deducting the
underwriting discount and estimated offering expenses payable by us.

We expect to use the net proceeds from this offering for working capital,
capital expenditures and general corporate purposes. In addition, we may use a
portion of the net proceeds to acquire complementary products, technologies or
businesses; however, we currently have no commitments or agreements, nor are we
involved in any negotiations, with respect to any such transactions. Pending use
of the net proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, to operate and expand our
business and do not expect to pay any cash dividends in the foreseeable future.

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<PAGE> 22

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999:

- on an actual basis;

- on a pro forma basis giving effect to the conversion of all outstanding
shares of preferred stock into common stock and all preferred stock
warrants to common stock warrants upon the closing of the offering
(assuming that each share of Series E preferred stock converts into three
shares of common stock); and

- on a pro forma as adjusted basis to reflect the sale by us of 11,000,000
shares of common stock in the offering at the initial public offering
price of $14.00 per share, after deducting the underwriting discount and
estimated offering expenses.

This information should be read in conjunction with our financial
statements and the notes to those statements appearing elsewhere in this
prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Notes payable and term loans, net of current portion........ $ 2,246 $ 2,246 $ 2,246
Obligations under capital leases, net of current portion.... 123 123 123
Stockholders' equity:
Preferred stock:
Cumulative Convertible Series A -- $0.01 par value;
1,000,000 shares authorized, 772,331 shares issued and
outstanding actual; no shares issued and outstanding
pro forma and pro forma as adjusted................... 2,208 -- --
Series A warrants...................................... 83 -- --
Cumulative Convertible Series B -- $0.01 par value;
2,400,000 shares authorized, 2,233,335 shares issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted....... 5,531 -- --
Series B warrants...................................... 500 -- --
Convertible Series C -- $0.01 par value; 667,000 shares
authorized, 666,667 shares issued and outstanding
actual; no shares issued and outstanding pro forma and
pro forma as adjusted................................. 1,941 -- --
Cumulative Convertible Series D -- $0.01 par value;
7,058,823 shares authorized, 6,042,697 shares issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted....... 27,102 -- --
Cumulative Convertible Series E -- $0.01 par value;
1,597,386 shares authorized, 1,557,385 shares issued
and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted....... 27,954 -- --
Series E warrants...................................... 136 -- --
Common stock, $0.01 par value; 300,000,000 shares
authorized; 31,975,021 shares issued and outstanding
actual; 74,809,264 shares issued and outstanding pro
forma; 85,809,264 shares issued and outstanding pro
forma as adjusted...................................... 320 748 858
Common stock warrants..................................... 13 732 732
Additional paid-in-capital................................ 22,930 87,238 228,848
Deferred stock option plan compensation................... (11,909) (11,909) (11,909)
Accumulated deficit....................................... (23,039) (23,039) (23,039)
Notes receivable -- employees............................. (1,728) (1,728) (1,728)
-------- -------- --------
Total stockholders' equity........................ 52,042 52,042 193,762
-------- -------- --------
Total capitalization............................ $ 54,411 $ 54,411 $196,131
======== ======== ========
</TABLE>

The table above does not reflect the exercise of any stock options
outstanding at December 31, 1999. As of December 31, 1999, there were options
outstanding to purchase a total of 10,465,750 shares.

The table above also does not reflect the exercise of any warrants. As of
December 31, 1999 there were Series A preferred stock warrants, Series B
preferred stock warrants, Series E preferred stock warrants and common stock
warrants outstanding to purchase an aggregate of 1,943,400 common or common
equivalent shares. If these warrants are exercised, there will be further
dilution to new stockholders.
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<PAGE> 23

DILUTION

If you invest in our common stock, your interest will be diluted to the
extent of the difference between the initial public offering price per share of
our common stock and the pro forma as adjusted net tangible book value per share
of our common stock after this offering. We calculate net tangible book value
per share by dividing the net tangible book value (total assets less intangible
assets and total liabilities) by the number of outstanding shares of common
stock.

Our pro forma net tangible book value at December 31, 1999 was $49.6
million, or $0.66 per share, based on 74,809,264 shares of our common stock
outstanding after giving effect to the conversion of all outstanding shares of
preferred stock into common stock.

After giving effect to the sale of the 11,000,000 shares of common stock by
us at the initial public offering price of $14.00 per share (less the
underwriting discount and estimated offering expenses payable by us), our pro
forma net tangible book value at December 31, 1999 would be $191.3 million, or
$2.23 per share. This represents an immediate increase in the pro forma net
tangible book value of $1.57 per share to existing stockholders and an immediate
dilution of $11.77 per share to new investors, or approximately 84% of the
initial public offering price of $14.00 per share.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $14.00
Pro forma net tangible book value per share at December 31,
1999...................................................... $0.66
Increase per share attributable to new investors............ 1.57
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.23
------
Dilution per share to new investors......................... $11.77
======
</TABLE>

The following table shows on a pro forma basis at December 31, 1999, after
giving effect to the conversion of all outstanding shares of our preferred stock
into an aggregate of 42,834,243 shares of common stock upon the closing of this
offering, the number of shares of common stock purchased from us, the total
consideration paid to us and the average price paid per share by existing
stockholders and by new investors purchasing common stock in this offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders......... 74,809,264 87.2% $ 65,148,000 29.7% $0.87
New stockholders....... 11,000,000 12.8 154,000,000 70.3 14.00
Total........ 85,809,264 100.0% $219,148,000 100.0% $2.55
</TABLE>

The computations in the tables above assume no exercise of any stock
options outstanding at December 31, 1999. As of December 31, 1999, there were
options outstanding to purchase a total of 10,465,750 shares of common stock at
a weighted average exercise price of $0.99 per share. If any of these options
are exercised, there will be further dilution to new public investors.

24
<PAGE> 24

SELECTED FINANCIAL DATA

The selected financial data set forth below should be read in conjunction
with our financial statements and the notes to our financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", included elsewhere in this prospectus. The statement of operations
data for the period from inception through December 31, 1997, and the years
ended December 31, 1998 and 1999, and the balance sheet data as of December 31,
1997, 1998 and 1999 are derived from, and are qualified by reference to, the
audited financial statements included elsewhere in this prospectus.

The financial data as of and for the year ended December 31, 1999 reflects
the acquisitions of substantially all of the assets of Pacific Crest Networks,
Inc. and Stuff Software, Inc. on July 30, 1999 and November 1, 1999,
respectively. Both acquisitions were accounted for using the purchase method of
accounting.

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

<TABLE>
<CAPTION>
INCEPTION
THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 77 $ 1,629 $ 14,259
------- ------- --------
Operating expenses:
Cost of circuit access.................................... 66 1,256 12,021
Operations and administration (excluding stock option plan
compensation)........................................... 180 1,516 13,607
Operations and administration (stock option plan
compensation)........................................... -- 689 8,146
Depreciation.............................................. -- 47 829
------- ------- --------
Total operating expenses................................ 246 3,508 34,603
------- ------- --------
Operating loss.......................................... (169) (1,879) (20,344)
------- ------- --------
Other income (expense):
Interest expense.......................................... (1) (27) (81)
Interest income........................................... -- 8 739
Other expense............................................. -- (100) 33
------- ------- --------
Total other income (expense)............................ (1) (119) 691
------- ------- --------
Net loss.................................................... (170) (1,998) (19,653)
Accretion and dividends on redeemable and nonredeemable
cumulative convertible preferred stock.................... -- (28) (10,207)
------- ------- --------
Net loss applicable to common stockholders.................. $ (170) $(2,026) $(29,860)
======= ======= ========
Basic and diluted net loss per share........................ $ (0.01) $ (0.07) $ (0.96)
Shares used in computing basic and diluted net loss per
share..................................................... 23,799 29,063 31,142
Pro forma basic and diluted net loss per share.............. $ (0.07) $ (0.50)
Shares used in computing pro forma basic and diluted net
loss per share............................................ 30,069 56,855
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 1 $ 844 $38,024
Working capital............................................. (35) (562) 33,337
Total assets................................................ 100 1,969 64,265
Total long-term debt, net of current portion................ -- 149 2,369
Total stockholders' equity (deficit)........................ (34) (1,282) 52,042
</TABLE>

25
<PAGE> 25

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

The following discussion of our financial condition and results of
operations should be read in conjunction with "Selected Financial Data" and our
financial statements and the notes to our financial statements included
elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors including the risks described in "Risk Factors" and
elsewhere in this prospectus.

OVERVIEW

We commenced operations on October 2, 1997. To date, we have derived
substantially all of our revenues from providing ongoing, dedicated circuit
access. Monthly recurring circuit revenues are generated under client contracts
with terms ranging from 12 to 60 months. Contracts with our clients may be
terminated by the client at any time. However, a client that cancels a contract
is required to pay us substantially all of the amounts payable over the
remaining term of the contract. Circuit charges are billed monthly in advance,
and circuit revenues are recognized in the month that service is provided.
Amounts billed in advance are recorded on the balance sheet as unearned revenue.
At December 31, 1999, unearned revenue was $2.1 million.

Monthly recurring UTX revenues are generated from leasing space in our UTX
facilities. To date we have derived minimal revenue from UTX activities. Our UTX
billing and revenue recognition policies are the same as those described above
for circuits. In addition, we facilitate the provisioning, installation and
servicing of point-to-point dedicated circuits for our clients. To date, we have
not charged our clients for provisioning, installation or network management
services.

At March 15, 2000, we had two operational UTX facilities and five UTX
facilities under construction. Construction, equipment and facility leasing
costs incurred in connection with the construction of a UTX facility are
capitalized until the facility becomes operational. Once the facility becomes
operational, these costs are amortized over the lesser of the term of the lease,
ranging from seven to 15 years, or the estimated useful life of the equipment.
At December 31, 1999, we had $16.2 million of capitalized UTX construction
costs. In addition, at December 31, 1999, we had outstanding commitments of
approximately $9.5 million with respect to UTX construction services and
approximately $28.5 million with respect to facility leases. In addition to the
two operational UTX facilities and five facilities under construction at March
15, 2000, we expect to commence construction on eight additional facilities
during 2000.

Our clients are communications service providers and transport suppliers,
such as Internet service providers, competitive local exchange carriers,
incumbent telecommunication service providers and other application and network
service providers. Our largest two clients represented an aggregate of
approximately 29% of total revenues for the year ended December 31, 1998. Our
largest client represented approximately 38% of total revenues for the year
ended December 31, 1999.

To date, cost of circuit access consists of amounts paid to transport
suppliers for circuits. We have negotiated volume discounts and network
route-specific discounts under contracts with the majority of our suppliers.
These contracts generally have terms ranging from three to ten years and include
minimum monthly purchase commitments that begin anywhere from six to twelve
months after we enter into the contract. At December 31, 1999, these minimum
purchase commitments totaled approximately $500,000 per month. However, actual
purchases have exceeded these minimum purchase commitments and for the year
ended December 31, 1999, totaled approximately $12.0 million. In addition, we
are party to contracts that will impose additional minimum purchase commitments
that we anticipate will total approximately $1.8 million per month by September
2000. In future periods we will incur costs associated with the UTX facilities
which will include amortization of certain UTX equipment costs and certain
technical labor.

26
<PAGE> 26

Operations and administration costs consist primarily of salaries and
employee benefits, facilities expenses for our headquarters and sales offices,
and sales and marketing expenses. We did not open our first sales offices until
June 1999 at which time we began to significantly expand our sales and marketing
staff. As a result, we have not historically segregated sales and marketing
expenses from operations and administration expenses.

In July 1999, we acquired substantially all of the assets of Pacific Crest
Networks, Inc. in a transaction accounted for as a purchase. Intangible assets
of approximately $1.2 million were recorded in connection with the acquisition
and are amortized over five years. In addition, in November 1999, we acquired
substantially all of the assets of Stuff Software, Inc. in a transaction
accounted for as a purchase. Intangible assets of $1.3 million were recorded in
connection with the acquisition and are being amortized over five years.

In each quarter since our inception, we have incurred operating losses and
net losses and experienced negative cash flows from operations. At December 31,
1999, we had an accumulated deficit of $23.0 million.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1999

REVENUES

Revenues increased from $1.6 million for the year ended December 31, 1998
to $14.3 million for the year ended December 31, 1999. Substantially all of our
revenues consisted of circuit revenues in each of these periods. UTX revenues
represented less than 5% of revenues during these periods. The increase in
revenues was attributable to an increase in the volume of circuits sold, some of
which were higher capacity and, therefore, generated greater revenues per
circuit. In addition, there was an increase in the number of clients and
additional sales to existing clients.

COST OF CIRCUIT ACCESS

Cost of circuit access increased from $1.3 million for the year ended
December 31, 1998 to $12.0 million for the year ended December 31, 1999. As a
percentage of revenues, cost of circuit access increased from 77% for the year
ended December 31, 1998 to 84% for the year ended December 31, 1999. The
increase in cost of circuit access in absolute dollars was primarily
attributable to an increase in the volume of circuits sold, some of which were
higher capacity and, therefore, generated greater cost per circuit. In addition,
there was an increase in the number of clients and additional sales to existing
clients. The increase in cost of circuit access as a percentage of revenues was
in part attributable to the fact that we deliberately reduced our margins on
certain high capacity circuits in an effort to attract large clients, and in
part attributable to $350,000 of circuit charges incurred for circuits that are
yet to be sold to clients.

In April 1999 we reduced the margins on certain circuits sold to two high
profile clients in an effort to attract these clients. These margin reductions
were one-time occurrences. We do not expect to decrease margins on future sales.

OPERATIONS AND ADMINISTRATION (EXCLUDING STOCK OPTION PLAN COMPENSATION)

Operations and administration expenses increased from $1.5 million for the
year ended December 31, 1998 to $13.6 million for the year ended December 31,
1999. The increase in operations and administration expenses was primarily
attributable to an increase in personnel and continued expansion of our sales
and marketing efforts. During the year ended December 31, 1999, we opened sales
offices in Vienna, Virginia and San Jose, California. The number of our
employees increased from 11 at December 31, 1998 to 135 at December 31, 1999. In
addition, we incurred bad debt expense of $42,000 for the year ended December
31, 1998 and $867,000 for the year ended December 31, 1999. Approximately
one-half of the increase in bad debt expense related to one

27
<PAGE> 27

substantial client account, which represented over four months of billings. We
have revised our credit and collection procedures so that service is now
discontinued within two months of non-payment. The remainder of the increase in
bad debt expense is related to the creation of a general reserve for doubtful
accounts. Finally, we sold Series D Preferred Stock to service providers during
1999 for $992,000 less than the deemed fair market value of the stock at the
date of sale. Accordingly, we recognized this amount as operations and
administration expense during 1999. We expect total operations and
administration expenses to continue to increase in absolute dollars as we
continue to grow our revenues, but expect that operations and administration
expenses will ultimately decrease as a percentage of revenues as we leverage our
existing infrastructure.

During March 2000, we issued options to purchase 4,000 shares of common
stock at an exercise price of $0.01 per share to a service provider in exchange
for services already rendered. The intrinsic and fair value of these options is
approximately $32,000 which we will recognize as operations and administration
expense during the quarter ending March 31, 2000.

OPERATIONS AND ADMINISTRATION (STOCK OPTION PLAN COMPENSATION)

During 1998, we recorded a total of $2.0 million and during the year ended
December 31, 1999, we recorded a total of $14.1 million in deferred stock option
plan compensation as a result of granting options to employees and non-employees
with per share exercise prices deemed to be below the fair market value of our
common stock at the date of grant. Deferred stock option plan compensation is
amortized over the vesting period of the related options. Amortization expense
totaled $3.5 million for the year ended December 31, 1999. We expect to
recognize additional deferred stock option plan compensation expense of
approximately $11.9 million over the next four years, based upon options
outstanding at December 31, 1999.

In addition, during the year ended December 31, 1999 we recorded $4.6
million of stock option plan compensation expense, related to loans issued to
three officers of the Company, in connection with exercise of stock options.

DEPRECIATION

Depreciation expense includes depreciation of furniture, fixtures and
equipment at our office facilities and of equipment at our UTX facilities. We
expect depreciation expense to increase substantially in the future as we
continue to place our UTX facilities into service.

INTEREST EXPENSE AND INTEREST INCOME

Interest expense increased from $27,000 for the year ended December 31,
1998 to $81,000 for the year ended December 31, 1999. The increase was
attributable to additional borrowings under a term loan and line of credit
facility used for general working capital requirements and to fund capital
expenditures.

Interest income increased from $8,000 for the year ended December 31, 1998
to $739,000 for the year ended December 31, 1999. The increase was attributable
to investing a portion of the proceeds from our Series A, Series B, Series C,
Series D and Series E preferred stock offerings in short-term money market
instruments.

INCOME TAXES

From our inception through September 27, 1998, we elected to be treated as
a subchapter S-corporation for income tax purposes. On September 27, 1998, we
converted to a C-corporation. At December 31, 1999, we had approximately
$10,091,000 of federal and state net operating loss carryforwards. These
carryforwards may be available to offset future taxable income. Our federal and
state net operating loss carryforwards expire at various dates beginning in
2018. Due to the uncertainty that we will generate future earnings sufficient to
enable us to realize the benefit of these

28
<PAGE> 28

net operating loss carryforwards, we have recorded a valuation allowance for the
full amount of our deferred tax asset. As a result, no income tax benefit has
been recorded in our statement of operations. We assess the realizability of our
deferred tax asset on an ongoing basis and adjust the valuation allowance based
on this assessment. Additionally, Section 382 of the Internal Revenue Code of
1986, as amended imposes annual limitations on the use of net operating loss
carryforwards if there is a change in ownership, as defined, within any three
year period. The utilization of certain net operating loss carryforwards may be
limited due to our capital stock transactions.

PERIOD FROM INCEPTION TO DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,
1998

REVENUES

We commenced operations on October 2, 1997. Revenues increased from $77,000
during the period ended December 31, 1997 to $1.6 million during the year ended
December 31, 1998. The increase in revenues was primarily attributable to growth
in the number of our clients.

COST OF CIRCUIT ACCESS

Cost of circuit access increased from $66,000 for the period ended December
31,1997 to $1.3 million for the year ended December 31, 1998. As a percentage of
total revenues, cost of circuit access decreased from 86% for the period ended
December 31, 1997 to 77% for the year ended December 31, 1998. The increase in
cost of circuit access in absolute dollars was attributable to an increase in
the number of circuits purchased. The decrease in cost of circuit access as a
percentage of revenues was attributable to volume discounts negotiated with our
transport suppliers, reflecting higher purchasing levels.

OPERATIONS AND ADMINISTRATION (EXCLUDING STOCK OPTION PLAN COMPENSATION)

Operations and administration expenses increased from $180,000 for the
period ended December 31, 1997 to $1.5 million for the year ended December 31,
1998. The increase was primarily attributable to growth in headcount and
expansion of our corporate headquarters. Our employee headcount increased from
five at December 31, 1997 to 20 at December 31, 1998.

OPERATIONS AND ADMINISTRATION (STOCK OPTION PLAN COMPENSATION)

During 1998, we recorded a total of $2.0 million in deferred stock option
plan compensation as a result of granting options to employees with per share
exercise prices determined to be below the fair market value of our common stock
at the date of grant. Amortization expense totaled $389,000 for the year ended
December 31, 1998. In addition, during 1998, we recorded $300,000 of stock
option plan compensation in connection with options issued to non-employees in
exchange for services.

INTEREST EXPENSE AND INTEREST INCOME

Interest expense increased from $1,000 for the period ended December 31,
1997 to $27,000 for the year ended December 31, 1998. The increase was
attributable to additional borrowings from stockholders and under a term loan
used to fund our working capital needs.

OTHER EXPENSE

Other expense totaled $100,000 for the year ended December 31, 1998. The
amount related to a settlement paid upon termination of an executed letter of
intent to acquire a network access service provider.

29
<PAGE> 29

SUMMARY QUARTERLY FINANCIAL DATA

The table below presents unaudited quarterly statement of operations data
for each of the last eight quarters through December 31, 1999. This information
has been derived from unaudited financial statements that have been prepared on
the same basis as the audited financial statements included elsewhere in this
prospectus and, in our opinion, includes all adjustments, consisting only of
normal recurring adjustments, that are necessary for a fair presentation of the
information.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $168 $ 227 $ 335 $ 899 $ 1,531 $ 2,719
---- ----- ------- ------ ------- -------
Operating expenses:
Cost of circuit access...... 125 194 273 664 1,285 2,316
Operations and
administration (excluding
stock option plan
compensation)............. 135 274 481 626 1,175 2,470
Operations and
administration (Stock
option plan
compensation)............. -- -- 638 51 95 156
Depreciation................ -- -- 1 46 25 28
---- ----- ------- ------ ------- -------
Total operating
expenses................ 260 468 1,393 1,387 2,580 4,970
---- ----- ------- ------ ------- -------
Operating loss................ $(92) $(241) $(1,058) $ (488) $(1,049) $(2,251)
==== ===== ======= ====== ======= =======

<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues...................... $ 4,333 $ 5,676
------- -------
Operating expenses:
Cost of circuit access...... 3,876 4,544
Operations and
administration (excluding
stock option plan
compensation)............. 4,381 5,581
Operations and
administration (Stock
option plan
compensation)............. 5,337 2,558
Depreciation................ 237 539
------- -------
Total operating
expenses................ 13,831 13,222
------- -------
Operating loss................ $(9,498) $(7,546)
======= =======
</TABLE>

Our future revenues and operating results may vary significantly from
quarter to quarter due to a number of factors, many of which we cannot control.
These factors include those described in "Risk Factors" included elsewhere in
this prospectus.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations primarily through private placements as
well as through borrowings from stockholders and financial institutions. Since
inception through December 31, 1999, we have raised $63.4 million in capital
through private placements of common and convertible preferred stock and common
and preferred stock warrants. Our principal uses of cash are to fund operating
losses, working capital requirements and capital expenditures. At December 31,
1999, we had $38.0 million in cash and cash equivalents.

In March 1999, we entered into a credit agreement with a bank under which
we may request the bank to issue letters of credit or we may borrow up to a
total of $4.0 million. The agreement provides that outstanding borrowings bear
interest at the bank's prime rate and expires in April 2000. This credit
agreement requires as to maintain a cash balance in a custodial account at an
amount not less than the total borrowings and letters of credit outstanding.
Letters of credit totaling $1.7 million were outstanding under the agreement as
of December 31, 1999. At January 31, 2000, letters of credit totaling $500,000
were outstanding under the agreement.

In September 1999, we entered into a credit agreement with a bank under
which we may request the bank to issue letters of credit or we may borrow up to
a total of $6.0 million. The agreement expires in August 2000. Outstanding
borrowings under the agreement bear interest at rates ranging from the bank's
prime rate to the bank's prime rate plus 3% and are secured by substantially all
of our assets. The agreement requires that we maintain specified debt to
tangible net worth and quick ratios. The Company was in compliance with both
ratios at December 31, 1999. Letters of credit totaling $2.2 million were
outstanding under the agreement as of December 31, 1999.

In December 1999, we entered into a credit agreement with a bank and
borrowed $3.3 million. Outstanding borrowings bear interest at approximately 15%
and are secured by specifically identified assets. The agreement expires in
November 2002 and requires that we maintain an unrestricted cash

30
<PAGE> 30

balance of at least $15 million. As of December 31, 1999, the outstanding
balance of this loan was $3.2 million.

Net cash used in operating activities increased from $946,000 for the year
ended December 31, 1998 to $6.9 million for the year ended December 31, 1999.
The increase in net cash used was primarily due to increased net losses and
increased accounts receivable, partially offset by increased accounts payable,
accrued expenses and unearned revenue. We anticipate that we will continue to
require cash to support our future operating activities.

Net cash used in investing activities totaled $265,000 for the year ended
December 31, 1998 and related to purchases of property and equipment. Net cash
used in investing activities totaled $19.6 million for the year ended December
31, 1999, and related to purchases of property and equipment, funds advanced in
exchange for notes receivable, and the purchases of Pacific Crest Networks and
Stuff Software, Inc. We expect to increase our investments in equipment in the
near term substantially as we increase our number of UTX facilities.

At March 15, 2000 we had two operational UTX facilities and five facilities
under construction. In addition to these facilities we intend to commence
construction on eight additional facilities during 2000.

We plan to spend approximately $50.0 million on capital expenditures during
2000, including approximately $6.0 million on the completion of the five
facilities under construction and $25.6 million on the construction of eight
additional facilities, the remainder of which will be used to fund the expansion
of corporate facilities and the build out of corporate infrastructure. We
anticipate we will use part of the proceeds of this offering for these capital
expenditures.

Net cash provided by financing activities increased from $2.1 million for
the year ended December 31, 1998 to $63.7 million for the year ended December
31, 1999. The increase was primarily due to the receipt of proceeds from the
issuance of convertible preferred stock. Pending their use, we invested these
proceeds primarily in marketable securities, with an original maturity of not
greater than six months. We intend to continue investing surplus cash in similar
securities.

In July 1999, we acquired substantially all of the assets and assumed
certain liabilities of Pacific Crest Networks, Inc. for a total purchase price
of $1.4 million (comprised of $1.1 million in a cash and the assumption of debt,
and 82,353 shares of Series D convertible preferred stock with a fair market
value of $4.25 per share on the date of issuance). In November 1999, we acquired
substantially all of the assets of Stuff Software, Inc. for a total purchase
price of $1.2 million (comprised of $930,000 in cash and 50,021 shares of common
stock with a fair market value of $6.10 per share on the date of issuance). The
cash portion of these purchases was funded with proceeds from the issuance of
convertible preferred stock.

Our future capital requirements will depend on a number of factors,
including market acceptance of our services, the resources we devote to
developing, selling and marketing our services and the rate at which we expand
our UTX facilities. In addition, we plan to continue to evaluate possible
investments in complementary businesses, products and technologies. Although we
believe that the net proceeds from this offering, together with existing cash
balances, will be sufficient to fund our operations for at least the next twelve
months, we may require additional financing within this time frame. Additional
funding may not be available on terms acceptable to us, or at all.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

We maintain our cash equivalents and short-term investments primarily in a
portfolio comprised of commercial paper, money market funds and investment grade
debt securities. As of December 31, 1999, all of our investments had maturities
of less than six months. Accordingly, we do not believe that our investments
have significant exposure to interest rate risk.

31
<PAGE> 31

EXCHANGE RATE SENSITIVITY

We operate primarily in the United States, and all our revenues and
expenses to date have been in US dollars. Accordingly, we have had no material
exposure to foreign currency rate fluctuations.

YEAR 2000

IMPACT OF THE YEAR 2000 COMPUTER PROBLEM

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

STATE OF READINESS

We completed our assessment of our year 2000 readiness and our inventory
and testing of certain internal systems. We are currently requesting
confirmation of year 2000 compliance from our suppliers.

Based upon our year 2000 assessment, we do not believe that we have any
significant systems that are not year 2000 compliant. We have represented to
some of our customers that our computer systems will continue to process date
data in the year 2000 and beyond, including leap year calculations.

The applications for our UIX databases were developed internally within the
last two years using year 2000 compliant equipment, operating systems and
software development tools. We developed these databases and systems to be year
2000 compliant. We have obtained assurances from third parties or internally
verified that the systems and equipment in our UTX facilities are year 2000
compliant.

We have used commercially available software to verify that our internally
used hardware and software, including applications used for accounting, order
entry and invoicing are year 2000 compliant.

To date, we have not experienced any significant year 2000 problems.
However, a programming error that has not yet been discovered, whether in
hardware and software not used every day or otherwise, could still cause
problems during the year 2000 and harm our business.

COST

Based on our assessments to date we believe that we will be able to manage
our year 2000 transition without any material adverse effect on our business or
results of operations. To date our costs of assessing our year 2000 readiness
have not been material.

RISKS

We believe that our most significant year 2000 risk is that third parties,
such as transport suppliers and utility providers, do not fully address their
year 2000 issues.

Failure of our transport suppliers to adequately address their year 2000
issues could result in circuit outages. We generally provide outage credits to
our clients if circuit disruptions occur. A high circuit failure rate may result
in lost revenues and lost customers and may divert resources from the expansion
of our services and adversely affect our business and results of operations. To
date, no circuit disruptions or failures have occurred as a result of the year
2000.

32
<PAGE> 32

Failure of our internal systems to be ready for year 2000 could delay order
processing, provisioning of circuits and issuing invoices. To date, we have
experienced no delays as a result of the year 2000.

CONTINGENCY PLAN

We will continue to assess our year 2000 issues. We have developed a
contingency plan in the event our efforts to identify year 2000 problems are not
effective. This plan includes:

- temporary relocation of head office functions;

- using contract personnel to correct any problems;

- using alternative sources of transport capacity; and

- increasing work hours for our personnel.

Based upon our evaluation of these issues, we believe that year 2000 issues
will not have a material impact on our financial condition or results of
operation. However, we cannot assure you that we will not be affected by such
issues. In addition, if any significant transport supplier, utility provider or
other third party with whom we deal fails to ensure year 2000 compliance, our
financial condition or results of operations could suffer.

33
<PAGE> 33

BUSINESS

OVERVIEW

We are a business-to-business intermediary that facilitates the buying and
selling of capacity on communications networks. We facilitate the process
through which users of communications circuits obtain circuits dedicated for
their specific use from multiple vendors. We refer to this process as
"provisioning a circuit." We also facilitate the installation and servicing of
these dedicated circuits. Our clients are communications service providers, such
as telecommunications service providers, internet service providers and
application service providers, who buy capacity on communications circuits for
use by their customers. We obtain the communications capacity from transport
suppliers, who are the owners of the communications infrastructure over which
information is transmitted.

- assembling detailed information about available network capacity from
multiple suppliers;

- operating facilities where communications networks can be physically
interconnected;

- providing ongoing access to dedicated circuits; and

- providing client support services.

As an independent intermediary, we have been able to collect and assemble
network information from multiple transport suppliers. Our UIX consists of
several proprietary, interconnected databases containing pricing, capacity,
availability, location and interconnection information, currently from over 35
transport suppliers and more than 75,000 physical sites. Our UIX enables us to
efficiently and cost-effectively facilitate the design, provisioning,
installation and maintenance of circuits across multiple vendor networks for our
clients. Our UTX facilities are physical sites where transport capacity
suppliers and our clients lease space to locate communications equipment and
interconnect with the networks of transport suppliers. Our UTX facilities enable
our clients to more easily extend the geographic reach of their networks through
interconnection. We also provide a single point of contact for network
management services, including network monitoring, maintenance and restoration.

By assembling network information, managing physical network
interconnections and providing dedicated support services, we intend to improve
the overall efficiency of the network infrastructure services market and,
ultimately, create the foundation for a seamlessly connected, global
communications network.

We were incorporated in Illinois and began operations in October 1997. We
reincorporated in Delaware in June 1999. We operated as a subchapter "S"
corporation until September 1998, when we converted to a "C" corporation. To
date, we have derived substantially all of our revenues from providing ongoing,
dedicated circuit access, generating our first revenues from this source in the
quarter ended December 31, 1997. At March 15, 2000 we had two operational UTX
facilities and five UTX facilities under construction. However, to date we have
derived minimal revenues from UTX facilities. In each quarter since our
inception, we have incurred operating losses and net losses and experienced
negative cash flows from operations. At December 31, 1999, we had an accumulated
deficit of $23.0 million.

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INDUSTRY BACKGROUND

MARKET OPPORTUNITY

The Internet is emerging as a global medium for communications and
commerce. According to International Data Corporation (IDC), the number of
Internet users will grow from 142 million at the end of 1998 to 502 million by
2003. Businesses in particular are becoming increasingly dependent on Internet
enabled applications to facilitate transactions and are using the Internet for a
variety of activities, including disseminating corporate information,
advertising, sales, customer service, training and communications with business
partners. Forrester Research estimates that U.S. business trade on the Internet
will grow from $43 billion in 1998 to $1.3 trillion in 2003.

The growth in Internet usage, and in particular the adoption and use of the
Internet by businesses, has created substantial global demand for additional
network infrastructure and underlying communications capacity. We believe that
the increased reliance by businesses on data-intensive applications, including
data communications, electronic commerce, video and graphics, will continue to
support this trend. In addition, we believe that the resulting demand for
network capacity to transmit data will accelerate as communications service
providers increasingly offer high speed data access to businesses.

According to the Yankee Group, the U.S. market for Internet capacity and
network services will total $56.8 billion by 2002. Service providers currently
rely on multiple suppliers of communications infrastructure. These suppliers
focus on any one or a combination of geographically dispersed network segments,
including local segments, intercity segments, interbuilding segments, and
segments connecting the networks of multiple providers. The ability of a service
provider to obtain dedicated circuits and infrastructure services quickly and
efficiently is becoming increasingly difficult as the number of transport
suppliers increases.

FRAGMENTED MARKET

The market for communications network capacity and infrastructure services
is complex, competitive and fragmented due to the growth in the number of
service providers and suppliers of communications infrastructure. This growth is
attributed to the deregulation of the telecommunications industry beginning with
the 1984 divestiture of AT&T and continuing with the Telecommunications Act of
1996. The Telecommunications Act of 1996 has spawned a rapid increase in the
number of transport suppliers and service providers, including:

- competitive local exchange carriers, which are communications companies
authorized by local regulatory authorities to offer competing local
communication services;

- interexchange carriers, which are communications companies that offer
service between local service areas in different geographic areas;

- Internet service providers;

- application service providers, which are companies that offer individuals
or enterprises access over the Internet to application programs and
related services that would otherwise have to be located in their own
personal or enterprise computers;

- cable operators; and

- public utility companies.

Similar deregulation is occurring in international markets. The increase in
the number of transport suppliers and service providers competing in and across
different geographically dispersed network segments has impeded the development
of seamless communications networks.

With the growth in Internet communications and commerce and the
increasingly competitive market for network capacity and infrastructure
services, transport suppliers have employed a variety of

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<PAGE> 35

business strategies to compete. These strategies include building or acquiring
additional network infrastructure, entering into interconnection agreements,
reselling or exchanging network capacity and offering new services. As a result,
multiple networks have developed serving various geographic regions and focusing
on different network segments. In this competitive, multiple vendor market, we
believe that to date, transport suppliers have not been able to effectively
support dedicated circuit connections on their own networks, or through
efficient interconnection with other suppliers, to fully meet their customers'
requirements.

Compounding the problems associated with a fragmented, multiple-vendor
market, transport suppliers and service providers have placed a higher priority
on obtaining customers to build market share rather than on interconnecting
their independently built networks. In addition, it is difficult to connect
networks together due to the fact that transport suppliers and service providers
do not have access to pricing, capacity, availability, and location information
for the networks of other suppliers. Because transport suppliers compete with
each other, they have little incentive to share this information or to locate
their equipment within competitors' facilities in order to connect their
networks.

CHALLENGES FOR SERVICE PROVIDERS

The fragmented nature of the market causes a number of challenges for
telecommunications service providers, ISPs, ASPs and other buyers of
communication capacity, including:

- significant time and expense related to obtaining and installing circuits
across multiple vendor networks;

- lack of information about vendor networks, making it difficult to
determine the availability of capacity in a timely manner, which may
result in significant backlog of customer orders, lost revenues and
possibly lost customers; and

- inability to maintain, monitor and restore connections across multiple
vendor networks.

CHALLENGES FOR TRANSPORT SUPPLIERS

The fragmented nature of the market also causes a number of challenges for
interexchange carriers, local loop, and other suppliers of communications
infrastructure, including:

- inability to efficiently fulfill customer demand for dedicated circuits
due to the limited coverage of their networks and limited
interconnections with other carrier networks;

- costs associated with selling excess network capacity on existing routes
to multiple buyers; and

- inability to provide a consistent level of service due to the lack of
information about and control over network segments owned by multiple
vendors.

OUR SOLUTION

Our integrated solution addresses these challenges and provides the
following key advantages:

SINGLE POINT OF CONTACT FOR SUPPLYING AND INSTALLING CIRCUITS AND PROVIDING
NETWORK MANAGEMENT SERVICES. As a third-party provider, we allow our clients to
outsource the obtaining, installing and providing of their communications
infrastructure. Our solution provides significant time, effort and cost savings
to our clients who would otherwise be forced to independently analyze the
capacity, availability and pricing of circuits from multiple vendors to
construct and maintain circuits. In addition, we maintain a network management
service organization through which we provide a single point of contact for
24-hour-a-day, seven-day-a-week network monitoring, maintenance and restoration
across multiple vendor networks. Our organization interfaces with the network
management organizations of our transport suppliers, which enables us to
identify and isolate circuit outages and facilitate their restoration throughout
each segment of dedicated circuits. Without these services a

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<PAGE> 36

client would have to contact multiple vendors to determine the source of a
circuit outage and to restore the circuit. We are currently providing these
services in conjunction with an outsourcing arrangement with a third party until
our own facility becomes operational.

EFFICIENT, COST EFFECTIVE PROVISION AND INSTALLATION OF CIRCUITS ACROSS
MULTIPLE VENDOR NETWORKS. We efficiently and cost-effectively supply and install
circuits across multiple vendor networks to buyers of communications transport
capacity. As an independent intermediary, we have been able to collect network
information from multiple transport suppliers. Using this information, which is
contained in our UIX databases, we efficiently and cost effectively provide our
clients circuit solutions across geographically dispersed network segments.

EASILY EXTENDED NETWORK COVERAGE. Suppliers of communications
infrastructure are able to easily extend the coverage of their networks by
purchasing access to dedicated circuits from us. We provide clients a single
point of contact from which to access the networks of over 35 transport
suppliers. In addition, by locating in our UTX facilities, we believe that
transport suppliers can access these networks faster and more cost-effectively,
utilizing a cross connect circuit connection within our UTX facility rather than
a local loop connection. With access to a greater number of circuit routes, our
clients are better positioned to offer a broader range of options to their
customers. We currently have two operational UTX facilities in two cities in the
United States and are in the process of constructing five additional sites.

SIGNIFICANT SOURCE OF DEMAND FOR TRANSPORT CAPACITY SUPPLIERS. Through our
UIX databases, we are able to match our clients' demand with the available
capacity of transport suppliers. We represent a significant source of demand for
transport suppliers because we purchase a large volume of circuits. We believe
our transport suppliers consider us to be a valuable partner because we provide
them efficient access to the capacity requirements of our clients. We believe
that by working with us, transport suppliers can reduce their costs associated
with selling excess network capacity on existing routes to multiple buyers.

ONGOING CLIENT SUPPORT. Our approach to client support involves developing
an understanding of our clients' business objectives, competitive environment,
market initiatives and service needs by maintaining close contact with our
clients through our Client Advocacy Services group. This group places highly
trained technical personnel in the field that are responsible for understanding
and rapidly responding to our clients' needs. Client Advocacy Services personnel
provide technical and administrative support during the circuit planning,
ordering, supply and installation processes and are available for ongoing
consultation.

OUR STRATEGY

Our objective is to facilitate the creation of a seamlessly connected,
global communications network by improving the overall efficiency of the market
for network capacity and infrastructure services. To achieve this objective, we
intend to:

CONTINUE TO ENHANCE INTERNET FUNCTIONALITY OF OUR UIX. We are currently
developing the infrastructure to provide an enhanced Internet interface that
will enable our clients to obtain price quotes, order circuits and receive
dedicated monitoring and support services, all in real time. We believe these
initiatives will enhance the efficiency and reliability of our web-based
services and will enable us to offer a more complete, electronic commerce
solution to our clients.

CONTINUE TO EXPAND AND POPULATE OUR UIX DATABASES. We plan to continue to
gather data elements from our existing transport suppliers, including
information about pricing, capacity, availability, location and interconnection
information and other network elements for inclusion in our UIX databases. We
also plan to add information to our UIX on the networks of domestic and
international transport suppliers from whom we do not currently gather
information. We believe that our UIX databases provide us with a competitive
advantage and will become more difficult for a competitor to replicate as we
enhance the data and functionality of our UIX over time.

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CONTINUE TO DEVELOP UTX FACILITIES. We plan to continue to construct
additional UTX facilities in strategic locations within North America, Europe,
Asia and South America. In addition, we intend to construct UTX facilities that
are designed to meet the specific service requirements of major metropolitan
areas, regional sites and high occupancy buildings. We believe these facilities
will provide our clients a convenient and cost-effective method to interconnect
with multiple service providers and transport suppliers. We also believe that
our UTX facilities represent a platform for offering new services to our clients
and transport suppliers alike. For example, once a transport supplier places its
network in our UTX facility, the supplier may utilize our UTX services to
interconnect with other suppliers in that UTX facility to extend the geographic
coverage of its network.

OPTIMIZE CIRCUIT CONFIGURATIONS TO GAIN EFFICIENCIES. We will use the
information available in our UIX and the extensive connections in our UTX
facilities to join discrete circuits between network access points. This will
allow us to optimize circuit configurations and realize network and economic
efficiencies.

EXPAND INTERNATIONALLY. A number of international markets, such as Europe,
Asia and South America, have experienced deregulation similar to that in North
America and are therefore experiencing problems associated with fragmentation of
the network capacity market. We plan to offer our UIX, UTX and client support
services in international markets. We believe we can use our experience in the
U.S. market to achieve a competitive advantage by being one of the first to
address the network capacity constraints currently developing in international
markets. Given the high rates of interconnection between our clients and
emerging European suppliers, we believe that Europe represents our most
compelling international opportunity at this time.

ENHANCE CAPABILITIES THROUGH ACQUISITIONS AND PARTNERSHIPS. We plan to
continue to acquire complementary businesses or technologies and to enter into
strategic partnerships. For example, in 1999 we completed two acquisitions to
expand and enhance the capabilities of our UIX databases.

SERVICES

We offer our clients an integrated solution utilizing our UIX databases,
our UTX facilities and our client support services.

UNIVERSAL INFORMATION EXCHANGE (UIX)

Our UIX consists of several proprietary, interconnected databases
containing capacity, availability, physical location and pricing information
from over 35 transport suppliers and more than 75,000 physical sites. The UIX
databases contain over 3.3 million data elements. We expect this number will
grow as we continue to add information to our UIX about the networks of new
transport suppliers. We offer our clients the ability to access information and
obtain services from our UIX using the Internet. By utilizing our UIX we are
able to provide our clients with a single point of contact for the supply and
installation of circuits from multiple vendors, as well as circuit access and
network monitoring. We believe our UIX enables us to provide these services more
efficiently and cost-effectively than traditional communications transport
suppliers.

We utilize our UIX to offer our clients a comprehensive range of services
including:

QUOTING. Our quoting system can be accessed over the Internet and enables
clients to request and receive quotes for circuit configuration, supply and
installation. We are generally able to provide a basic quote within 24 hours of
our clients' request.

ORDER PROCESSING. Clients can place orders online by directly entering
information about their desired circuit, including capacity requirement,
physical location, contract terms, technical specifications and special
instructions.

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<PAGE> 38

SUPPLY AND INSTALLATION OF CIRCUITS. Our UIX contains information on the
processes by which over 35 transport suppliers supply and install circuits. By
using this information we are able to work with the personnel and field
technicians of multiple vendors to provide dedicated circuits to our clients. As
part of our service we provide our clients with a graphical design layout record
showing critical network points and a weekly status update.

[In this space we will insert a diagram depicting representative circuit
segments (local loop, long haul, local loop) that could create a single
end-to-end circuit between end customers in New York City and San Francisco.]

CIRCUIT ACCESS. We provide our clients with ongoing dedicated circuit
access over the networks of multiple vendors through long term contracts, with
terms typically ranging from 12 to 60 months. Our clients remit payment to us
for this ongoing circuit access on a monthly recurring basis for the life of the
contract.

A circuit can be delivered at different speeds and capacities. We currently
are able to provide our clients circuit access at data rates ranging from DS-1
circuits carrying data at a rate of 1.536 million bits per second to OC-192
circuits carrying data at a rate of 192 OC-1 signals or 9.952 billion bits per
second.

BILLING. We compile the costs of multiple vendor circuit segments and
present our clients with a single monthly invoice containing a single line item
for each service. This eliminates the need for our clients to process multiple
vendor bills and reduces our clients' processing time and costs.

NETWORK MANAGEMENT SERVICES. We provide 24-hour-a-day, seven-day-a-week
network management services, offering a single point of contact for network
monitoring, maintenance and restoration across multiple vendor networks. Through
this single point of contact, we generate one client reference record of a
problem, which we use to provide network management across multiple vendor
networks and to provide our clients with reporting and trouble resolution. This
single client reference record increases response time and decreases down time
in a circuit outage.

Our organization interacts with the network management organizations of our
transport suppliers, enabling us to identify and isolate circuit outages and to
facilitate their restoration throughout each segment of a circuit. Without these
services a client would have to contact multiple vendors to determine the source
of a circuit outage and to restore the circuit. Currently, our network
management services are partially outsourced through a third party until our own
facility becomes operational.

UNIVERSAL TRANSPORT EXCHANGE (UTX)

Our UTX facilities provide interconnection points between multiple network
service providers and transport suppliers. Network service providers and
transport suppliers lease space in our facilities to place network equipment
that may be connected to other network service providers and transport suppliers
in the facility. Our UTX facilities may range in size from 500 square feet to
10,000 square feet.

Our facilities do not depend on any particular technology and are open to
multiple competing network service providers and transport suppliers, such as
local exchange carriers, interexchange

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<PAGE> 39

carriers, competitive local exchange carriers, ISPs and ASPs. We are not aligned
with or reliant upon any single or group of transport suppliers. We believe that
our UTX clients are attracted to our neutral position, which both alleviates
their competitive concerns and provides them a broader range of solutions.

As of March 15, 2000 we had two operational UTX facilities in Chicago and
Santa Clara, and five UTX facilities under construction in Dallas, Los Angeles,
Miami, San Francisco and Washington, D.C. We expect to commence construction on
eight additional facilities during 2000.

Our UTX facilities are integrated with our UIX databases. Our UTX
facilities enable us to obtain additional information regarding available
network capacity and points of access that is entered into our UIX databases.
This additional information enables us to use our UIX databases more efficiently
to provide circuits and network monitoring services for our clients.

CLIENT SUPPORT SERVICES

CLIENT ADVOCACY SERVICES. We provide high quality client support services
through our Client Advocacy Services organization. Our Client Advocacy Services
personnel are highly trained field representatives with extensive knowledge of
our services and an understanding of our client's business objectives. These
representatives team with both our sales and provisioning organizations to meet
client service expectations, and also provide technical assistance and field
support during circuit testing and installation.

CARRIER DEVELOPMENT SERVICES. Our development services personnel are
responsible for managing our relationships with our existing transport suppliers
and for identifying new relationships.

SALES AND MARKETING

Our sales and marketing efforts are focused on achieving broad market
penetration and increasing brand name recognition. Our sales efforts target
ISPs, telecommunications service providers and ASPs that we believe have the
greatest need for transport capacity and infrastructure services.

SALES

We have developed a two-tiered sales strategy which is designed to (a)
target new accounts through our direct sales representatives and (b) identify
opportunities for additional sales to our existing client base through our
account managers. As of December 31, 1999 our sales staff consisted of 18 direct
sales representatives, including six account managers in 12 sales offices in the
United States, including offices in California, Virginia, New York and Illinois.
The direct sales force is divided into two geographic regions in the United
States and is supervised by regional directors, each of whom has responsibility
for all sales functions in his geographic region. The account management group
is supervised by a director and targets larger clients, based on recurring
monthly revenue.

We have developed programs to attract and retain a highly skilled,
motivated sales staff that possesses the necessary technical skills,
consultative sales experience and knowledge of its assigned territory markets.
These programs include technical and sales process training and instruction in
consultative selling techniques. Our sales representatives and account managers
are compensated through a combination of base salary and performance-based
bonuses.

MARKETING

We direct our corporate marketing efforts to a select market segment of
clients, including Internet service providers, application service providers and
telecommunications service providers. Our marketing activities include the
following:

- Participation at telecommunication industry tradeshows where our clients
and prospects are in attendance;

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- Advertising in telecommunications trade publications that target
transport suppliers and service providers;

- Direct mail campaigns that use tradeshow lists in order to attract the
show's participants to our booth to learn about our current service
offerings; and

- Press releases about our services.

We intend to increase marketing expenditures in future periods in an effort
to stimulate demand for our services and build brand awareness.

CLIENTS

As of December 31, 1999, we had more than 100 clients, including
telecommunication services providers, Internet services providers and
application service providers. For the year ended December 31, 1999, AboveNet
Communications (MFN) accounted for 38% of our revenues. For the year ended
December 31, 1998, Carmen Associates accounted for approximately 16% of our
revenues and GTE Internetworking accounted for approximately 13% of our
revenues. The following is a list of all of our clients accounting for over 1%
of our monthly recurring revenues generated under client contracts as of
December 31, 1999:

AboveNet Communications (MFN)
AIT/PrePay Worldwide
Atlas Communications
BCE Nexxia
Business Technology Services
Cable & Wireless
CETLink
Electric Lightwave
Fiber Network Solutions
IDT
Internet Capital Group
InterXchange
Kivex
MegsInet
NapNet
Pathnet
Road Runner
Teleglobe Communications
UUNET

Our client contracts generally provide for terms ranging from 12 to 60
months. Our clients may terminate their contracts at any time. However, a client
that cancels a contract is required to pay us substantially all of the amounts
payable over the remaining term of the contract. We bill for circuit charges
monthly in advance, and we recognize circuit revenues in the month that we
provide the service.

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VENDORS

From time to time we enter into long-term contracts, commonly referred to
as "master service agreements" or "master carrier agreements", with
communications transport suppliers for the supply and installation of network
capacity. As of March 15, 2000, we had the following master carrier agreements
with our vendors:

<TABLE>
<CAPTION>
EFFECTIVE DATE OF GRACE PERIOD PRIOR TO
MONTHLY MINIMUM MONTHLY REVENUE EFFECTIVENESS OF MINIMUM
VENDOR AGREEMENT TERM OF AGREEMENT REVENUE COMMITMENT COMMITMENT REVENUE COMMITMENT
---------------- ----------------- ------------------ ------------------ ----------------------------
<S> <C> <C> <C> <C>
AT&T Master Carrier
Agreement dated 10/12/99 36 months $250,000 4/12/00 6 months from start of term
MCI Worldcom Carrier Global
Services Agreement dated
9/24/99 72 months $500,000 9/24/00 12 months from start of term
GTE Capacity Agreement dated
8/20/99 69 months $250,000 5/20/00 9 months from start of term
Level 3 Communications Terms
and Conditions for
Delivery of Service dated
11/17/99 84 months $250,000 5/15/00 6 months from start of term
Williams Communications,
Inc. Carrier Services
Agreement dated 6/29/98 120 months $500,000 7/1/99 12 months from start of term
IXC Communications Services,
Inc. Capacity Agreement
dated 11/6/97 36 months None N/A N/A
</TABLE>

These master carrier agreements will impose minimum purchase commitments on
us that we anticipate will total approximately $1.8 million per month by
September 2000. Under a master carrier agreement, each circuit provided by a
transport supplier has its own term, generally ranging from 12 to 60 months, and
is governed by the terms and conditions set forth in the master carrier
agreement. If we cancel a contract with a transport supplier with respect to a
particular circuit, we must generally pay cancellation charges that can equal
substantially all of the amount payable over the remaining term of the contract
for that circuit.

COMPETITION

The market for the services we provide is highly fragmented. We believe
that at this time no single competitor competes directly with us with respect to
all of the services we offer. However, we currently or potentially compete with
a variety of companies with respect to our services on an individual basis.
There are few substantial barriers to entry into our market, and we expect that
we will face additional competition from existing and new global entrants in the
future. We believe that any entrant in this market must grow rapidly and achieve
a significant presence in the market in order to compete effectively. We believe
that the principal competitive factors in this market include:

- the ability to access information regarding multiple vendor networks;

- the ability to provide connections to networks of multiple vendors;

- the ability to provide comprehensive network management services
including troubleshooting and circuit restoration across multiple network
environments;

- the ability to secure strategic relationships with carriers and clients;

- the ability to provide a high level of ongoing client service and
support;

- the ability to locate interconnection facilities in strategic locations;
and

- brand recognition.

We might not have the resources or expertise to compete successfully in the
future. For additional information on the competitive risks that we face, you
should read the section entitled "Risk Factors -- Competition in our industry is
intense and growing, and we may be unable to compete effectively".

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INTELLECTUAL PROPERTY RIGHTS

We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect proprietary
rights in our intellectual property. We have no patented technology that would
preclude or inhibit competitors from entering our market. We have no federally
registered trademarks or service marks, although we have applied for
registration of certain of our service marks. Even if registration is granted,
we may be limited in the scope of services for which we may exclusively use our
service marks. We enter into confidentiality agreements with our employees,
consultants and partners, and we control access to, and distribution of, our
proprietary information. Our intellectual property may be misappropriated or a
third party may independently develop similar intellectual property. Moreover,
the laws of certain foreign countries may not protect our intellectual property
rights to the same extent as do the laws of the United States. Unauthorized use
of any of our proprietary information could seriously harm our business.

GOVERNMENT REGULATION

We plan to offer communications common carrier services that will be
subject to regulation by federal, state and local government agencies. Most data
and Internet services are not subject to regulation, although communications
services used for access to the Internet are regulated. We have obtained certain
federal and state regulatory authorizations for our regulated service offerings,
and are in the process of applying for additional authorizations.

The FCC will exercise jurisdiction over our facilities and services to the
extent those facilities are used to provide, originate or terminate interstate
domestic or international common carrier communications. State regulatory
commissions will have jurisdiction over our services to the extent they are used
to originate or terminate intrastate common carrier communications.
Municipalities and other local government agencies may require carriers to
obtain licenses or franchises regulating use of public rights-of-way to install
and operate their networks. Many of the regulations issued by these regulatory
bodies may change and are the subject of various judicial proceedings,
legislative hearings and administrative proposals. In addition, federal, state
and local authorities may seek to tax the services which we provide, which could
impair the profitability of our business. We cannot predict the results of any
changes.

As we expand our business to other countries, we will become subject to
similar regulatory issues in each country in which we do business. Although the
trend in regulation globally is towards less regulation of competitive
telecommunications markets, regulations in particular countries may limit our
service offerings or our ability to compete effectively.

FEDERAL REGULATION

The FCC regulates us as a non-dominant communications common carrier. The
FCC's generally applicable regulations permit us to provide interstate domestic
common carrier services without any further authorization, and we also have
received authority from the FCC to provide international services between the
United States and foreign countries. Our interstate domestic and international
services are not subject to significant federal regulation, although we are
required to file schedules of our prices, terms, and conditions, or tariffs with
the FCC for our telecommunications services, and to pay regulatory fees and
assessments based on our interstate and international telecommunications
revenues. The FCC has the authority to condition, modify, cancel, terminate or
revoke our licenses and authorizations for failure to comply with federal laws
or the rules, regulations and policies of the FCC. The FCC may also impose fines
or other penalties for violations. The FCC also imposes prior approval
requirements on transfers of control and assignments of authorizations. While we
believe we are in compliance with applicable laws and regulations, we cannot
assure you that the FCC or third parties will not raise issues with regard to
our compliance.

INTERNATIONAL SERVICES. The FCC has adopted rules for a multi-year
transition to lower international settlements payments by U.S. common carriers.
We believe that these rules are likely to

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lead to lower rates for certain international services and increased demand for
these services, including capacity on the U.S. facilities that provide these
services.

LOCAL COMPETITION RULES

The FCC's role with respect to local telephone competition arises
principally from the Telecommunications Act of 1996. This Act preempts state and
local laws to the extent that they prevent competitive entry into the provision
of any telecommunications service and gives the FCC jurisdiction over important
issues related to local competition.

Incumbent local exchange carriers (ILECs), such as the regional Bell
operating companies and affiliates of GTE and Sprint, are required to negotiate
in good faith with competing carriers on rates, terms and conditions for
interconnection, access to unbundled elements, resale, and other duties imposed
by the Telecommunications Act of 1996. The Telecommunications Act provides
procedures and timetables for negotiation, arbitration and approval of
interconnection agreements. Arbitration decisions involving interconnection
arrangements in several states have been challenged and appealed to Federal
courts. We may experience difficulty in obtaining timely implementation of local
interconnection agreements, and we can provide no assurance we will offer local
services in these areas in accordance with our projected schedule, if at all.

The duties imposed on ILECs by the Telecommunications Act of 1996 include
the following:

INTERCONNECTION. ILECs are required to provide interconnection for
competing local telecommunications carriers at any technically feasible point,
on rates, terms and conditions that are just, reasonable and nondiscriminatory.

ACCESS TO UNBUNDLED ELEMENTS. ILECs are required to provide access to
network elements on an unbundled basis at any technically feasible point, on
rates, terms, and conditions that are just, reasonable, and nondiscriminatory.
On November 5, 1999, the FCC, in response to a recent U.S. Supreme Court
decision, released an Order revising its rules on the network elements that
incumbents must make available, particularly those used in the provision of
advanced services. Among other things, this Order confirms that dedicated
transport, including dark fiber, is among the network elements that ILECs must
provide on a unbundled basis. A subsequent FCC order, released on December 9,
1999, requires ILECs to unbundle the high-frequency portion of local access
lines, so as to permit competing carriers to offer broadband data services over
the same copper wires the ILEC uses to provide voice telephone service. While we
do not believe that these revisions will have significant impact on our
business, other parties may request an appeal of this Order, which will create
continued uncertainty.

COLLOCATION. ILECs are required to provide physical collocation of
equipment necessary for interconnection or access to unbundled network elements
at the ILEC's premises, except that the ILEC may offer alternative arrangements,
if it demonstrates to the state regulatory commission that physical collocation
is not practical for technical reasons, or because of space limitations. On
March 18, 1999, the FCC adopted measures designed to facilitate a competitor's
ability to access ILEC collocation space, including a requirement that ILECs
permit collocation without construction of a "cage" to enclose the competitor's
equipment, and a requirement that competitors be able to locate all equipment
necessary for interconnection, among other things.

TRANSPORT AND TERMINATION CHARGES. ILECs and competitive local exchange
carriers (CLECs) must enter into reciprocal arrangements for transport and
termination of local telephone calls. State regulatory commissions, during
arbitrations, should set symmetrical prices for these services based on
forward-looking economic costs, using the Total Element Long Run Incremental
Cost, or TELRIC, methodology.

PRICING METHODOLOGIES. State commissions are required to set arbitrated
rates for interconnection and unbundled elements based on the ILEC's TELRIC,
plus a reasonable share of forward-looking joint and common costs.

44
<PAGE> 44

RESALE. State commissions are required to identify which marketing,
billing, collection, and other costs will be avoided, or that are avoidable, by
ILECs when they provide services on a wholesale basis and to calculate the
portion of the retail rates for those services that is attributable to the
avoided and avoidable costs.

ACCESS TO RIGHTS-OF-WAY. Telecommunications carriers and utilities are
required to provide nondiscriminatory access to their poles, ducts, conduits,
and rights-of-way.

The Telecommunications Act of 1996 also eliminates previous prohibitions on
the provision of long distance services by the regional Bell operating companies
and GTE's telephone operating company subsidiaries. These companies are now
generally permitted to compete in providing long distance services, except that
the regional Bell operating companies are not allowed to provide long distance
service within the regions in which they also provide local exchange service,
known as "in-region service," until they receive specific approval of the FCC on
a state-by-state basis, based on satisfying several conditions, including a
checklist of requirements intended to open local telephone markets to
competition.

In December 1999, the FCC authorized Bell Atlantic to provide in-region
long distance service in New York state. We expect that the FCC will consider
several other applications by regional Bell operating companies to provide
in-region services within the coming year. If the FCC permits regional Bell
operating companies to provide long distance service in their local service
regions before they meet our local interconnection needs, they would be able to
offer integrated local and long distance services and could have a significant
competitive advantage in marketing those services to their existing local
clients.

ILEC PRICING FLEXIBILITY

In an Order issued in August 1999, the FCC granted the major local exchange
carriers increased pricing flexibility upon demonstration of increased
competition (or potential competition) in relevant markets. That process will
give ILECs progressively greater flexibility in setting rates as competition
develops, gradually replacing regulation with competition as the primary means
of setting prices. This ruling will permit the ILECs to charge different rates
for the same service in different geographic markets, and in some cases to
negotiate customer-specific price terms. Although currently under appeal at the
FCC and the District of Columbia Circuit Court, this FCC decision is likely to
have a significant impact on the interstate access prices charged by the ILECs
with which we compete, and hence on our operations, expenses, pricing and
revenue. The ILECs' prices for these services will affect us both directly, as a
customer buying services from the ILECs for resale to our customers, and
indirectly, as a competitor.

UNIVERSAL SERVICE REFORM

On May 8, 1997, the FCC issued an order to implement the provisions of the
Telecommunications Act relating to the preservation of advancement of universal
telephone service. All telecommunications carriers providing interstate
telecommunications services, including us, must contribute to the universal
service support fund. These contributions became due beginning in 1998 for all
providers of interstate telecommunications services. Contributions are assessed
based on interstate and international end user telecommunications. Contribution
factors vary quarterly and carriers, including us, are billed monthly.

STATE REGULATION

We will offer intrastate common carrier services and are subject to various
state laws and regulations. Most public utility commissions require some form of
certification or registration. We must acquire such authority before commencing
service. In most states, we are also required to file tariffs or price lists
setting forth the terms, conditions and prices for services that are classified
as intrastate. We are required to update or amend these tariffs when we adjust
our rates or add new products and

45
<PAGE> 45

are subject to various other regulatory requirements, including payment of fees
and filing of reports, in these states.

Many states also require prior approval for transfers of control of
certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and incurrence of significant debt obligations. Some states treat the
transfer of only 10% of the voting stock of a regulated company, or its parent
company, as a transfer of control that requires prior approval. The need to
obtain these approvals may delay, and therefore may affect the terms of, major
financing transactions in the future.

States generally retain the right to sanction a carrier or to revoke
certification if a carrier violates relevant laws or regulations. If any state
regulatory agency were to conclude that we are or were providing intrastate
services without the appropriate authority, the agency could initiate
enforcement actions, which could include the imposition of fines, a requirement
to disgorge revenues, or the refusal to grant the regulatory authority necessary
for the future provision of intrastate communications services.

We have applications pending to provide resold and network-based
competitive local exchange and interexchange services in many states and plan to
submit applications nationwide by the end of the year. We cannot be sure that we
will receive the authorizations we seek currently or in the future.

LOCAL GOVERNMENT AUTHORIZATIONS

In some municipalities, we may be required to pay license or franchise fees
based on a percentage of gross revenue, as well as post performance bonds or
letters of credit. In many markets, the incumbent providers do not pay these
franchise fees or pay fees that are substantially less than those that we will
be required to pay. To the extent that competitors do not pay the same level of
fees as we do, we could be at a competitive disadvantage.

At present, we have no plans to construct transmission facilities (such as
fiber optic lines) in public rights-of-way, but if we do so in the future we may
become subject to more extensive local government regulations.

INTERNATIONAL REGULATION

In some countries where we plan to operate, local laws or regulations limit
or require prior government approval for the provision of international
telecommunications service in competition with authorized carriers. For example,
our provision of services over facilities using our own network or by purchasing
minutes from other carriers for resale to our customers may be affected by
increased regulatory requirements in a foreign jurisdiction. Also, local laws
and regulations differ significantly among the jurisdictions in which we operate
or plan to operate, and, within such jurisdictions, the interpretation and
enforcement of these laws and regulations can be unpredictable. We cannot be
sure that future regulatory, judicial, legislative or political changes will
permit us to offer to residents of these countries all or any of its services or
will not have a material adverse effect on us. In addition, we cannot be sure
that regulators or third parties will not raise material issues regarding our
compliance with applicable laws or regulations, or that governmental decisions
will not harm our business.

In addition, the World Trade Organization Agreement, which reflects efforts
to eliminate government-owned telecommunications monopolies throughout Asia,
Europe and Latin America, may affect us. Although we believe that these
deregulation efforts will create opportunities for new entrants in the
telecommunications service industry, they also create enhanced opportunities for
foreign telecommunications carriers to compete against us.

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<PAGE> 46

LEGAL PROCEEDINGS

In February 2000, a complaint was filed in the Superior Court of
California, County of Santa Clara, against us and other parties by Point West
Ventures, L.P., previously known as Fourteen Hill Capital, L.P. and certain
other shareholders in Vaultline Incorporated. The claim arises out of a letter
of intent that we entered into in December 1998 relating to our potential
acquisition of Vaultline. The letter stated that it was not binding on the
parties except with respect to a $250,000 advance to be made by us and certain
obligations of Vaultline. The letter contemplated that we would undertake a due
diligence investigation of Vaultline. After performing the due diligence, we
determined not to complete the transaction and entered into a mutual settlement
agreement and release. Subsequently, Vaultline ceased doing business. The
claimants contend that the mutual settlement agreement executed by the president
of Vaultline was unauthorized. They allege that we, certain of our officers and
others conspired to deprive them of their interests in Vaultline. They are
seeking damages in excess of $10,000,000. We believe all of our legal
obligations were satisfied and intend to vigorously contest any claims asserted
against us relating to this matter.

EMPLOYEES

As of March 15, 2000, we had approximately 250 full-time employees, none of
whom was represented by a labor union. Our future performance depends, in
significant part, upon the continued service of our key technical, sales and
senior management personnel. All of our executive officers are subject to
employment agreements for specific terms. For additional information on these
employment agreements, please see "Management -- Employment Agreements" and
"-- Change of Control Agreements". The loss of the services of one or more of
our key employees could have a material adverse effect on our business,
financial condition and results of operations. To date, we have not experienced
any work stoppages, and we consider our relations with our employees to be good.

FACILITIES

Our headquarters are located in Chicago, Illinois, where we lease 32,142
square feet of office space under a lease expiring in December 2000. We
anticipate that we will need to secure additional space for our headquarters
within the next six months. We also currently lease office space for sales
offices in 12 cities in the United States, and space for UTX facilities in seven
cities in the United States. Our UTX leases expire on various dates between May
2009 and November 2014.

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<PAGE> 47

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers and directors and their ages, as of March 1, 2000,
are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Patrick C. Shutt(1)(2).................... 32 President and Chief Executive Officer and
Director
Robert J. Pommer, Jr.(1)(2)............... 32 Chief Operating Officer, Chief Technical
Officer, Secretary and Director
Donna M. Shore............................ 31 Executive Vice President, Chief Financial
Officer and Treasurer
Holly A. Weller........................... 48 Executive Vice President, Marketing
Kenneth A. Napier......................... 53 Executive Vice President, Operations
William J. Coyne III...................... 48 Executive Vice President, Client Services
Scott D. Fehlan........................... 31 General Counsel and Assistant Secretary
Mark A. Dickey............................ 36 Vice President, Business Development
George A. King............................ 41 Senior Vice President, Corporate
Development
Robert E. Rainone, Jr..................... 37 Chief Development Officer
Paolo Guidi............................... 57 Director
Thomas Kapsalis(3)........................ 66 Director
Robert A. Pollan.......................... 39 Director
Joseph L. Schocken(2)(3)(4)............... 53 Director
John F. Slevin(4)......................... 63 Director
Roland A. Van der Meer(2)(3)(4)........... 39 Director
</TABLE>

- ---------------
(1) Member of nominating committee
(2) Member of option committee
(3) Member of compensation committee
(4) Member of audit committee

PATRICK C. SHUTT co-founded Universal Access in October 1997 and has served
as our President and as one of our directors since our inception. Mr. Shutt has
been our Chief Executive Officer since December 1998. Prior to founding
Universal Access, from March 1996 to September 1997, Mr. Shutt was Senior Vice
President of Operations at Arista Communications, a telecommunications agency
firm. From February 1994 to March 1996, he was a sales manager with TCG, a
telecommunications company. From October 1993 to February 1994, Mr. Shutt was
the Vice President in charge of Business Development for Valuation Counselors, a
business services company.

ROBERT J. POMMER, JR. co-founded Universal Access in October 1997, has
served as our Secretary since our inception and was our Treasurer from October
1997 to August 1999. Mr. Pommer has served as our Chief Operating Officer since
December 1998 and as our Chief Technical Officer since January 2000 and as one
of our directors since July 1998. Prior to founding Universal Access, from March
1996 to September 1997, Mr. Pommer was Vice President of Operations for Arista
Communications, a telecommunications agency firm. From May 1994 to March 1996,
he was a Manager for Strategic Accounts with TCG, a telecommunications company.
From November 1993 to May 1994, Mr. Pommer was a consultant for Delta
Communications, a telecommunications consulting firm.

DONNA M. SHORE has served as Executive Vice President since January 2000
and Chief Financial Officer and Treasurer since August 1999. From December 1998
to March 1999 she served as our Vice President of Finance and from March 1999 to
August 1999 she served as our Senior Vice President of Finance. From May 1991 to
May 1998, Ms. Shore worked for PricewaterhouseCoopers LLP, a public accounting
firm, most recently as a manager in their mergers and acquisitions division.

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<PAGE> 48

HOLLY A. WELLER has served as Executive Vice President of Marketing since
July 1999. Prior to joining Universal Access, from December 1998 until July
1999, she was Vice President of Business Development and Marketing for Amteva
Technologies, a computer software developer which was acquired by Cisco Systems,
Inc., a manufacturer of network equipment. From July 1997 to August 1998, Ms.
Weller was with ADC Wireless Systems, a telecommunications equipment
manufacturer, as the Vice President of Marketing and Sales. From January 1995
until July 1997 she was the Vice President and General Manager of the Wireless
Data Group of Comcast Cellular Communications, a cellular communications
company. Prior to January 1995, Ms. Weller spent 10 years working for NYNEX
Corporation, a telephone company.

KENNETH A. NAPIER has served as Executive Vice President of Operations
since January 2000 and as Executive Vice President of Client Services from June
1999 to January 2000. Prior to joining us, from May 1997 to June 1999, Mr.
Napier was Vice President of Business Development for Klein Technologies, Inc.,
a computer systems design company. From February 1991 to May 1997, he was a
Senior Vice President of Strategic Development and a General Manager of
Commercial Operations for Automation Research Systems, a computer systems
engineering and computer management services company. From March 1988 to
February 1991, he worked for Tracor, a computer systems design and integration
company.

WILLIAM J. COYNE III has served as our Executive Vice President of Client
Services since February 2000. From August 1991 to January 2000, Mr. Coyne worked
for Cable and Wireless, a telephone communications company, most recently as its
Vice President of Large Accounts.

MARK A. DICKEY has served as our Vice President of Business Development
since January 2000. From November 1998 to January 2000 he served as our Vice
President of Sales. From June 1996 to June 1998, Mr. Dickey was Director of
Sales for USN Communications, a telecommunications company. From April 1994 to
May 1996, Mr. Dickey worked as a manager at TCG, a telecommunications company.
From May 1992 to April 1994, Mr. Dickey was a sales manager with Cable and
Wireless, a telephone communications company.

SCOTT D. FEHLAN has served as our General Counsel and Assistant Secretary
since September 1999. From January 1995 to May 1998, Mr. Fehlan was an
associate, and from June 1998 to September 1999 he was a shareholder of Shefsky
& Froelich Ltd., a law firm. From January 1993 to January 1995, he was an
associate with Kirkland & Ellis, a law firm. Mr. Fehlan holds a J.D. from Yale
Law School.

THOMAS KAPSALIS has served as one of our directors since October 1997. From
October 1997 to February 1999, Mr. Kapsalis was our Chairman of the Board,
Assistant Secretary and Assistant Treasurer. Since June 1986, Mr. Kapsalis has
been Chairman of K&D Facilities Resource Corporation, a business consulting
firm. Mr. Kapsalis has also been a member of the Cole Taylor Bank Advisory Board
since September 1993.

GEORGE A. KING has served as our Senior Vice President of Corporate
Development since August 1999. From our inception to August 1999, Mr. King
served as an advisor to the executive officer group. From our inception to
February 1999, Mr. King was one of our directors. Prior to joining Universal
Access, from February 1995 to November 1996, Mr. King was a Managing Director of
Cambridge Partners, an investment banking firm. From December 1996 to August
1999, was a Senior Managing Director of Hudson AIPF, LLC, a financial advisory
firm. From January 1994 to February 1995, Mr. King was a Vice President of
Credit Suisse First Boston, an investment banking firm.

ROBERT E. RAINONE, JR. has served as our Chief Development Officer since
February 2000. From October 1998 to February 2000, Mr. Rainone was the Vice
President of Marketing at Open Port Technology, Inc., an internet messaging
company. From March 1993 to August 1997, Mr. Rainone was employed by U.S.
Robotics Corporation, a computer equipment manufacturer and subsidiary of 3Com
Corporation, in various capacities, most recently as Vice President and General
Manager of Business Access.

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<PAGE> 49

PAOLO GUIDI has served as one of our directors since August 1999. He has
been the President and Chief Executive Officer of Teleglobe Communications
Corporation, a provider of intercontinental telecommunications services, since
February 1995. From July 1986 to February 1995, Mr. Guidi was employed by Sprint
International Corporation, a provider of intercontinental telecommunications
services, in various capacities, most recently as President.

ROBERT A. POLLAN has served as one of our directors since February 1999.
Mr. Pollan has been a Managing Director of Internet Capital Group, an internet
holding company, since June 1998. From August 1995 to June 1998, Mr. Pollan
served as a Chief Technology Officer and Vice President of Business Development
at General Electric Capital Corporation. From September 1991 to July 1995, Mr.
Pollan was co-founder and Managing Director of OFR, Ltd., an advisory firm
focused on the organizational and financial restructuring of industrial
enterprises in Central Europe.

JOSEPH L. SCHOCKEN has served as one of our directors since October 1998.
He founded Broadmark Capital Corporation, an investment banking firm, in
November 1986 and serves as its Chairman. Mr. Schocken is also a director of
Broadmark Asset Management Company, an asset management firm. Mr. Schocken is
also the head of Broadmark Capital Corporation's Corporate Finance Group where
he serves as an advisor to a number of Broadmark's clients and portfolio
companies.

JOHN F. SLEVIN has served as one of our directors since February 2000. From
October 1975 to January 1999, Mr. Slevin worked for Comdisco, Inc., an equipment
leasing company, most recently as its Chairman, Chief Executive Officer and
President. Mr. Slevin is also currently a director of MediaOne Group, Inc., a
broadband communications company, and InterWorld Corporation, an enterprise
commerce software company.

ROLAND A. VAN DER MEER has served as one of our directors since February
1999. In June 1987, Mr. Van der Meer founded and became a partner of
ComVentures, a venture capital firm. From June 1993 to June 1997, Mr. Van der
Meer was a partner at the venture capital firm of Partech International.

BOARD OF DIRECTORS

Our board of directors currently consists of nine authorized members. When
this offering is completed, the terms of office of our board of directors will
be divided into three classes: Class I, whose terms will expire at the annual
meeting of stockholders to be held in 2000; Class II, whose term will expire at
the annual meeting of stockholders to be held in 2001; and Class III, whose term
will expire at the annual meeting of the stockholders to be held in 2002. This
classification of our board of directors may delay or prevent a change in
control of our company or in our management. See "Description of Capital
Stock -- Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions".

Our executive officers are appointed by our board of directors on an annual
basis and serve until their successors have been elected and qualified. There
are no family relationships among any of our directors, officers or key
employees.

BOARD COMMITTEES

We established an audit committee and a compensation committee in August
1999. The audit committee consists of Messrs. Slevin, Schocken and Van der Meer.
The audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants.

The compensation committee consists of Messrs. Kapsalis, Schocken and Van
der Meer. The compensation committee reviews and recommends to our board of
directors the compensation of all of our officers and directors, including stock
compensation and loans and establishes and reviews general policies relating to
the compensation and benefits of our employees.
50
<PAGE> 50

We established an option committee consisting of Messrs. Pommer, Schocken,
Shutt and Van der Meer in March 1999. The option committee reviews and approves
equity grants pursuant to our stock option plans to our employees other than
executive officers.

We established a nominating committee in February 1999, consisting of
Messrs. Pommer and Shutt. The nominating committee reviews and approves the
appointment of directors to our board of directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of our compensation committee are Messrs. Kapsalis, Schocken
and Van der Meer. None of the members of the compensation committee is currently
or has been, at any time since our formation, one of our officers or employees.
None of our executive officers currently serves or in the past has served as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving on our board or compensation
committee. Mr. Kapsalis is a holder of approximately 4.84% of our outstanding
stock. He is also principal of K&D Consulting. We paid K&D Consulting $3,000 per
month from April 1999 to October 1999 for management consulting services. Mr.
Van der Meer is a partner of ComVentures, a holder of approximately 17.03% of
our outstanding stock that has purchased shares of Series B preferred stock,
Series C preferred stock and Series D preferred stock. Mr. Schocken is the
chairman of Broadmark Capital Corporation, a holder of approximately 1.57% of
our outstanding stock that has purchased shares of our common stock, Series A
preferred stock and Series D preferred stock. Broadmark Capital Corporation
provided financial services to us in connection with the placement of our Series
A preferred stock and Series D preferred stock. As consideration for these
services, we paid Broadmark approximately $502,190 and issued them warrants for
our common stock and our Series A preferred stock. In addition, Broadmark
received options to purchase a total of 839,994 shares of our common stock from
John Drummond, a 5% stockholder, Thomas Kapsalis, a 5% stockholder and a
director, and another stockholder. See "Transactions with Related Parties and
Insiders." Prior to the formation of the compensation committee, compensation
decisions were made by our entire board of directors.

DIRECTOR COMPENSATION

Other than our stock option grant to Paolo Guidi in August 1999 which is
described in "Transactions With Related Parties and Insiders -- Option Grants to
Executive Officers and Directors" and the payment of $2,000 to Mr. Guidi for
each board meeting that he attends in person or by telephone, we do not
currently compensate our directors in cash for their service as members of our
board of directors, although they are reimbursed for certain expenses in
connection with attendance at board of director and committee meetings. Our 1999
Director Option Plan provides for the automatic grant of non-statutory stock
options to nonemployee directors. For further information regarding the
provisions of the 1999 Director Option Plan, see "-- Incentive Stock Plans".

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

Our certificate of incorporation will, upon the closing of this offering,
limit the liability of directors to the maximum extent permitted by Delaware
law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:

- any breach of their duty of loyalty to the corporation or its
stockholders;

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

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

- any transaction from which the director derived an improper personal
benefit.
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<PAGE> 51

The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence on the part of indemnified parties. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in their
capacity as an officer, director, employee or other agent, regardless of whether
the bylaws would permit indemnification.

We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification for judgments,
fines, settlement amounts and certain expenses, including attorneys' fees
incurred by the director, executive officer or controller in any action or
proceeding, including any action by or in our right, arising out of the person's
services as a director, executive officer or controller of us, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.

The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. A stockholder's investment in us may be adversely affected to the
extent we pay the costs of settlement or damage awards against our directors and
officers under these indemnification provisions.

At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.

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<PAGE> 52

EXECUTIVE COMPENSATION

The following table sets forth the compensation earned, awarded or paid for
services rendered to us in all capacities for the fiscal year ended December 31,
1999 by our Chief Executive Officer and our next four most highly compensated
executive officers who earned more than $100,000 in salary and bonus during the
fiscal year ended December 31, 1999, whom we refer to in this prospectus
collectively as the "named executive officers":

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS COMPENSATION
---------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Patrick C. Shutt...................... $196,561 $99,283 500,000 $ --
President and Chief Executive
Officer
Robert J. Pommer, Jr.................. 182,508 94,889 300,000 --
Chief Operating Officer, Chief
Technical Officer and Secretary
Donna M. Shore........................ 150,012 78,701 200,000 --
Executive Vice President, Chief
Financial Officer, Treasurer
Kenneth A. Napier..................... 77,492 27,525 550,000 16,693(1)
Executive Vice President, Operations
Mark A. Dickey........................ 119,500 42,221 150,000 --
Vice President, Business Development
</TABLE>

- ---------------
(1) Consists of a housing allowance.

OPTION GRANTS IN LAST FISCAL YEAR

The following table shows information regarding stock options granted to
the named executive officers during the fiscal year ended December 31, 1999. The
potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the ten-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect
projections or estimates of future stock price growth. Potential realizable
values are computed by:

- Multiplying the number of shares of common stock underlying each option
by $14.00 per share, the initial public offering price per share;

- Assuming that the total stock value derived from that calculation
compounds at the annual 0%, 5% or 10% rate shown in the table for the
entire ten-year term of the option; and

- Subtracting from that result the total option exercise price.

Actual gains, if any, on stock option exercises will be dependent on the
future performance of our common stock.

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<PAGE> 53

The percentage of total options granted is based on an aggregate of
7,131,250 options granted by us during the fiscal year ended December 31, 1999,
to our employees including the named executive officers. Unless otherwise
indicated, options were granted with an exercise price equal to the fair market
value of our common stock, as determined in good faith by our board of directors
at the time of the grants.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS DURING PRICE PER EXPIRATION --------------------------------------
NAME GRANTED(#) PERIOD SHARE DATE 0% 5% 10%
---- ---------- ---------- --------- ----------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Patrick C. Shutt..... 500,000(1) 7.01% $1.51(2) August 4, 2009 $6,245,000 $10,647,262 $17,401,197
Robert J. Pommer,
Jr. ............... 300,000(1) 4.21 1.51(2) August 4, 2009 3,747,000 6,388,357 10,440,718
Donna M. Shore....... 200,000(1) 2.80 1.38 August 4, 2009 2,524,000 4,284,905 6,986,479
Kenneth A. Napier.... 50,000(1) 0.7 6.10 November 5, 2009 395,000 835,226 1,510,620
100,000(1) 1.4 1.38 August 4, 2009 1,262,000 2,142,452 3,493,239
400,000(3) 5.61 0.27 June 25, 2009 5,492,000 9,013,810 14,416,958
Mark A. Dickey....... 150,000(4) 2.10 1.38 August 5, 2009 1,893,000 3,213,679 5,239,859
</TABLE>

- ---------------
(1) As of December 31, 1999, these options were completely vested.

(2) The fair market value of our common stock on the date of this grant was
$1.38 as determined in good faith by our board of directors.

(3) This option to purchase our common stock vests as to one fourth of the
shares on June 25, 2000 with the remaining shares vesting ratably on a
monthly basis thereafter.

(4) This option to purchase our common stock vests as to one fourth of the
shares on August 5, 2000 with the remaining shares vesting ratably on a
monthly basis thereafter.

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<PAGE> 54

AGGREGATE OPTION EXERCISES DURING LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table presents information regarding the named executive
officers, concerning option exercises for the year ended December 31, 1999 and
exercisable and unexercisable options held as of December 31, 1999. The value of
unexercised in-the-money options is based on a price of $7.20 per share, the
fair market value of our stock on December 31, 1999, as determined by our board
of directors, minus the per share exercise price, multiplied by the number of
shares underlying the option.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON --------------------------- ---------------------------
NAME EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Patrick C. Shutt........... 500,000 300,000 -- $2,159,999 $ --
Robert J. Pommer, Jr. ..... 300,000 300,000 -- 2,159,999 --
Donna M. Shore............. 200,000 121,875 328,125 877,297 2,361,953
Kenneth A. Napier.......... -- -- 400,000 -- 2,772,000
-- 50,000 -- 55,000 --
-- 100,000 -- 582,500 --
Mark A. Dickey............. -- -- 150,000 -- 873,750
-- 121,875 328,125 877,297 2,361,953
</TABLE>

INCENTIVE STOCK PLANS

1998 EMPLOYEE STOCK OPTION PLAN

Our 1998 Employee Stock Option Plan, referred to as the "1998 Plan", was
adopted by our board of directors on July 10, 1998 and approved by our
stockholders on May 1, 1998. Our board of directors has decided that as of the
effective date of this offering no further options will be granted under the
1998 Plan. However, the provisions of our 1998 Plan will continue to govern
outstanding options issued under the 1998 Plan. Our 1998 Plan provides for the
grant of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, referred to as the "Code", to our
employees and for the grant of nonstatutory stock options to our employees,
directors and consultants.

NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 1998 PLAN. The maximum
number of shares that may be issued under the 1998 Plan is 13,000,000 shares of
our common stock. As of March 15, 2000 options to purchase 10,676,079 shares of
our common stock were outstanding under the 1998 Plan.

ADMINISTRATION OF THE 1998 PLAN. Our board of directors or a committee
appointed by our board of directors administers the 1998 Plan. The board or
committee has the authority to determine the terms of the option grants under
the 1998 Plan including the exercise price, the number of shares covered by each
option, the vesting of options and the form of consideration payable upon
exercise.

OPTIONS. The exercise price of incentive stock options granted under the
1998 Plan may not be lower than the fair market value, as determined by our
board of directors on the date of grant, of our common stock and the term of an
option may not exceed 10 years. If one of our stockholders owned 10% of the
voting power of all classes of our outstanding capital stock and is granted an
incentive stock option, the exercise price may not be lower than 110% of the
fair market value on the date of grant and the term may be no longer than five
years.

If an optionee's employment is terminated due to death or disability, he or
she generally will have one year to exercise any of his or her outstanding
options. If an optionee's employment is terminated due to retirement, he or she
generally will have three years to exercise each outstanding option. If an

55
<PAGE> 55

optionee's employment is terminated for any other reason, he or she generally
will have three months to exercise any options held by him or her; provided,
however an optionee's options will terminate immediately upon his or her
termination for cause.

Options granted under our 1998 Plan are not transferable other than by
will, the laws of inheritance or pursuant to a qualified domestic relations
order.

ADJUSTMENTS UPON MERGER OR ASSET SALE. Our 1998 Plan provides that if we
merge with or into another corporation or sell substantially all of our assets,
the successor corporation will assume or substitute each option. If the
outstanding options are not assumed or substituted by the successor corporation,
the committee has the discretion to allow each option to be exercisable in full,
including shares that would not otherwise be exercisable at the time of such
merger or sale of assets. If the outstanding options are not assumed or
substituted by the successor corporation and the committee chooses to accelerate
the exercisability of outstanding options, all options will terminate if not
exercised during the 30-day period prior to the merger or sale of assets.

1999 STOCK PLAN

Our board of directors adopted the 1999 Stock Plan, referred to as the
"1999 Plan", in November 1999. The 1999 Plan was approved by our stockholders in
January 2000. Our 1999 Plan provides for the grant of incentive stock options,
within the meaning of Section 422 of the Code, to our employees, and for the
grant of nonstatutory stock options and stock purchase rights to our employees,
directors and consultants.

NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 1999 PLAN. As of March
15, 2000, a total of 10,000,000 shares of our common stock were reserved for
issuance pursuant to the 1999 Plan, of which options to acquire 1,315,800 shares
were issued and outstanding as of that date. Our 1999 Plan provides for annual
increases in the number of shares available for issuance under our 1999 Plan on
the first day of each fiscal year, beginning with our fiscal year 2001, equal to
the lesser of 5% of the outstanding shares of common stock on the first day of
our fiscal year, 10,000,000 shares of our common stock, or an amount determined
by our board of directors.

ADMINISTRATION OF THE 1999 PLAN. Our board of directors or a committee of
our board of directors administers the 1999 Plan. In the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the committee will consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The administrator
has the authority to determine the terms of the options or stock purchase rights
granted, including the exercise price, the number of shares subject to each
option or stock purchase right, the exercisability of the options and the form
of consideration payable upon exercise.

OPTIONS. The administrator determines the exercise price of options granted
under the 1999 Plan, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code and all incentive stock options, the exercise price must at least be
equal to the fair market value of our common stock on the date of the grant. The
term of an incentive stock option may not exceed ten years, except that with
respect to any participant who owns 10% of the voting power of all classes of
our outstanding capital stock, the term must not exceed five years and the
exercise price must equal at least 110% of the fair market value on the grant
date. The administrator determines the term of all other options.

No optionee may be granted an option to purchase more than 3,000,000 shares
in any fiscal year; except that an optionee in his initial term of service may
receive options to purchase up to an additional 2,000,000 shares.

After termination of the employment of one of our employees, directors or
consultants, he or she may exercise vested options for the period of time
subsequent to termination stated in the option agreement or for three months if
a period is not stated in the option agreement. If termination of employment is
due to death or disability, vested options will remain exercisable for 12 months
or for
56
<PAGE> 56

the period stated in the option agreement. However, an option may never be
exercised later than the expiration of its term.

STOCK PURCHASE RIGHTS. Stock purchase rights, which represent the right to
purchase our common stock, may be issued under our 1999 Plan. The administrator
determines the exercise price of stock purchase rights granted under our 1999
Plan. Unless the administrator determines otherwise, a restricted stock purchase
agreement, an agreement between us and an optionee which governs the terms of
stock purchase rights, will grant us a repurchase option that we may exercise
upon the voluntary or involuntary termination of the purchaser's service with us
for any reason, including death or disability. The purchase price for shares we
repurchase will generally be the original price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to us. The
administrator determines the rate at which our repurchase option will lapse.

TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Our 1999 Plan
generally does not allow for the transfer of options or stock purchase rights,
and, during the lifetime of the optionee, only the optionee may exercise an
option and stock purchase right. However, the administrator has the authority to
allow for the transferability of options and stock purchase rights.

ADJUSTMENTS UPON MERGER OR ASSET SALE. Our 1999 Plan provides that if we
merge with or into another corporation or sell substantially all of our assets,
the successor corporation will assume or substitute each option or stock
purchase right. If the outstanding options or stock purchase rights are not
assumed or substituted, the administrator will provide notice to the optionee
that he or she has the right to exercise the option or stock purchase right as
to all of the shares subject to the option or stock purchase right, including
shares which would not otherwise be exercisable, for a period of 15 days from
the date of the notice. The option or stock purchase right will terminate upon
the expiration of the 15-day period provided for in the notice.

AMENDMENT AND TERMINATION OF OUR 1999 PLAN. Our 1999 Plan will
automatically terminate in 2009, unless our board of directors terminates it
sooner. However, our board of directors may amend, suspend or terminate the 1999
Plan provided it does not adversely affect any option previously granted under
our 1999 Plan.

1999 EMPLOYEE STOCK PURCHASE PLAN

Concurrently with this offering, we intend to establish an employee stock
purchase plan. The employee stock purchase plan was adopted by our board in
November 1999 and was approved by our stockholders in January 2000.

NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE PURCHASE PLAN. A total
of 500,000 shares of our common stock will be made available for issuance under
the employee stock purchase plan. In addition, our employee stock purchase plan
provides for annual increases in the number of shares available for issuance
under the employee stock purchase plan on the first day of each fiscal year,
beginning with our fiscal year 2001, equal to the lesser of 2% of the
outstanding shares of our common stock on the first day of the fiscal year,
3,000,000 shares, or such other amount as our board of directors may determine.

ADMINISTRATION OF THE PURCHASE PLAN. Our board of directors or a committee
of our board administers the employee stock purchase plan. Our board of
directors or its committee has full and exclusive authority to interpret the
terms of the employee stock purchase plan.

ELIGIBILITY TO PARTICIPATE. Our employees are eligible to participate if
they are customarily employed by us or any participating subsidiary for at least
20 hours per week and more than five months in any calendar year. However, an
employee may not be granted an option to purchase stock under the employee stock
purchase plan if such employee:

- immediately after grant will own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or

57
<PAGE> 57

- has rights to purchase stock under any of our employee stock purchase
plans that accrue at a rate that exceeds $25,000 worth of stock for each
calendar year.

OFFERING PERIODS AND CONTRIBUTIONS. Our employee stock purchase plan is
intended to meet the requirements of Section 423 of the Internal Revenue Code
and contains consecutive, overlapping 24-month offering periods. Each offering
period includes four 6-month purchase periods. The offering periods generally
start on the first trading day on or after May 1st and November 1st of each
year, except for the first such offering period which will commence on the first
trading day on or after the effective date of this offering and will end on the
last trading day on or before April 30, 2002.

Our employee stock purchase plan permits participants to purchase common
stock through payroll deductions of up to 15% of their eligible compensation
which includes a participant's base salary, wages, overtime pay, commissions,
bonuses and other compensation remuneration paid directly to the employee. A
participant may not purchase more than 3,000 shares during a six month purchase
period.

PURCHASE OF SHARES. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each six-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at the beginning of an offering period or at the end of a purchase
period. If the fair market value at the end of a purchase period is less than
the fair market value at the beginning of the offering period, participants will
be withdrawn from the current offering period following their purchase of shares
on the purchase date and will be automatically re-enrolled in a new offering
period. Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.

TRANSFERABILITY OF RIGHTS. A participant may not transfer rights granted
under the employee stock purchase plan other than by will, the laws of descent
and distribution or as otherwise provided under the employee stock purchase
plan.

ADJUSTMENTS UPON MERGER OR ASSET SALE. If we merge with or into another
corporation or sell substantially all of our assets, a successor corporation may
assume or substitute each outstanding option. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened, and a new exercise date will be set.

AMENDMENT AND TERMINATION OF THE PURCHASE PLAN. Our employee stock purchase
plan will terminate in 2009. However, our board of directors may at any time and
for any reason amend or terminate our employee stock purchase plan, except that,
subject to certain exceptions described in the employee stock purchase plan, no
such action may adversely affect any outstanding rights to purchase stock under
our employee stock purchase plan.

1999 DIRECTOR OPTION PLAN

Our board of directors adopted the 1999 Director Option Plan in November
1999. The director plan was approved by to our stockholders in January 2000. The
director plan provides for the periodic grant of nonstatutory stock options to
our non-employee directors.

NUMBER OF SHARES AVAILABLE UNDER THE DIRECTOR PLAN. As of March 15, 2000, a
total of 500,000 shares were reserved for issuance under the director plan. No
options will be granted under the director plan until the effective date of this
offering.

OPTIONS. All grants of options to our non-employee directors under the
director plan are automatic. We will grant each non-employee director an option
to purchase 20,000 shares upon the later of (i) the effective date of the
director plan, or (ii) when such person first becomes a non-employee director;
however those directors who became non-employee directors by ceasing to be
employee directors will not receive such an option grant. All non-employee
directors who have been a

58
<PAGE> 58

director for at least six months as of June 30th of each year will receive an
option to purchase 5,000 shares on June 30th of each year.

All options granted under our director plan have a term of ten years and an
exercise price equal to fair market value on the date of grant. Each
20,000-share option becomes exercisable as to 25% of the shares subject to the
option on each anniversary of the date of grant, provided the non-employee
director remains a director on such dates. Each annual 5,000-share option
becomes exercisable as to 100% of the shares subject to the option on the first
anniversary of the date of grant, provided the non-employee director remains a
director on such date.

After termination as a non-employee director, an optionee must exercise an
option within the time set forth in his or her option agreement. If termination
is due to death or disability, the option will remain exercisable for 12 months.
In all other cases, the option will remain exercisable for a period of three
months. However, an option may never be exercised later than the expiration of
its term.

TRANSFERABILITY OF OPTIONS. A non-employee director may not transfer
options granted under our director plan other than by will or the laws of
descent and distribution. Only the non-employee director may exercise the option
during his or her lifetime.

ADJUSTMENTS UPON MERGER OR AN ASSET SALE. If we merge with or into another
corporation or sell substantially all of our assets, the successor corporation
will assume or substitute each option. If such assumption or substitution
occurs, the options will continue to be exercisable according to the same terms
as before the merger or sale of assets. Following such assumption or
substitution, if a non-employee director is terminated other than by voluntary
resignation, the option will become fully exercisable, including as to shares
for which it would not otherwise be exercisable and generally will remain
exercisable for a period of three months. If the outstanding options are not
assumed or substituted for, our board of directors will notify each non-employee
director that he or she has the right to exercise the option as to all shares
subject to the option for a period of 30 days following the date of the notice.
The option will terminate upon the expiration of the 30-day period.

AMENDMENT AND TERMINATION OF THE DIRECTOR PLAN. Unless terminated sooner,
our director plan will automatically terminate in 2009. Our board of directors
may amend, alter, suspend, or discontinue the director plan, but no such action
may adversely affect any grant made under the director plan.

401(k) PLAN

In 1999, we adopted the Universal Access, Inc. 401(k) Savings Plan and
Trust, covering our eligible full-time employees located in the United States.
The 401(k) plan is intended to meet the requirements of Sections 401(a) and
401(k) of the Internal Revenue Code, as amended, so that contributions to the
401(k) plan by employees, and the investment earnings thereon, are not taxable
to employees until withdrawn from the 401(k) plan. Under the 401(k) plan,
employees may elect to reduce their current eligible compensation by up to the
lesser of 15% of their annual compensation or the statutorily prescribed annual
limit ($10,500 in 2000) and to have the amount of the reduction contributed to
the 401(k) plan. The 401(k) plan does permit discretionary matching
contributions to the 401(k) plan by us on behalf of participants in the 401(k)
plan who have completed at least a year of service to us. To date, there have
been no matching contributions.

EMPLOYMENT AGREEMENTS

From time to time, we have entered into employment agreements with our
executive officers, including the executive officers listed in the "Summary
Compensation Table."

Patrick Shutt. In September 1998, Patrick Shutt entered into an employment
agreement with us. In February 1999 and February 2000, we amended our employment
agreement with Mr. Shutt. Mr. Shutt is currently entitled to an annual salary of
$235,000 with an annual bonus to be paid upon the completion of
performance-based milestones. Mr. Shutt is also entitled to a car allowance of
$600 per month. Mr. Shutt's employment agreement is for a renewable one-year
term.
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<PAGE> 59

Robert Pommer. In September 1998, Robert Pommer entered into an employment
agreement with us. In February 1999 and February 2000 we amended our employment
agreement with Mr. Pommer. Mr. Pommer is currently entitled to an annual salary
of $215,000 with an annual bonus to be paid upon the completion of
performance-based milestones. Mr. Pommer is also entitled to a car allowance of
$600 per month. Mr. Pommer's employment agreement is for a renewable one-year
term.

Donna Shore. In November 1998, Donna Shore entered into an employment
agreement with us. We amended our employment agreement with Ms. Shore in
February 2000. Ms. Shore is currently entitled to an annual salary of $175,000
with an annual bonus to be paid upon the completion of performance-based
milestones. Ms. Shore is also entitled to a car allowance of $600 per month. Ms.
Shore's employment agreement has an initial term of three years and is renewable
for additional one-year terms.

Holly Weller. In August 1999, Holly Weller entered into an employment
agreement with us. We amended our employment agreement with Ms. Weller in
February 2000. Ms. Weller is currently entitled to an annual salary of $155,000
with a quarterly bonus of up to $15,000 to be paid upon the completion of
performance-based milestones. Ms. Weller's employment agreement is for a
renewable one-year term.

Kenneth Napier. In July 1999, Kenneth Napier entered into an employment
agreement with us. We amended our employment agreement with Mr. Napier in
February 2000. Mr. Napier is currently entitled to an annual salary of $145,000
with an annual bonus to be paid at our discretion. Mr. Napier's employment
agreement is for a renewable one-year term.

William Coyne. In February 2000, William Coyne entered into an employment
agreement with us. We amended our employment agreement with Mr. Coyne in
February 2000. Mr. Coyne is currently entitled to an annual salary of $185,000
with an annual bonus of up to $100,000 to be paid at our discretion. Mr. Coyne's
employment agreement is for a renewable one-year term.

Scott Fehlan. In September 1999, Scott Fehlan entered into an employment
agreement with us. We amended our employment agreement with Mr. Fehlan in
February 2000. Mr. Fehlan is currently entitled to an annual salary of $155,000
with a quarterly bonus of up to $10,000 to be paid upon the completion of
performance-based milestones. Mr. Fehlan's employment agreement is for a
renewable one-year term.

Mark Dickey. In November 1998, Mark Dickey entered into an employment
agreement with us. We amended our employment agreement with Mr. Dickey in
February 2000. Mr. Dickey is currently entitled to an annual salary of $120,000
with a quarterly bonus to be paid at our discretion. Mr. Dickey's employment
agreement is for a renewable one-year term.

George King. In August 1999, George King entered into an employment
agreement with us. We amended our employment agreement with Mr. King in February
2000. Mr. King is currently entitled to an annual salary of $135,000 with an
annual bonus to be paid at our discretion. Mr. King's employment agreement is
for a renewable one-year term.

Robert Rainone. In February 2000, Robert Rainone entered into an employment
agreement with us. Mr. Rainone is currently entitled to an annual salary of
$190,000 with an annual bonus of up to $60,000 to be paid at our discretion. Mr.
Rainone's employment agreement is for a renewable one-year term.

Our executive officers listed under "Management" have provisions in their
employment agreements which provide that if we terminate their individual
employment terms for any reason other than cause, death or total disability, or
if their authority, duties or responsibilities with us have been substantially
reduced, then we will provide them with health, life and disability insurance
for the one-year period after their termination. In addition, other than for
Mark Dickey, we must also pay them the balance of their base salaries and bonus
for the lesser of six months or the remaining term of their

60
<PAGE> 60

employment terms. For Mark Dickey, we must pay him the balance of his base
salary and bonus for the lesser of four months or the remaining term of his
employment term.

CHANGE OF CONTROL ARRANGEMENTS

Excluding Mark Dickey's August 1999 option grant for 150,000 shares of our
common stock, any unvested options to purchase shares held by our executive
officers will fully vest if there is a change of control which results in both:

- any sale of all or substantially all of our assets, any merger of us with
another company or any other corporate reorganization in which more than
50% of our voting power is transferred; and

- the officer no longer being employed by us or the successor entity under
substantially similar terms and conditions that existed prior to the
change of control.

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<PAGE> 61

TRANSACTIONS WITH RELATED PARTIES AND INSIDERS

Other than the employment agreements described under "Management" and the
transactions described below, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000, and in which any
director, executive officer, holder of more than 5% of our common stock or any
member of the immediate family of any of these people had or will have a direct
or indirect material interest.

TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS

COMMON STOCK. The following table summarizes the private placement
transactions in which we sold common stock or granted warrants to acquire common
stock to our directors, executive officers, 5% stockholders and persons and
entities affiliated with them.

<TABLE>
<CAPTION>
WARRANTS TO
SHARES OF PURCHASE
DATES OF PRICE PER COMMON COMMON
PURCHASER PURCHASE SHARE STOCK STOCK
--------- ----------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Patrick C. Shutt.......................... October 7, 1997 $0.000002 4,725,000 --
(executive officer, director and March 1, 1998 0.00003 150,000 --
5% stockholder) August 4, 1999 1.5125 500,000 --
Robert J. Pommer, Jr...................... October 7, 1997 0.000002 4,725,000 --
(executive officer, director and March 1, 1998 0.00003 150,000 --
5% stockholder) August 4, 1999 1.5125 300,000 --
Donna M. Shore............................ August 4, 1999 1.375 200,000 --
(executive officer) February 24, 2000 0.01 6,170 --
Kenneth A. Napier......................... February 19, 2000 1.38 50,000 --
(executive officer)
Scott D. Fehlan........................... February 10, 2000 2.79 5,000 --
(executive officer) February 14, 2000 2.79 5,000 --
March 1, 2000 2.79 5,000 --
George A. King............................ March 1, 1998 0.00003 900,000 --
(executive officer)
Thomas Kapsalis........................... October 7, 1997 0.000004 4,725,000 --
(director and 5% stockholder) March 1, 1998 0.00003 1,050,000 --
Broadmark Investments, L.L.C.............. February 8, 1999 0.50 -- 360,000
(Joseph L. Schocken, one of our
directors, is a non-member manager of
Broadmark Investments, L.L.C. and has
voting and investment power over the
members of Broadmark Investments,
L.L.C.)
John D. Drummond (5% stockholder)......... October 7, 1997 0.000004 4,725,000 --
(Mr. Drummond beneficially holds our
stock in a family limited partnership
and in a trust)
Giuseppina Zarcone (5% stockholder)....... October 7, 1997 0.0025 4,050,000 --
(includes stock held as joint tenants
with October 7, 1997 0.0025 4,050,000 --
right of survivorship with her father,
and individually)
</TABLE>

For current information on the holdings of these individuals, see
"Principal Stockholders".

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<PAGE> 62

SERIES A PREFERRED STOCK. On several dates in 1998 and 1999, we sold our
Series A preferred stock and granted warrants to acquire Series A preferred
stock, each share of which is convertible into six shares of common stock. The
following includes all purchasers who are officers, directors, 5% stockholders
and persons and entities affiliated with them:

<TABLE>
<CAPTION>
WARRANTS TO
SHARES OF PURCHASE
SERIES A SERIES A
PRICE PER PREFERRED PREFERRED
PURCHASER DATES OF PURCHASE SHARE STOCK STOCK
--------- ------------------ --------- --------- -----------
<S> <C> <C> <C> <C>
Entities affiliated with Broadmark
Investments L.L.C. ............... September 15, 1998 $3.00 33,334 --
(Joseph L. Schocken, one of our September 15, 1998 3.00 -- 33,333
directors, has voting and March 5, 1999 3.00 19,999 --
investment power over the members
of Broadmark Investments, L.L.C.) March 8, 1999 3.00 -- 43,900
</TABLE>

SERIES B PREFERRED STOCK. In February and April 1999, we sold Series B
preferred stock and warrants to acquire Series B preferred stock, each share of
which is convertible into six shares of common stock. The following includes all
purchasers who are officers, directors, 5% stockholders and persons and entities
affiliated with them:

<TABLE>
<CAPTION>
WARRANTS TO
SHARES OF PURCHASE
SERIES B SERIES B
DATES OF PRICE PER PREFERRED PREFERRED
PURCHASER PURCHASE SHARE STOCK STOCK
--------- ---------------- --------- --------- -----------
<S> <C> <C> <C> <C>
Communications Ventures III, L.P....... February 8, 1999 $3.00 1,111,111 --
Communications Ventures III CEO &
Entrepreneurs' Fund, L.P............. February 8, 1999 3.00 55,555 --
Communications Ventures III CEO &
Entrepreneurs' Fund, L.P............. February 8, 1999 0.01 -- 11,112
Communications Ventures III, L.P....... February 8, 1999 0.01 -- 222,223
Internet Capital Group, Inc............ February 8, 1999 0.01 -- 166,667
Internet Capital Group, Inc............ February 8, 1999 3.00 833,334 --
</TABLE>

Communications Ventures III, L.P. and Communications Ventures III CEO &
Entrepreneurs' Fund, L.P. are affiliated with ComVentures. ComVentures is a 5%
stockholder and Roland Van der Meer, who is one of our directors, is a principal
of ComVentures. Internet Capital Group, Inc. is a 5% stockholder and Robert
Pollan, who is one of our directors, is a managing director of Internet Capital
Group, Inc.

SERIES C PREFERRED STOCK. In May, 1999, we sold our Series C preferred
stock at a purchase price of $3.00 per share. Each share of Series C preferred
stock is convertible into three shares of common stock. The following includes
all purchasers who are officers, directors, 5% stockholders and persons and
entities affiliated with them:

<TABLE>
<CAPTION>
SHARES OF
SERIES C
DATES OF PREFERRED
PURCHASER PURCHASE STOCK
--------- ------------ ---------
<S> <C> <C>
Communications Ventures III, L.P. .......................... May 13, 1999 309,525
Communications Ventures III CEO & Entrepreneurs' Fund,
L.P. ..................................................... May 13, 1999 15,476
Internet Capital Group, Inc. ............................... May 13, 1999 325,000
</TABLE>

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<PAGE> 63

SERIES D PREFERRED STOCK. On several dates in 1999, we sold our Series D
preferred stock at a purchase price of $4.25 per share. Each share of Series D
preferred stock is convertible into three shares of common stock. The following
includes all purchasers who are officers, directors, 5% stockholders and persons
and entities affiliated with them:

<TABLE>
<CAPTION>
SHARES OF
SERIES D
PREFERRED
PURCHASER DATES OF PURCHASE STOCK
--------- ------------------ ---------
<S> <C> <C>
Communications Ventures III, L.P. .......................... August 25, 1999 784,313
Communications Ventures III CEO & Entrepreneurs' Fund,
L.P. ..................................................... August 25, 1999 39,216
Internet Capital Group, Inc. ............................... June 30, 1999 3,764,706
Entities affiliated with Broadmark Investments L.L.C. ...... September 30, 1999 37,332
</TABLE>

LOANS TO EXECUTIVE OFFICERS

Patrick Shutt. In August 1999 we loaned $756,250 to Patrick Shutt under a
promissory note which was amended and restated in December 1999, in connection
with his purchase of 500,000 shares of our common stock. This loan accrues
interest at a rate of 6% and is due and payable on or before August 2004. The
principal amount outstanding under his loan on December 31, 1999 was $756,250.

Robert Pommer. In May 1999, we loaned $200,000 to Robert Pommer under a
promissory note. This loan accrues interest at an annual rate of 6% and will be
due and payable in April 2004. In August 1999 we loaned $453,750 to Robert
Pommer under a promissory note which was amended and restated in December 1999,
in connection with his purchase of 300,000 shares of our common stock. This loan
accrues interest at an annual rate of 6% and is due and payable on or before
August 2004. The principal amount outstanding under his loans on December 31,
1999 was $653,750.

Donna Shore. In August 1999 we loaned $275,000 to Donna Shore under a
promissory note which was amended and restated in December 1999, in connection
with her purchase of 200,000 shares of our common stock. This loan accrues
interest at a rate of 6% and is due and payable on or before August 2004. The
principal amount outstanding under her loan on December 31, 1999 was $275,000.

OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS

Patrick Shutt. In July 1998 we granted to Patrick Shutt an option to
purchase 300,000 shares of our common stock at an exercise price of $0.01 per
share. In August 1999 we granted to Mr. Shutt an option to purchase 500,000
shares of our common stock at an exercise price of $1.51 per share.

Robert Pommer. In July 1998 we granted to Robert Pommer an option to
purchase 300,000 shares of our common stock at an exercise price of $0.01 per
share. In August 1999 we granted to Mr. Pommer an option to purchase 300,000
shares of our common stock at an exercise price of $1.51 per share.

Donna Shore. In November 1998 we granted to Donna Shore an option to
purchase 450,000 shares of our common stock at an exercise price of $0.01 per
share. In August 1999 we granted to Ms. Shore an option to purchase 200,000
shares of our common stock at an exercise price of $1.38 per share. In February
2000 we granted to Ms. Shore an option to purchase 210,000 shares of our common
stock at an exercise price of $8.10 per share.

Holly Weller. In August 1999 we granted to Holly Weller an option to
purchase 500,000 shares of our common stock at an exercise price of $1.38 per
share.

Kenneth Napier. In June 1999 we granted to Kenneth Napier an option to
purchase 400,000 shares of our common stock at an exercise price of $0.27 per
share. In August 1999 we granted to Mr. Napier an option to purchase 100,000
shares of our common stock at an exercise price

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<PAGE> 64

of $1.38 per share. In November 1999 we granted to Mr. Napier an option to
purchase 50,000 shares of our common stock at an exercise price of $6.10 per
share.

William Coyne. In January 2000, we granted to William Coyne an option to
purchase a total of 450,000 shares of our common stock at an exercise price of
$7.20 per share.

Scott Fehlan. In September 1999 we granted to Scott Fehlan an option to
purchase 500,000 shares of our common stock at an exercise price of $2.79 per
share.

Mark Dickey. In November 1998 we granted to Mark Dickey an option to
purchase 450,000 shares of our common stock at an exercise price of $0.01 per
share. In August 1999 we granted Mr. Dickey an option to purchase 150,000 shares
of our common stock at an exercise price of $1.38 per share.

George King. In August 1999, we granted to George King an option to
purchase 100,000 shares of our common stock at an exercise price of $2.11 per
share. In November 1999, we granted Mr. King an option to purchase 25,000 shares
of our common stock at an exercise price of $6.10 per share.

Robert Rainone. In February 2000, we granted to Robert Rainone an option to
purchase 500,000 shares of our common stock at an exercise price of $8.10 per
share.

Paolo Guidi. In August 1999, we granted to Paolo Guidi an option to
purchase a total of 200,000 shares of our common stock at an exercise price of
$1.38 per share.

OTHER TRANSACTIONS

We entered into an engagement letter agreement with Broadmark Capital
Corporation in August 1998 and amended this agreement in October 1998 and in
February 1999. Joseph Schocken, one of our directors, is the Chairman of
Broadmark Capital Corporation. Broadmark Capital Corporation provided services
to us in connection with the placement of our Series A preferred stock, Series B
preferred stock and Series D preferred stock. As consideration for their
services, we paid them approximately $502,190 and we issued them warrants to
purchase our common stock and our Series A preferred stock. In addition, they
received options, which were exercised in March 2000, to purchase a total of
839,994 shares of our common stock from John Drummond, a 5% stockholder, Thomas
Kapsalis, a 5% stockholder and a director, and another stockholder.

In April 1999, we entered into a consulting agreement with K&D Consulting
for management consulting services. Thomas Kapsalis, one of our directors and 5%
stockholder and John Drummond, a 5% stockholder, are principals of K&D
Consulting. K&D Consulting was paid $3,000 per month as consideration for their
consulting services. The consulting agreement terminated on October 31, 1999.

Before we moved to our current location at 100 North Riverside Plaza,
Chicago, Illinois, we leased real property located at 1021 West Adams Street,
Chicago, Illinois from a corporation owned in part by Thomas Kapsalis, one of
our directors and 5% stockholder, and John Drummond, a 5% stockholder. This
lease was terminated in December 1998. The monthly rent on this lease was
$2,619.

Internet Capital Group purchases circuit access from us under five-year
contracts entered into from October through December 1999 with minimum purchase
commitments totaling approximately $29,000 per month. In the year ended December
31, 1999, Internet Capital Group paid us approximately $40,000 under these
contracts.

In November 1999, Advanced Equities, Inc. provided services to us in
connection with the placement of our Series E preferred stock. John Slevin, one
of our directors, owns approximately five percent of Advanced Equities, Inc. As
consideration for Advanced Equities, Inc.'s services, we paid them approximately
$385,000. We also issued Advanced Equities, Inc. a warrant to purchase 40,000
shares of Series E preferred stock with an exercise price of $18.30 per share.
On November 10, 1999, Advanced Equities Investments I, LLC purchased 256,831
shares of our Series E preferred

65
<PAGE> 65

stock at a purchase price of $18.30 per share. Mr. Slevin is a non-managing
member of Advanced Equities Investments I, LLC.

INDEMNIFICATION

We have entered into indemnification agreements with each of our directors
and officers. These indemnification agreements and our certificate of
incorporation and bylaws require us to indemnify our directors and officers to
the fullest extent permitted by Delaware law.

All future transactions, including any loans from us to our officers,
directors, principal stockholders or affiliates, will be approved by a majority
of the board of directors, including a majority of the independent and
disinterested members of the board of directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to us than could be obtained from unaffiliated third parties.

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<PAGE> 66

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of March 15, 2000, and as adjusted to reflect
the sale of common stock offered by this prospectus, by:

- each of the individuals listed on the "Summary Compensation Table" above;

- each of our directors;

- each person (or group of affiliated persons) who is known by us to own
beneficially 5% or more of our common stock; and

- all current directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of March 15, 2000, are deemed issued
and outstanding. These shares, however, are not deemed outstanding for purposes
of computing percentage ownership of each other stockholder.

Except as indicated in the footnotes to this table and subject to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. This table also includes shares owned by a spouse as community
property.

Percentage of ownership is based on 76,419,716 shares of common stock
outstanding on March 15, 2000 and 87,419,716 shares of common stock outstanding
after completion of this offering. The percentage of common stock outstanding as
of March 15, 2000 is calculated in accordance with the rules of the Securities
and Exchange Commission and assumes, for purposes of this calculation, that all
outstanding preferred stock has been converted into common stock. This table
assumes no exercise of the underwriters' over-allotment option. Unless otherwise
indicated, the address of each of the individuals named below is: c/o Universal
Access, Inc., 100 North Riverside Plaza, Suite 2200, Chicago, Illinois 60606.

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<PAGE> 67

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
-----------------------------------
SHARES ISSUABLE
PURSUANT TO OPTIONS PERCENT
NUMBER OF AND WARRANTS BENEFICIALLY OWNED
SHARES EXERCISABLE WITHIN --------------------
BENEFICIALLY 60 DAYS OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED MARCH 15, 2000 OFFERING OFFERING
- ------------------------------------ ------------ ------------------- -------- --------
<S> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND 5%
STOCKHOLDERS
Entities Affiliated with
ComVentures(1)..................... 13,015,596 -- 17.03% 14.89%
505 Hamilton Avenue
Suite 305
Palo Alto, CA 94301
Entities Affiliated with Internet
Capital Group(2)................... 18,364,122 1,000,002 25.01 24.50(10)
435 Devon Park Drive
Suite 800
Wayne, PA 19087
John D. Drummond(3).................. 3,816,004 -- 4.99 4.37
Giuseppina Zarcone(4)................ 4,050,000 2,250 5.30 4.64
Patrick C. Shutt(5).................. 5,369,000 300,000 7.39 6.46
Robert J. Pommer(6).................. 5,085,000 300,000 7.02 6.14
Donna M. Shore....................... 200,000 143,830 * *
Kenneth A. Napier.................... 50,000 100,000 * *
Mark A. Dickey....................... -- 150,000 * *
Paolo Guidi.......................... -- 200,000 * *
Teleglobe Communications
11440 Commerce Park Drive
Reston, VA 20191
Thomas Kapsalis(7)................... 3,701,004 -- 4.84 4.23
Robert A. Pollan(2).................. 18,364,122 1,000,002 25.01 24.50(10)
Joseph L. Schocken(8)................ 1,112,988 -- 1.46 1.27
2800 One Union Square
600 University Street
Seattle, WA 98101
John F. Slevin(9).................... 770,493 4,863 1.01 *
Roland A. Van der Meer(1)............ 13,015,596 -- 17.03 14.89
All directors and executive officers
as a group (16 persons)............ 48,576,203 2,533,695 64.73 59.38(10)
</TABLE>

- ---------------
* Less than 1% of the outstanding shares of common stock.

(1) Includes 12,390,375 shares held by Communication Ventures III, L.P. and
625,221 shares held by Communication Ventures III CEO & Entrepreneurs'
Fund, L.P. The sole general partner of Communication Ventures III, L.P. and
Communication Ventures III CEO & Entrepreneurs' Fund is ComVen III, L.L.C.
The managing members of ComVen III, L.L.C. are Roland Van der Meer, David
Helfrich and Clifford Higgerson. Roland Van der Meer, one of our directors,
and each of the other managing members of ComVen III, L.L.C. disclaim
beneficial ownership of the shares held by Communication Ventures III, L.P.
and Communication Ventures III CEO & Entrepreneurs' Fund, except to the
extent of their pecuniary interest therein.

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<PAGE> 68

(2) Includes 18,364,122 shares held by Internet Capital Group, Inc. and a
warrant to purchase 1,000,002 shares held by Internet Capital Group, Inc.
Robert Pollan is a managing director of Internet Capital Group, Inc. Mr.
Pollan disclaims beneficial ownership of the shares held by Internet
Capital Group, Inc., except to the extent of his pecuniary interest
therein.

(3) Includes 2,286,004 shares held by John Drummond as Trustee for the John
Drummond Declaration of Trust dated July 7, 1999, 1,500,000 shares held by
John Drummond Family Limited Partnership and 30,000 shares held by John
Drummond and Romalda Lopat Siblings Family Limited Partnership.

(4) Includes 4,050,000 shares held by the Zarcone Family Limited Partnership.
The general partner of the Zarcone Family Limited Partnership is Giuseppina
Zarcone.

(5) Includes 4,499,000 shares held by Patrick Shutt as Trustee of the Patrick
C. Shutt Declaration of Trust dated December 22, 1999, an option to
purchase 300,000 shares held individually by Patrick Shutt, and 870,000
shares held by the Shutt Family Limited Partnership. The general partners
of the Shutt Family Limited Partnership are Patrick Shutt and his wife.

(6) Includes 3,885,000 shares held individually by Robert Pommer, Jr., an
option to purchase 300,000 shares held individually by Robert Pommer, Jr.,
200,000 shares held by Elizabeth M. Pommer as Trustee of the Elizabeth M.
Pommer Declaration of Trust dated December 31, 1999 and 1,000,000 shares
are held by the Pommer Family Limited Partnership dated December 31, 1999.

(7) Includes 1,500,000 shares held by the Kapsalis Family Limited Partnership
and 2,201,004 shares held by Thomas Kapsalis as Trustee of the Thomas
Kapsalis Declaration of Trust dated March 2, 1999.

(8) Includes 330,882 shares held by Broadmark Investments, L.L.C., 624,120
shares held by Broadmark Investments, L.L.C., 157,986 shares held by
Broadmark Capital Corporation. Mr. Schocken is a non-member manager of
Broadmark Investments, L.L.C. and is the chairman of Broadmark Capital
Corporation. Mr. Schocken disclaims beneficial ownership of the shares held
by Broadmark Investments, L.L.C. and Broadmark Capital Corporation, except
as to his pecuniary interest therein.

(9) Includes 770,493 shares held by Advanced Equities Investments I, LLC and a
warrant to purchase 4,863 shares held individually by John Slevin. Mr.
Slevin is a non-managing member of Advanced Equities Investments I, LLC and
disclaims beneficial ownership of the shares held by Advanced Equities
Investments I, LLC.

(10) Assumes that Internet Capital Group, Inc. purchases 2,300,000 shares of our
common stock that we have requested the underwriters reserve for them in
this offering although Internet Capital Group, Inc. is under no obligation
to make such purchase.

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<PAGE> 69

DESCRIPTION OF CAPITAL STOCK

GENERAL

We are authorized to issue 1,000,000,000 shares of common stock, $0.01 par
value, and 20,000,000 shares of undesignated preferred stock, $0.01 par value.
The following description of our capital stock does not purport to be complete
and is subject to and qualified by our certificate of incorporation and amended
and restated bylaws, which are included as exhibits to the Registration
Statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.

COMMON STOCK

As of March 15, 2000, there were 76,419,716 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock (assuming no adjustment to the Series E
preferred stock conversion ratio as discussed below), which were held of record
by approximately 228 stockholders.

Our Amended Certificate of Designations provides that each share of Series
E preferred stock will be initially convertible into three shares of common
stock upon the completion of this offering. However, the Series E conversion
ratio for the Series E preferred stock will be multiplied by the lesser of 3.75
and X, where X equals the greater of (A) 1 or (B) the quotient obtained by
dividing (i) $750,000,000 by (ii) the product of (x) the number of shares of
common stock outstanding immediately before this offering is completed (on a
fully diluted and as converted basis, without taking into account additional
shares of common stock that would be issuable to Series E preferred stock as a
result of this adjustment) and (y) the initial public offering price per share
in this offering.

The following example illustrates the effect that this adjustment to the
Series E preferred stock's conversion ratio would have on the number of shares
of our common stock outstanding upon completion of this offering, based on the
87,218,414 shares of common stock outstanding on an as-converted and
fully-diluted basis as of December 31, 1999:

- Because the initial public offering price per share is $14.00, no
adjustment will be made to the conversion ratio. As a consequence, each
share of Series E preferred stock would be convertible into three shares
of common stock, and we would have an aggregate of 85,809,264 shares of
common stock outstanding upon completion of this offering.

The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy". In the event of a liquidation, dissolution or
winding up of Universal Access, the holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of preferred stock, if any, then outstanding. The
common stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon the closing of
this offering will be fully paid and nonassessable.

PREFERRED STOCK

The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. We cannot state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of the preferred stock. However, the effects
might include, among other things, restricting dividends on the

70
<PAGE> 70

common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change in
control of Universal Access without further action by the stockholders. We have
no present plans to issue any shares of preferred stock.

WARRANTS

At March 15, 2000, there were the following warrants outstanding:

- a warrant to purchase a total of 1,000,002 shares of common stock which
will expire on February 8, 2004, unless earlier exercised; and

- a warrant to purchase a total of 120,000 shares of common stock (assuming
no adjustment to the Series E preferred stock conversion ratio) which
will expire on November 10, 2004, unless earlier exercised.

All two of these warrants will remain outstanding after the completion of
this offering and may be exercised on a "net" basis. If a warrant is exercisable
on a "net" basis, instead of paying the exercise price in cash, the holder may
instruct us to retain a number of shares that has a fair market value at the
time of exercise equal to the aggregate exercise price.

REGISTRATION RIGHTS

As of March 15, 2000 the holders of 40,474,617 shares of common stock, as
converted, and the holders of warrants and options to purchase 1,120,002 shares
of common stock, as converted, or their permitted transferees are entitled to
certain rights with respect to registration under the Securities Act of the
shares held by them at any time after 180 days following the closing of this
offering. Subject to limitations specified in the agreements, these registration
rights include the following:

- Piggyback Registration Rights: We must allow the holders of registrable
securities to register all or, any portion of the holder's registrable
securities concurrently with any registration statement we file. These
rights are subject to the right of the underwriter to reduce the number
of shares proposed to be registered in view of market conditions.

- S-3 Registration Rights: The holders of at least twenty percent of the
then outstanding registrable securities may require us to register all or
a portion of their registrable securities on Form S-3 when use of this
form becomes available to us.

- Demand Registration Rights: If at any time prior to February 5, 2007, we
receive a registration request from at least a majority of the holders of
Series B and Series D preferred stock who have registration rights, then
we must prepare, file and use our best efforts to effect up to two
registration statements.

We will bear all registration expenses other than underwriting discounts
and commissions for holders exercising piggyback rights and S-3 registration
rights.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise to remove incumbent officers and directors. These
provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. We believe
that the benefits of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an improvement of
their terms.

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<PAGE> 71

We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of interested
stockholder status, did own) 15% or more of a corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.

Our certificate of incorporation and bylaws require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of our stockholders may be
called only by the board of directors or certain of our officers. Our
certificate of incorporation and bylaws also provide that, beginning upon the
closing of this offering, our board of directors will be divided into three
classes, with each class serving staggered three-year terms, and that certain
amendments of the certificate of incorporation and of the bylaws require the
approval of holders of at least 66 2/3% of the voting power of all outstanding
stock. These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of Universal Access.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is Norwest
Shareholder Services.

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<PAGE> 72

SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there was no public market for our
common stock. Future sales of substantial amounts of common stock in the public
market could adversely affect the market price of the common stock.

Upon completion of this offering, we will have outstanding 87,419,716
shares of common stock, assuming the issuance of 11,000,000 shares of common
stock offered by us and no exercise of options after March 15, 2000, and
assuming no exercise of the underwriters' option to purchase additional shares
in the offering. All of the 11,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act; provided, however, that if shares are purchased by "affiliates" as that
term is defined in Rule 144 under the Securities Act, their sales of shares
would be subject to certain limitations and restrictions that are described
below.

The remaining 76,419,716 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. Of these shares, all 76,419,716
shares will be subject to "lock-up" agreements described below on the effective
date of this offering. On the effective date of this offering, shares not
subject to the lock-up agreements described below will not be eligible for sale
pursuant to Rule 144(k). All of the directors and officers as well as
stockholders collectively holding more than 100% of the outstanding common stock
have entered into lock-up agreements with the underwriters that provide that the
shares set forth in the table below will become eligible for sale on the dates
set forth in the table below, subject in most cases to the limitations of Rule
144. In addition, holders of stock options could exercise such options and sell
certain of the shares issued upon exercise as described below.

<TABLE>
<CAPTION>
APPROXIMATE
SHARES
ELIGIBLE FOR
RELEVANT DATES FUTURE SALE COMMENT
-------------- ------------ -------
<S> <C> <C>
On effective date(1)............... 11,000,000 Shares sold in this offering.
90 days after effective date(2).... -- Shares tradeable under Rules 144
and 701.
Three business days following the
public release of earnings for
the full fiscal quarter next
following the fiscal quarter in
which the date of this prospectus
falls(3)......................... 4,993,772 10% of shares subject to lock-up
released; shares tradeable under
Rule 144 and 701.
180 days after effective date(2)... 60,876,456 All shares subject to lock-up
released; shares tradeable under
Rule 144 and 701.
</TABLE>

- ---------------
(1) Assumes no exercise of the Underwriters' option to purchase additional
shares in the offering.

(2) The effective date is March 16, 2000.

(3) Assumes second quarter results are released on July 15, 2000.

Our officers, directors and stockholders have agreed not to sell or
otherwise dispose of any of their shares until the third business day following
the public release of our earnings for the full fiscal quarter next following
the fiscal quarter in which the date of this prospectus falls, at which time
they may sell or otherwise dispose of 10% of their shares. The remaining 90% of
their shares may be sold or otherwise disposed of on the date that is 180 days
after the date of this prospectus. Goldman, Sachs & Co., however, may in its
sole discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements.
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<PAGE> 73

RULE 144

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

- 1% of the number of shares of common stock then outstanding, which will
equal approximately 874,197 shares immediately after this offering; or

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

Sales under Rule 144 are also subject to certain other requirements
regarding the manner of sale, notice filing and the availability of current
public information about us.

RULE 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate", is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144. Therefore, unless
otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.

RULE 701

In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.

The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than
"affiliates", as defined in Rule 144, subject only to the manner of sale
provisions of Rule 144 and by "affiliates" under Rule 144 without compliance
with its one year minimum holding period requirement.

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<PAGE> 74

UNDERWRITING

Universal Access and the underwriters for the offering (the "Underwriters")
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each Underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., Chase Securities Inc. and FleetBoston Robertson
Stephens Inc. are the representatives of the Underwriters.

<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. ....................................... 4,460,000
Chase Securities Inc........................................ 2,230,000
FleetBoston Robertson Stephens Inc. ........................ 2,230,000
Advanced Equities, Inc. .................................... 125,000
J.C. Bradford & Co. ........................................ 125,000
Broadmark Capital Corporation............................... 125,000
A.G. Edwards & Sons, Inc. .................................. 216,000
First Union Securities, Inc. ............................... 216,000
Edward D. Jones & Co., L.P. ................................ 216,000
Legg Mason Wood Walker, Incorporated........................ 125,000
Loop Capital Markets, LLC................................... 125,000
Sands Brothers & Co., Ltd. ................................. 125,000
SoundView Technology Group, Inc. ........................... 216,000
Tucker Anthony Cleary Gull.................................. 125,000
Wachovia Securities, Inc. .................................. 125,000
Wasserstein Perella Securities, Inc. ....................... 216,000
----------
Total....................................................... 11,000,000
==========
</TABLE>

If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
1,650,000 shares from us to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.

The following tables show the per share and total underwriting discounts
and commissions to be paid to the Underwriters by us. Such amounts are shown
assuming both no exercise and full exercise of the Underwriters' option to
purchase 1,650,000 additional shares.

Paid by the Company

<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.............................................. $ 0.98 $ 0.98
Total.................................................. $10,780,000 $12,397,000
</TABLE>

Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $0.58 per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $0.10 per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.

Universal Access, its directors, officers, employees, and certain
stockholders have agreed with the Underwriters not to sell, contract to sell,
pledge, grant an option to purchase, make a short sale or otherwise dispose of
any of our common stock or securities convertible into or exchangeable for
shares of our common stock during the period from the date of this prospectus
continuing through the

75
<PAGE> 75

lock-up period, except with the prior written consent of Goldman, Sachs & Co. At
any time beginning on the third business day following the public release of our
earnings for the full fiscal quarter next following the fiscal quarter in which
the date of this prospectus falls, each stockholder may sell, contract to sell,
pledge, grant an option to purchase, make a short sale or otherwise dispose of
up to 10% of his or her shares owned as of the date of this prospectus. Each
stockholder may sell, contract to sell, pledge, grant an option to purchase,
make a short sale or otherwise dispose of his or her remaining shares at any
time on or following the date which is 180 days after the date of this
prospectus. This agreement does not apply to any existing employee benefit
plans. See "Shares Available for Future Sale" for a discussion of certain
transfer restrictions.

At the request of Universal Access, the Underwriters have reserved at the
initial public offering price up to 2,300,000 shares of common stock for sale to
an existing stockholder of Universal Access. This stockholder expressed an
interest in purchasing such shares of common stock in this offering. This
stockholder has agreed that, if it does purchase any of such reserved shares,
the reserved shares will be subject to the lock-up described in the immediately
preceding paragraph. There can be no assurance that any of the reserved shares
will be purchased. The number of shares available for sale to the general public
in this offering will be reduced by the number of reserved shares sold. Any
reserved shares not so purchased will be offered to the general public on the
same basis as the other shares offered in this offering.

In addition, at our request, the Underwriters have reserved up to 3.5
percent of the shares of common stock to be issued by Universal Access and
offered in this offering for sale, at the initial public offering price, to
persons with relationships with Universal Access. The number of shares available
for sale to the general public will be reduced to the extent that such persons
purchase such reserved shares. Any reserved shares which are not so purchased
will be offered by the Underwriters to the general public on the same basis as
the other shares of common stock offered by this prospectus.

Universal Access' common stock has been approved for quotation on the
Nasdaq National Market under the symbol "UAXS".

Prior to the offering, there has been no public market for the shares. The
initial public offering price has been negotiated among Universal Access and the
representatives. Among the factors considered in determining the initial public
offering price of the shares, in addition to prevailing market conditions, were
our historical performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.

In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.

The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.

These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

76
<PAGE> 76

A prospectus in electronic format may be made available on the web sites
maintained by one or more underwriters. The underwriters may agree to allocate a
number of shares to underwriters for sale to their online brokerage account
holders. Internet distributions will be allocated by the lead managers to
underwriters that may make Internet distributions on the same basis as other
allocations.

The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.

Universal Access estimates that the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$1,500,000.

Universal Access has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.

WHERE YOU MAY FIND ADDITIONAL INFORMATION

We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the shares of common stock in
this offering. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedule that were filed with the
registration statement. For further information with respect to Universal Access
and our common stock, we refer you to the registration statement and the
exhibits and schedule that were filed with the registration statement.
Statements contained in this prospectus about the contents of any contract or
any other document that is filed as an exhibit to the registration statement are
not necessarily complete, and we refer you to the full text of the contract or
other document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedule that were filed with the
registration statement may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission at the SEC's
Public Reference Room at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from the SEC upon payment of the prescribed fee. Information on the
operations of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The Securities and Exchange Commission maintains a World Wide
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of the site is http://www.sec.gov.

Upon completion of this offering, Universal Access will become subject to
the information and periodic reporting requirements of the Securities Exchange
Act of 1934, and, in accordance with the requirements of the Securities Exchange
Act of 1934, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. These periodic reports, proxy
statements and other information will be available for inspection and copying at
the regional offices, public reference facilities and web site of the Securities
and Exchange Commission referred to above.

VALIDITY OF COMMON STOCK

The validity of the shares of common stock offered hereby will be passed
upon for Universal Access by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California and for the underwriters by Sullivan &
Cromwell, Los Angeles, California. As of the date of this prospectus, WS
Investment Company 99B, an investment partnership composed of certain current
and former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and certain other members and employees of
Wilson Sonsini Goodrich & Rosati beneficially own 105,894 shares of our common
stock.

77
<PAGE> 77

EXPERTS

The financial statements as of December 31, 1997, 1998 and 1999 and for the
period from October 7, 1997 (inception) to December 31, 1997, and the years
ended December 31, 1998 and 1999 included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

78
<PAGE> 78

UNIVERSAL ACCESS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNIVERSAL ACCESS, INC.
Report of Independent Accountants........................... F-2
Balance Sheet as of December 31, 1998 and 1999.............. F-3
Statement of Operations for the period from inception
through December 31, 1997, and the years ended December
31, 1998 and 1999......................................... F-4
Statement of Cash Flows for the period from inception
through December 31, 1997, and the years ended December
31, 1998 and 1999......................................... F-5
Statement of Changes in Stockholders' (Deficit) Equity for
the period from inception through December 31, 1997, and
the years ended December 31, 1998 and 1999................ F-6
Notes to Financial Statements............................... F-7
PACIFIC CREST NETWORKS, INC. D/B/A THE POND
Report of Independent Accountants........................... F-22
Balance Sheet as of December 31, 1997 and 1998 and June 30,
1999 (unaudited).......................................... F-23
Statement of Operations for the years ended December 31,
1997 and 1998 and the six months ended June 30, 1998 and
1999 (unaudited).......................................... F-24
Statement of Cash Flows for the years ended December 31,
1997 and 1998 and the six months ended June 30, 1998 and
1999 (unaudited).......................................... F-25
Statement of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1999 (unaudited).................... F-26
Notes to Financial Statements............................... F-27
STUFF SOFTWARE, INC.
Report of Independent Accountants........................... F-34
Balance Sheet as of December 31, 1997 and 1998 and September
30, 1999 (unaudited)...................................... F-35
Statement of Operations for the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1998
and 1999 (unaudited)...................................... F-36
Statement of Cash Flows for the years ended December 31,
1997 and 1998 and the nine months ended September 30, 1998
and 1999 (unaudited)...................................... F-37
Statement of Changes in Stockholders' Deficit for the years
ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999 (unaudited)............................ F-38
Notes to Financial Statements............................... F-39
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Statement of Operations........ F-41
Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1999.............................. F-42
Note to Unaudited Pro Forma Combined Financial Statements... F-43
</TABLE>

F-1
<PAGE> 79

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Universal Access, Inc.

In our opinion, the accompanying balance sheet and the related statements
of operations, of cash flows and of changes in stockholders' (deficit) equity
present fairly, in all material respects, the financial position of Universal
Access, Inc. at December 31, 1998 and 1999, and the results of its operations
and its cash flows for the period from October 2, 1997 (date of inception)
through December 31, 1997 and the years ended December 31, 1998 and 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
February 17, 2000

F-2
<PAGE> 80

UNIVERSAL ACCESS, INC.

BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ DECEMBER 31,
1998 1999 1999
------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 844 $ 38,024
Accounts receivable, net.................................. 657 2,996
Prepaid expenses.......................................... 15 1,027
Security deposits......................................... 85 426
Other receivables......................................... -- 447
------- --------
Total current assets................................ 1,601 42,920
Restricted cash............................................. 149 --
Property and equipment, net................................. 219 18,888
Intangible assets, net...................................... -- 2,457
Other....................................................... -- --
------- --------
Total assets........................................ $ 1,969 $ 64,265
======= ========
LIABILITIES, REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable.......................................... $ 577 $ 3,673
Regulatory taxes payable.................................. 28 1,067
Accrued compensation...................................... -- 641
Accrued expenses and other current liabilities............ 47 860
Unearned revenue.......................................... 381 2,113
Notes payable -- shareholders............................. 126 --
Notes payable and current portion of term loans........... -- 1,019
Current obligations under capital leases.................. -- 210
Unissued Series A......................................... 1,004 --
------- --------
Total current liabilities........................... 2,163 9,583
Notes payable and term loans................................ 149 2,246
Obligations under capital leases, net of current portion.... -- 123
Security deposits payable................................... -- 271
------- --------
Total liabilities................................... 2,312 12,223
Commitments and contingencies (Note 7)
Series A Redeemable Cumulative Convertible Preferred Stock,
no par value; 1,000,000 shares authorized; 335,334 shares
issued and outstanding plus accrued dividends of $20
(liquidation value of $903) (Note 12)..................... 903 --
Series A warrants (Note 12)................................. 36 --
------- --------
Total redeemable cumulative convertible preferred
stock............................................... 939 --
------- --------
Stockholders' (deficit) equity:
Preferred Stock:
Series A Cumulative Convertible, $.01 par value;
1,000,000 shares authorized; 772,331 shares issued and
outstanding plus accrued dividends of $196 (liquidation
value of $2,208)....................................... -- 2,208 --
Series A warrants....................................... -- 83 --
Series B Cumulative Convertible, $.01 par value;
2,400,000 shares authorized; 2,233,335 shares issued
and outstanding plus accrued dividends of $298
(liquidation value of $5,531).......................... -- 5,531 --
Series B warrants....................................... -- 500 --
Series C Convertible, $.01 par value; 667,000 shares
authorized; 666,667 shares issued and outstanding
(liquidation value of $1,941).......................... -- 1,941 --
Series D Cumulative Convertible, $.01 par value;
7,058,823 shares authorized; 6,042,697 shares issued
and outstanding plus accrued dividends of $663
(liquidation value of $26,220)......................... -- 27,102 --
Series E Cumulative Convertible, $.01 par value,
1,597,386 shares authorized; 1,557,385 shares issued
and outstanding plus accrued dividends of $50
(liquidation value of $27,954)......................... -- 27,954 --
Series E warrants....................................... -- 136 --
Common stock, $.01 par value; 300,000,000 shares
authorized; 30,300,000 and 31,975,021 shares issued and
outstanding; 74,809,264 December 31, 1999 pro forma
shares issued
and outstanding(1)...................................... 225 320 $ 748
Common stock warrants..................................... -- 13 732
Additional paid-in-capital................................ 1,991 22,930 87,238
Deferred stock option plan compensation................... (1,302) (11,909) (11,909)
Accumulated deficit....................................... (2,196) (23,039) (23,039)
Notes receivable -- employees............................. -- (1,728) (1,728)
------- -------- --------
Total stockholders' (deficit) equity................ (1,282) 52,042 52,042
------- -------- --------
Total liabilities, redeemable cumulative convertible
preferred stock and stockholders' (deficit)
equity.............................................. $ 1,969 $ 64,265
======= ========
</TABLE>

- ---------------
(1) Assumes 3-for-1 Series E Preferred Stock conversion. All other preferred
stock is converted at ratios disclosed in Note 12.
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 81

UNIVERSAL ACCESS, INC.

STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE
FROM YEAR ENDED
INCEPTION TO DECEMBER 31,
DECEMBER 31, ------------------
1997 1998 1999
------------ ------- --------
<S> <C> <C> <C>
Revenues:
Circuit access.................................... $ 77 $ 1,589 $ 13,360
Universal Transport Exchange...................... -- 40 601
Other............................................. -- -- 298
------- ------- --------
Total revenues............................... 77 1,629 14,259
------- ------- --------
Operating expenses:
Cost of circuit access............................... 66 1,256 12,021
Operations and administration (excluding stock option
plan compensation)................................ 180 1,516 13,607
Operations and administration (stock option plan
compensation)..................................... -- 689 8,146
Depreciation......................................... -- 47 829
------- ------- --------
Total operating expenses..................... 246 3,508 34,603
------- ------- --------
Operating loss............................... (169) (1,879) (20,344)
------- ------- --------
Other (expense) income:
Interest expense..................................... (1) (27) (81)
Interest income...................................... -- 8 739
Other expense........................................ -- (100) 33
------- ------- --------
Total other (expense) income................. (1) (119) 691
------- ------- --------
Net loss............................................... (170) (1,998) (19,653)
Accretion and dividends on redeemable and nonredeemable
cumulative convertible preferred stock............... -- (28) (10,207)
------- ------- --------
Net loss applicable to common stockholders............. $ (170) $(2,026) (29,860)
======= ======= ========
Basic and diluted net loss per share................... $ (0.01) $ (0.07) $ (0.96)
Shares used in computing basic and diluted net loss per
share................................................ 23,799 29,063 31,142
Pro forma basic and diluted net loss per share......... $ (0.07) $ (0.50)
Shares used in computing unaudited pro forma basic and
diluted net loss per share........................... 30,069 56,855
</TABLE>

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

F-4
<PAGE> 82

UNIVERSAL ACCESS, INC.

STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
FROM YEAR ENDED
INCEPTION TO DECEMBER 31,
DECEMBER 31, -----------------------
1997 1998 1999
------------ ------------ --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(170) $(1,998) $(19,653)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation............................................ -- 47 829
Amortization............................................ -- -- 113
Stock option plan compensation.......................... -- 689 8,146
Stock issued for services............................... -- -- 992
Provision for doubtful accounts......................... 4 42 867
Changes in operating assets and liabilities:
Accounts receivable................................... (48) (655) (3,096)
Prepaid expenses and other current assets............. -- (15) (1,051)
Security deposits..................................... (54) (31) (341)
Accounts payable...................................... 56 521 2,314
Accrued expenses and other current liabilities........ 2 73 2,318
Unearned revenue...................................... -- 381 1,669
----- ------- --------
Net cash used for operating activities............. (210) (946) (6,893)
----- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Pacific Crest Networks, Inc................... -- -- (907)
Purchase of Stuff Software, Inc........................... -- -- (930)
Purchase of property and equipment........................ (1) (265) (17,742)
----- ------- --------
Net cash used for investing activities............. (1) (265) (19,579)
----- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on line of credit................................ -- 378 750
Payments on line of credit................................ -- (378) (900)
Proceeds from term loans.................................. 76 199 3,394
Payments on notes payable and term loans.................. -- -- (481)
Payments on capital lease obligations..................... -- -- (84)
Disbursements under note receivable -- employee........... -- -- (200)
Lapse of restriction on cash balance...................... -- -- 149
Proceeds from unissued Series A Preferred Stock........... -- 1,004 --
Proceeds from issuance of Series A Preferred Stock........ -- 875 122
Proceeds from issuance of Series B Preferred Stock........ -- -- 4,565
Proceeds from issuance of Series C Preferred Stock........ -- -- 1,941
Proceeds from issuance of Series D Preferred Stock........ -- -- 25,097
Proceeds from issuance of Series E Preferred Stock........ -- -- 27,904
Proceeds from issuance of common stock.................... 136 89 --
Proceeds from issuance of Series A Preferred Stock
warrants................................................ -- 36 47
Proceeds from issuance of Series B Preferred Stock
warrants................................................ -- -- 1,197
Proceeds from issuance of common stock warrants........... -- -- 13
Proceeds from exercise of Series B Preferred Stock
warrants................................................ -- -- 2
Proceeds from issuance of Series E Preferred Stock
warrants................................................ -- -- 136
Cash deposit to collateralize note payable, net........... -- (149) --
----- ------- --------
Net cash provided by financing activities.......... 212 2,054 63,652
----- ------- --------
Net increase in cash and cash equivalents................... 1 843 37,180
Cash and cash equivalents, beginning of period.............. -- 1 844
----- ------- --------
Cash and cash equivalents, end of period.................... $ 1 $ 844 $ 38,024
===== ======= ========
</TABLE>

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

F-5
<PAGE> 83

UNIVERSAL ACCESS, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DEFERRED
PREFERRED STOCK PREFERRED COMMON STOCK COMMON ADDITIONAL STOCK OPTION
------------------- STOCK ------------------- STOCK PAID-IN PLAN
SHARES AMOUNT WARRANTS SHARES AMOUNT WARRANTS CAPITAL COMPENSATION
--------- ------- --------- ---------- ------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 2, 1997........ -- $ -- $ -- -- $ -- $-- $ -- $ --
Issuance of common stock.......... -- -- -- 23,799,000 136 -- -- --
Net loss.......................... -- -- -- -- -- -- -- --
--------- ------- ------ ---------- ---- --- ------- --------
Balance at December 31, 1997...... -- -- -- 23,799,000 136 -- -- --
Issuance of common stock.......... 6,201,000 89 -- -- --
Issuance of Series A Preferred
Stock............................ -- -- -- --
Issuance of Series A Preferred
Stock Warrants................... -- -- -- --
Exercise of stock options......... -- -- -- 300,000 -- -- -- --
Deferred stock option plan
compensation..................... -- -- -- -- -- -- 1,991 (1,991)
Stock option plan compensation.... -- -- -- -- -- -- -- 689
Net loss.......................... -- -- -- -- -- -- -- --
Accretion and dividends on
Redeemable Series A Preferred
Stock............................ -- -- -- -- -- -- -- --
--------- ------- ------ ---------- ---- --- ------- --------
Balance at December 31, 1998...... -- -- -- 30,300,000 225 -- 1,991 (1,302)
Accretion and dividends on
Redeemable Series A
Preferred Stock.................. -- -- -- -- -- -- -- --
Termination of mandatory
redemption feature of Series A
Preferred Stock.................. 335,334 912 36 -- -- -- -- --
Issuance of Series A Preferred
Stock............................ 436,997 1,126 -- -- -- -- -- --
Issuance of Series A Preferred
Stock warrants................... -- -- 47 -- -- -- -- --
Issuance of Series B Preferred
Stock............................ 2,000,000 4,534 -- -- -- -- -- --
Issuance of Series B Preferred
Stock warrants................... -- -- 1,197 -- -- -- -- --
Issuance of Series C Preferred
Stock............................ 666,667 1,941 -- -- -- -- -- --
Issuance of Series D Preferred
Stock............................ 6,042,697 26,439 -- -- -- -- -- --
Issuance of Series E Preferred
Stock............................ 1,557,385 27,904
Issuance of Series E Preferred
Stock warrants................... -- -- 136 -- -- -- -- --
Reincorporation in Delaware....... -- -- -- -- 78 -- (78) --
Issuance of common stock.......... -- -- -- 375,021 4 -- 761 --
Issuance of common stock
warrants......................... -- -- -- -- -- 13 -- --
Issuance of common stock options
by certain shareholders.......... -- -- -- -- -- -- 31 --
Exercise of Series B Preferred
Stock warrants................... 233,335 699 (697) -- -- -- -- --
Exercise of common stock
options.......................... -- -- -- 1,300,000 13 -- 1,472 --
Note receivable -- employee....... -- -- -- -- -- -- -- --
Interest on employee notes........ -- -- -- -- -- -- -- --
Deferred stock option plan
compensation..................... -- -- -- -- -- -- 14,142 (14,142)
Stock option plan compensation.... -- -- -- -- -- -- 4,611 3,535
Net loss.......................... -- -- -- -- -- -- -- --
Dividends on Series A Preferred
Stock............................ -- 170 -- -- -- -- -- --
Dividends on Series B Preferred
Stock............................ -- 298 -- -- -- -- -- --
Dividends on Series D Preferred
Stock............................ -- 663 -- -- -- -- -- --
Dividends on Series E Preferred
Stock............................ -- 50 -- -- -- -- -- --
Allocation of discount on
Preferred Stock.................. -- -- -- -- -- -- 9,020 --
Deemed Preferred Stock dividend... -- -- -- -- -- -- (9,020) --
--------- ------- ------ ---------- ---- --- ------- --------
Balance at December 31, 1999...... 11,272,415 $64,736 $ 719 31,975,021 $320 $13 $22,930 $(11,909)
========= ======= ====== ========== ==== === ======= ========

ACCUMULATED NOTES RECEIVABLE --
DEFICIT EMPLOYEES TOTAL
----------- ------------------- -------
<S> <C> <C> <C>
Balance at October 2, 1997........ $ -- $ -- $ --
Issuance of common stock.......... -- -- 136
Net loss.......................... (170) -- (170)
-------- ------- -------
Balance at December 31, 1997...... (170) -- (34)
Issuance of common stock.......... -- -- 89
Issuance of Series A Preferred
Stock............................
Issuance of Series A Preferred
Stock Warrants...................
Exercise of stock options......... -- -- --
Deferred stock option plan
compensation..................... -- -- --
Stock option plan compensation.... -- -- 689
Net loss.......................... (1,998) -- (1,998)
Accretion and dividends on
Redeemable Series A Preferred
Stock............................ (28) -- (28)
-------- ------- -------
Balance at December 31, 1998...... (2,196) -- (1,282)
Accretion and dividends on
Redeemable Series A
Preferred Stock.................. (9) -- (9)
Termination of mandatory
redemption feature of Series A
Preferred Stock.................. -- -- 948
Issuance of Series A Preferred
Stock............................ -- -- 1,126
Issuance of Series A Preferred
Stock warrants................... -- -- 47
Issuance of Series B Preferred
Stock............................ -- -- 4,534
Issuance of Series B Preferred
Stock warrants................... -- -- 1,197
Issuance of Series C Preferred
Stock............................ -- -- 1,941
Issuance of Series D Preferred
Stock............................ -- 26,439
Issuance of Series E Preferred
Stock............................ 27,904
Issuance of Series E Preferred
Stock warrants................... -- -- 136
Reincorporation in Delaware....... -- -- --
Issuance of common stock.......... -- -- 765
Issuance of common stock
warrants......................... -- -- 13
Issuance of common stock options
by certain shareholders.......... -- -- 31
Exercise of Series B Preferred
Stock warrants................... -- -- 2
Exercise of common stock
options.......................... -- (1,485) --
Note receivable -- employee....... -- (200) (200)
Interest on employee notes........ -- (43) (43)
Deferred stock option plan
compensation..................... -- -- --
Stock option plan compensation.... -- -- 8,146
Net loss.......................... (19,653) -- (19,653)
Dividends on Series A Preferred
Stock............................ (170) -- --
Dividends on Series B Preferred
Stock............................ (298) -- --
Dividends on Series D Preferred
Stock............................ (663) -- --
Dividends on Series E Preferred
Stock............................ (50) -- --
Allocation of discount on
Preferred Stock.................. -- -- 9,020
Deemed Preferred Stock dividend... -- -- (9,020)
-------- ------- -------
Balance at December 31, 1999...... $(23,039) $(1,728) $52,042
======== ======= =======
</TABLE>

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

F-6
<PAGE> 84

UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Universal Access, Inc. (the "Company" or "UAI"), was organized and
commenced operations on October 2, 1997 for the purpose of facilitating the
provisioning, installation and servicing of dedicated communications circuits
for service providers who buy network capacity and transport suppliers who sell
network capacity. UAI provides dedicated circuit access and leases space in the
Company's Universal Transport Exchanges, or UTXs, where transport suppliers can
access the network connections of other transport suppliers. UAI operated as a
subchapter S-Corporation until September 27, 1998, at which time it converted to
a C-Corporation.

UNAUDITED PRO FORMA BALANCE SHEET

Upon the closing of UAI's initial public offering, all of the shares of
preferred stock outstanding as of December 31, 1999 will automatically convert
into 42,834,243 shares of common stock and all preferred stock warrants
outstanding as of December 31, 1999 will automatically convert into warrants to
purchase an aggregate of 1,583,400 shares of common stock. These conversions
have been reflected in the unaudited pro forma balance sheet as of December 31,
1999. These conversions contemplate a 3-to-1 conversion ratio for Series E
Cumulative Convertible Preferred Stock and Series E Cumulative Convertible
Preferred Stock Warrants. This conversion ratio is subject to increase as
described in Note 12.

NET LOSS PER SHARE

Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. Diluted loss per share does not differ from
basic loss per share since potential common shares from conversion of preferred
stock, stock options and warrants are anti-dilutive for all periods presented.
Pro forma basic and diluted net loss per share have been calculated assuming the
conversion of all shares of preferred stock outstanding during each period
presented into common shares, as if the shares had converted immediately upon
their issuance.

REVENUE RECOGNITION

The following is UAI's revenue recognition policy for each type of revenue:

Circuit access -- This is revenue earned by providing customers with
dedicated circuit access. Customers subscribe to circuit access services under
contracts ranging from twelve to sixty months. Circuit access is billed in
advance on a monthly basis. UAI recognizes revenue for circuit access as the
service is provided, and advanced billings are recorded as unearned revenue.

Universal Transport Exchange (UTX) -- This is revenue earned by leasing
space in UAI facilities to network service providers and transport suppliers so
that they can place network equipment that may be connected to other network
service providers and transport suppliers in the UTX facility. UTX revenue is
billed in advance on a monthly basis. UAI recognizes UTX revenue on a
straight-line basis over the duration of the UTX lease, and advanced billings
are recorded as unearned revenue.

Installation revenue -- This is revenue earned by installing a customer
circuit or installing customer UTX equipment. Through December 31, 1999, no
installation revenue has been recognized. Material installation revenue will be
recognized proportionately over the term of the related circuit access
agreement.

F-7
<PAGE> 85
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, money market funds and all
investments with an initial maturity of three months or less. All cash
equivalents are recorded at cost.

ACCOUNTS RECEIVABLE

The allowance for doubtful accounts was $4,000, $46,000 and $649,000 at
December 31, 1997 and 1998 and 1999, respectively.

Financial instruments that could potentially subject UAI to concentration
of credit risk primarily include accounts receivable. As of December 31, 1999,
two customers represented 55% of accounts receivable. During 1999, one customer
represented 38% of total revenues. As of December 31, 1998, two customers
represented 38% of total accounts receivable and an aggregate of 29% of total
revenues during 1998. As of December 31, 1997, three customers represented 94%
of total accounts receivable and 81% of total revenues during 1997. If any of
these individually significant customers are unable to meet their financial
obligations, results of operations of the Company could be adversely affected.

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees or directors in fixed amounts and with fixed exercise prices
at least equal to the fair market value of the Company's common stock at the
date of grant. The Company has adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," through disclosure only (Note 10).
All stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.

COMPREHENSIVE INCOME

SFAS No. 130 requires that a full set of general purpose financial
statements include the reporting of "comprehensive income." Comprehensive income
is comprised of two components: net income and other comprehensive income, with
other comprehensive income being comprised of foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. During the periods ended December 31,
1997, 1998 and 1999, comprehensive income was comprised solely of net income. As
a result, the adoption of SFAS No. 130 had no impact on the Company's financial
statements.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost with depreciation and
amortization provided for using the straight-line method. Leasehold improvements
are amortized over the life of the lease. Depreciable lives used by the Company
for its classes of assets are as follows:

<TABLE>
<S> <C>
Furniture and fixtures...................................... 3 years
UTX equipment............................................... 7 years
Computer hardware and other equipment....................... 3 years
</TABLE>

Repairs and maintenance, which do not significantly increase the life of
the related assets, are expensed as incurred.

F-8
<PAGE> 86
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SOFTWARE CAPITALIZATION

UAI purchases software and performs certain modification and development
activities on this software. All purchased and developed software is intended
for internal use, and accordingly, UAI accounts for these costs in accordance
with the provisions of SOP 98-1. Software costs are amortized on a straight-line
basis over a period of three years.

INTANGIBLE ASSETS

The excess of purchase price over net assets of acquired businesses is
allocated among the identifiable intangible assets purchased and goodwill.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives, generally five years.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews its long-lived assets, including property, equipment
and intangibles, whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The Company estimates the future cash
flows expected to result from the asset, and if the sum of the expected
undiscounted future cash flows is less than the carrying amount of the long-
lived asset, the Company recognizes an impairment loss by reducing the
depreciated cost of the long-lived asset to its estimated fair value. To date,
the Company has not recognized impairment losses on any long-lived assets.

INCOME TAXES

On September 27, 1998, UAI changed status from an S-Corporation to a
C-Corporation. As of this date, the Company established a deferred tax asset
which reflects the tax consequences in future years of differences between the
tax basis of assets and liabilities and their financial reporting amounts. The
deferred tax asset was recorded net of a valuation allowance to reduce the
deferred tax asset to an amount that is more likely than not to be realized.

Prior to September 27, 1998, all attributes for federal income taxes passed
through to the stockholders. Accordingly, no income tax provision or deferred
tax amounts were recorded prior to this date. Had the Company been a
C-Corporation from October 2, 1997 (inception) to September 27, 1998, no income
taxes would have been due since the Company incurred losses during this time
period.

NOTE 2 -- STOCK SPLITS AND DIVIDEND

The Company effected a 500-for-1 common stock split in July 1998, a 2-for-1
common stock split in February 1999, a 3-for-2 common stock split in June 1999
and declared a 1-for-1 stock dividend in September 1999. All share and per share
amounts have been retroactively restated to reflect such splits and the
dividend.

F-9
<PAGE> 87
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 -- ACQUISITIONS

On July 30, 1999, UAI acquired substantially all of the assets and
liabilities of Pacific Crest Networks, Inc ("PCN") in exchange for $833,000 in
cash, $224,000 in the assumption of debt, and 82,353 shares of Series D
Preferred Stock with a fair market value of $4.25 per share. Assets purchased
included all property and equipment, cash accounts, receivables, software,
customer lists and intellectual property. Also, as part of purchase, UAI assumed
certain liabilities of PCN including $276,000 of accounts payable, $418,000 of
obligations under capital leases, and obligations under operating leases and
vendor contracts. This acquisition was accounted for under the purchase method
of accounting. UAI assigned $1,245,000 to identifiable intangible assets and
goodwill and is amortizing this amount on a straight-line basis over a period of
five years, which represents the estimated useful lives of these intangible
assets.

On November 1, 1999, UAI acquired substantially all of the assets of Stuff
Software, Inc. ("SSI") in exchange for $930,000 in cash and 50,021 shares of UAI
common stock with an estimated fair market value of $6.10 per share. Assets
purchased include accounts receivable, customer lists, software and intellectual
property. This acquisition was accounted for under the purchase method of
accounting. UAI assigned $1,320,000 to identifiable intangible assets and is
amortizing this amount on a straight-line basis over a period of five years. SSI
developed software and databases for the telecommunications industry. UAI will
use the assets acquired from SSI to further enhance the development of Universal
Information Exchange services.

The following unaudited pro forma information presents the results of
operations as if the PCN and SSI acquisitions had occurred at the beginning the
periods shown after taking into account the effect of certain adjustments and
eliminations. This summary is not necessarily indicative of what the results of
operations of UAI, PCN and SSI would have been if they were a single entity
during such periods, nor does it purport to represent results of operations for
any future periods (in thousands, except per share data).

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1998 1999
------ -------
<S> <C> <C>
Revenues.................................................... $2,294 $14,906
Net loss.................................................... $2,369 16,381
Basic and fully diluted loss per share...................... $ 0.08 $ 0.56
</TABLE>

NOTE 4 -- PROPERTY AND EQUIPMENT

Property and equipment consists of the following, stated at cost (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
---- -------
<S> <C> <C>
Furniture and fixtures...................................... $119 $ 885
UTX equipment............................................... 85 16,234
Computer hardware and software.............................. -- 2,453
Other equipment............................................. 62 56
---- -------
266 19,628
Less: Accumulated depreciation and amortization............. (47) (740)
---- -------
Property and equipment, net............................... $219 $18,888
==== =======
</TABLE>

F-10
<PAGE> 88
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1999, $403,000 of the gross amount of computer hardware is
subject to capital leases. Accumulated amortization on this equipment was
$70,000 at December 31, 1999.

Software costs capitalized during the period from October 2, 1997, to
December 31, 1997, and during 1998 and 1999 were $0, $0 and $247,000,
respectively. These costs are being amortized on a straight-line basis over a
period of 3 years.

NOTE 5 -- NOTES PAYABLE AND DEBT

Notes payable are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- ------
<S> <C> <C>
Term loans (interest at 14.91%)............................. $ -- $3,188
Note payable -- Bank........................................ 149
Notes payable to shareholders............................... 126 --
Note payable (interest at 10%).............................. -- 20
Note payable -- City of Eugene, OR (interest at 7%)......... -- 57
---- ------
$275 $3,265
==== ======
</TABLE>

In December 1999, the Company entered into three separate term loans in the
aggregate amount of $3,300,000. Equal monthly principal and interest payments
are due commencing on December 15, 1999 and continuing through November 15,
2002. Principal amounts due under this term loan are as follows:
2000 -- $942,000, 2001 -- $1,092,000, 2002 -- $1,154,000. These notes are
collaterized by certain UAI equipment and also require UAI to maintain an
unrestricted cash balance of at least $15 million.

In November 1997 and March 1998, the Company entered into separate note
payable agreements with two of its shareholders in the original principal
amounts of $76,000 and $50,000, respectively. The notes payable bear interest at
rates of 8.25% and 12%, respectively, and are due upon demand. The note with the
original principal amount of $76,000 is collateralized by a $63,000 security
deposit. The $50,000 note payable is unsecured. These notes were repaid in full
during 1999.

In November 1998, the Company entered into a 36-month term loan agreement
with a bank, in the original principal amount of $149,000, for the purchase of
office furniture and equipment. The note payable is collateralized by the
Company's property and equipment, cash deposits and money market accounts with
the Bank. This note was repaid in full during 1999.

In connection with the July 30, 1999 purchase of PCN, UAI assumed the
following debt: $150,000 note payable with a bank, $20,000 note payable to an
individual and a $54,000 note payable to the City of Eugene, OR. The $150,000
note payable to the bank was paid in full prior to December 31, 1999. The other
notes remain outstanding at December 31, 1999. The $20,000 note payable bears
interest at a rate of 10% payable monthly. The entire principal is due on
December 17, 2000. The note can be prepaid by the Company at any time without
penalty. The $54,000 City of Eugene, OR note payable bears interest at 7%. The
entire balance was due on August 1, 1999. This balance was paid in full in
February 2000.

The Company executed unsecured promissory notes with a shareholder dated
December 29, 1998, in the original aggregate principal amount of $100,000. The
notes bear interest at a rate of 10% per year and are due upon demand, after
March 31, 1999. The Company did not receive the proceeds of these promissory
notes until after December 31, 1998; as such the notes payable were offset by
the proceeds receivable at that date for presentation purposes.

F-11
<PAGE> 89
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1999, the Company has two line of credit arrangements to
borrow up to a total of $10,000,000. The line of credit arrangements permit
borrowings of $6,000,000 and $4,000,000 and expire in August of 2000 and April
of 2000, respectively. The available line of credit is reduced by the amount of
outstanding letters of credit. As of December 31, 1999, UAI has outstanding
letters of credit of $3,804,000, resulting in a total available line of credit
of $6,196,000. The $4,000,000 line of credit requires UAI to maintain a cash
balance in a custodial account at an amount not less than the total borrowings
and letters of credit outstanding.

NOTE 6 -- INCOME TAXES

There is no current provision or benefit for income taxes recorded for the
period from September 27, 1998, the date of C-Corporation conversion, to
December 31, 1999, as the Company has generated net operating losses for income
taxes purposes for which there is no carryback potential. There is no deferred
provision or benefit for income taxes recorded as the Company is in a net
deferred tax asset position for which a full valuation allowance has been
recorded due to uncertainty of realization.

The components of the deferred income tax asset are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
----- -------
<S> <C> <C>
Net operating loss....................................... $ 93 $ 3,920
Allowance for doubtful accounts.......................... 19 252
Accrued vacation and other............................... 39 55
----- -------
151 4,227
Valuation allowance...................................... (151) (4,227)
----- -------
Total.................................................. $ -- $ --
===== =======
</TABLE>

At December 31, 1999, the Company had federal and state net operating loss
carryforwards of $10,091,000. These federal and state net operating loss
carryforwards expire at various dates beginning in 2018. Due to the uncertainty
that UAI will generate future earnings sufficient to realize the benefit of
these net operating loss carryforwards, a valuation allowance for the full
amount of the deferred tax asset has been recorded. Additionally, Section 382 of
the Internal Revenue Code imposes annual limitations on the use of net operating
loss carryforwards if there is a change in ownership, as defined, within any
three-year period. The utilization of certain net operating loss carryforwards
may be limited due to the Company's capital stock transactions.

F-12
<PAGE> 90
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 7 -- COMMITMENTS AND CONTINGENCIES

The Company leases UTX facilities, office facilities and certain equipment
over periods ranging from two to fifteen years. Total rent expense during 1997,
1998 and 1999 was $0, $46,000 and $832,000, respectively. Future rentals for
operating leases are as follows at December 31, 1999 (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 2,410
2001........................................................ 2,617
2002........................................................ 2,677
2003........................................................ 2,730
2004........................................................ 2,835
Thereafter.................................................. 18,155
-------
Total minimum lease payments.............................. $31,424
=======
</TABLE>

In addition to the leases, the Company has entered into leased line
agreements with telecommunications vendors for high-capacity bandwidth. These
leases are cancelable at any time with a maximum 30-day notice. The Company, in
turn, contracts with customers for the use of the leased high-capacity
bandwidth. The customer contracts generally provide for cancellation penalties
equal to the sum of all payments due through the remainder of the contract, less
6%.

The Company also leases certain equipment under capital leasing
arrangements with periods ranging from two to five years. Future minimum lease
payments as of December 31, 1999 related to the capital leasing arrangements are
as follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 250
2001........................................................ 143
-----
Total minimum capital lease payments........................ 393
Less: imputed interest...................................... (60)
-----
Present value of minimum capital lease payments............. 333
Less: current portion....................................... (210)
-----
Long-term capital lease obligations......................... $ 123
=====
</TABLE>

The Company also has entered into non-cancelable agreements with various
telecommunications vendors to purchase minimum amounts of network services on a
monthly basis. The total amount of these purchase commitments at December 31,
1999 are as follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 13,356
2001........................................................ 21,065
2002........................................................ 21,043
2003........................................................ 19,025
2004........................................................ 18,001
Thereafter.................................................. 41,250
--------
Total minimum purchase commitments........................ $133,740
========
</TABLE>

UAI has standby letters of credit which have been issued on its behalf
totaling $3,804,000 securing performance of certain contracts with carriers and
landlords. These letters of credit expire in April 2000 and August 2000, in the
amounts of $1,656,000 and $2,148,000, respectively.

In February 2000 a complaint was filed in the Superior Court of California,
County of Santa Clara, against UAI and other parties by Point West Ventures,
L.P., previously known as Fourteen Hill Capital,

F-13
<PAGE> 91
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

L.P. and certain other shareholders in Vaultline Incorporated. The claim arises
out of a letter of intent that UAI entered into in December 1998 relating to
UAI's potential acquisition of Vaultline. The letter stated that it was not
binding on the parties except with respect to a $250,000 advance to be made by
UAI and certain obligations of Vaultline. The letter contemplated that UAI would
undertake a due diligence investigation of Vaultline. After performing the due
diligence, UAI determined not to complete the transaction and entered into a
mutual settlement agreement and release. Subsequently, Vaultline ceased doing
business. The claimants contend that the mutual settlement agreement executed by
the president of Vaultline was unauthorized. They allege that UAI, certain of
UAI's officers and others conspired to deprive them of their interests in
Vaultline. They are seeking damages in excess of $10,000,000. UAI believes all
legal obligations were satisfied and intends to vigorously contest any claims
relating to this matter. Accordingly, no amount has been accrued as a liability
as of December 31, 1998 and 1999.

The Company is involved in various other legal matters in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse impact on the Company's financial
position, results of operations or cash flows.

NOTE 8 -- RELATED PARTY TRANSACTIONS

During 1998, UAI entered into certain transactions with shareholders and
directors for the lease of office space and pager equipment. Rent expense for
these leases approximated $65,000 in 1998. There was no related party rent
expense incurred in 1999.

During 1998 and 1999, UAI paid Broadmark Capital Corporation ("Broadmark"),
an entity for which a member of the UAI Board of Directors serves as Chairman,
certain consideration in exchange for services rendered related to the sale of
preferred stock. During 1999, UAI paid cash amounts of $162,000, $200,000 and
$140,000 to Broadmark in connection with the sale of Series A, B and D
Cumulative Convertible Preferred Stock, respectively. These amounts were
recorded as issuance costs, and deducted from the gross proceeds of the
respective preferred stock series. During 1999, UAI issued to Broadmark 360,000
common stock warrants with an exercise price of $.50 in connection with services
rendered related to the issuance of Series B Cumulative Convertible Preferred
Stock ("Series B Preferred Stock"). UAI also issued to Broadmark 77,233 Series A
Cumulative Convertible Preferred Stock Warrants ("Series A Warrants") in
connection with services rendered related to the issuance of Series A Cumulative
Convertible Preferred Stock. UAI issued 33,333 and 43,900 of these Series A
Warrants in 1998 and 1999, respectively. The common stock warrants and the
Series A Warrants were valued at $13,000 and $83,000, respectively, using the
Black-Scholes valuation model. UAI issued $36,000 of the Series A Warrants in
1998 and $47,000 of the Series A Warrants in 1999. Also, in connection with
services rendered related to the sale of Series B Preferred Stock, UAI caused
options to purchase 840,000 shares of common stock at $.50 per share to be
granted by certain principal shareholders of the Company's common stock. The
840,000 common stock options granted by the principal shareholders were valued
at $31,000 using the Black-Scholes valuation model. This amount was recorded as
paid-in capital.

On May 27, 1999, UAI executed a full-recourse promissory note in connection
with a loan to an officer of the Company for a principal amount of $200,000 with
a per annum interest rate of 6%. The promissory note will become immediately due
and payable on April 30, 2004.

On August 4, 1999, three of the Company's officers were granted options to
purchase a total of 1,000,000 shares of common stock at exercise prices ranging
from $1.38 to $1.51 per share. These exercise prices were at or above the fair
market value of the common stock on August 4, 1999. These stock options vested
immediately and were exercised on the date of grant. In connection with the
exercise, the UAI board of directors authorized loans to these officers,
pursuant to non-recourse

F-14
<PAGE> 92
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

promissory notes for a total amount of $1,485,000 with an annual interest rate
of 6%. The promissory notes will become immediately due and payable on August 4,
2004. The issuance of these notes receivable to effect the exercise of these
stock options caused variable plan accounting to apply to the underlying stock
options. Accordingly, during 1999, UAI recorded $4,611,000 of stock option plan
compensation expense related to these notes. The terms of these notes receivable
were amended on December 6, 1999 such that no future stock option plan
compensation expense will be recognized related to the stock options underlying
these notes.

NOTE 9 -- INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

The company is currently operating under one segment, the provisioning of
network access.

From its inception through December 31, 1999, substantially all of the
Company's identifiable assets were located in the United States. During that
same period, substantially all of the Company's revenues were derived from sales
to customers based in the United States. The Company currently operates under
one operating segment. Operating activities of this segment primarily consist of
the provision of dedicated circuit access and related Universal Transport
Exchange and Universal Information Exchange services.

NOTE 10 -- EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS

EMPLOYEE SAVINGS AND BENEFIT PLANS

As of January 1, 1999, UAI implemented a retirement savings plan pursuant
to Section 401(k) of the Internal Revenue Code, which covers substantially all
of the Company's employees. Employer contributions to the retirement savings
plan are discretionary. During 1999, $58,000 of employer contributions were
recorded as an expense.

EMPLOYMENT AGREEMENTS

UAI has entered into employment agreements with several of its key
employees which have initial terms ranging from one to three years, after which
they are renewable for additional one-year periods. The employment agreements
entitle the employee to receive certain severance payments for termination of
employment without cause, as defined by the agreements. These employment
agreements will require UAI to pay these key employees approximately $1.1
million in salary from December 31, 1999 through the end of the respective
agreements. The agreements also provide for the payment of both discretionary
and performance based bonuses.

STOCK OPTION PLANS

In July of 1998, UAI's Board of Directors adopted the 1998 Employee Stock
Option Plan (the "1998 Plan") for the Company's directors, officers, employees
and key advisors. The total number of shares of UAI common stock reserved for
issuance under the Plan is 13,000,000. Awards granted under the plan are at the
discretion of the Company's Board of Directors, or a compensation committee
appointed by the Board of Directors, and may be in the form of either incentive
or nonqualified stock options. At December 31, 1999, 934,250 shares of common
stock were available for additional awards under the plan.

In November 1999, UAI's Board of Directors adopted the 1999 Stock Plan and
the 1999 Director Option Plan. The 1999 Director Option Plan will be effective
on the effective date of a qualified initial public offering. Upon a qualified
initial public offering, no further options will be granted under the 1998 Plan.
The 1999 Stock Plan provides for the grant of incentive stock options to
employees, and the grant of nonstatutory stock options and stock purchase rights
to employees, directors and

F-15
<PAGE> 93
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

consultants. As of December 31, 1999, 10,000,000 shares of common stock were
reserved for issuance pursuant to the 1999 Stock Plan. The 1999 Director Option
Plan provides for the issuance of options to purchase 20,000 shares of common
stock to each non-employee director upon the later of (i) the effective date of
the 1999 Director Option Plan or (ii) when such person first becomes a non-
employee director, and provides for the issuance of options to purchase 5,000
shares of common stock to each non-employee director on June 30 of each year,
subject to certain limitations. As of December 31, 1999, 500,000 shares of
common stock were reserved for issuance pursuant to the 1999 Director Option
Plan.

If the Company had elected to recognize compensation cost based on the fair
value of the options as prescribed by Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation", the following results would
have occurred using the Black-Scholes option-pricing model with the listed
assumptions:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------------
1998 1999
---------------- ----------------
<S> <C> <C>
Pro forma net loss (in thousands)........... ($1,999) ($20,224)
Pro forma basic and diluted net loss per
share..................................... ($0.07) ($0.98)
Volatility.................................. 0.000000000001% 0.000000000001%
Dividend yield.............................. 0% 0%
Risk-free interest rate..................... 5% 5%
Expected life in years...................... 5.00 4.19
</TABLE>

The Company recognized $689,000 and $8,146,000 of option plan compensation
expense during 1998 and 1999, respectively, and expects to recognize additional
expense of approximately $11,909,000 over the next four years relating to such
options as they vest. The $8,146,000 of option plan compensation expense for
1999 consisted of $3,535,000 related to the amortization of deferred stock
option plan compensation and $4,611,000 related to the options exercised in
exchange for notes receivable as described in Note 8.

The vesting term of options granted under the Plan shall be fixed by the
Board of Directors, or compensation committee elected by the Board of Directors,
but in no case shall be exercisable for more than 10 years after the date the
option is granted. For option grants to persons owning 10% of the voting power
of all outstanding classes of UAI capital stock, the exercise price may not be
lower than 110% of the fair market value on the date of the grant and the option
term may not exceed 5 years.

F-16
<PAGE> 94
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The following information relates to stock options with an exercise price
which was less than the fair market value of the underlying stock on the date of
grant:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1999
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period........... -- -- 3,498,000 $0.02514
Granted................................ 4,104,000 $0.02167 8,015,500 1.2985
Exercised.............................. (600,000) 0.00167 (1,000,000) 1.49200
Forfeited.............................. (6,000) 0.25333 (303,500) 0.3768
---------- -------- ---------- --------
Balance at end of period................. 3,498,000 $0.02514 10,210,000 $ 0.8621
========== ======== ========== ========
Weighted average fair value of options
granted during the period.............. $ 0.59 $ 2.52
</TABLE>

The following information relates to stock options with an exercise price
which was equal to the fair market value of the underlying stock on the date of
grant:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
----------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at beginning of period...................... -- $ --
Granted........................................... 260,750 6.10
Exercised......................................... -- --
Forfeited......................................... (5,000) 6.10
-------- -----
Balance at end of period............................ 255,750 $6.10
======== =====
Weighted average fair value of options granted
during the period................................. $1.32
</TABLE>

The following information relates to stock options as of December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 2,850,000 8.73 $0.01 1,282,000 $0.01
0.07 - 0.11 582,000 8.55 0.07 205,000 0.07
0.25 - 0.27 3,292,000 9.31 0.27 17,000 0.27
1.38 - 1.83 1,594,000 9.59 1.38 300,000 1.38
2.11 - 2.79 1,404,000 9.69 2.73 315,000 2.57
3.21 - 4.25 402,000 9.72 3.38 -- --
5.64 - 7.20 341,750 9.60 6.14 80,000 6.10
</TABLE>

F-17
<PAGE> 95
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

During 1998, 600,000 stock options were issued to non-employees for
services rendered during 1998. These options were issued with an exercise price
of $0.01, were immediately exercisable, and comprised $300,000 of the $689,000
stock option plan compensation expense recognized during 1998. During 1998, all
options issued to non-employees were exercised.

The above disclosures include 200,000 options granted on August 4, 1999 to
a non-employee director, for which $764,000 of compensation expense was
recognized during 1999.

NOTE 11 -- NET LOSS PER SHARE

The Company had securities outstanding which could potentially dilute basic
earnings per share in the future, but were excluded in the computation of
diluted net loss per share in the periods presented, as their effect would have
been anti-dilutive. Such outstanding securities are convertible into the number
of shares of common stock as set forth in the table below at December 31, 1998
and 1999. There were no potentially dilutive securities outstanding from
inception through December 31, 1997.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Series A cumulative convertible preferred stock............. 2,012,004 4,633,986
Series A cumulative convertible preferred stock warrants.... 99,999 463,398
Series B cumulative convertible preferred stock............. -- 13,400,010
Series B cumulative convertible preferred stock warrants.... -- 1,000,002
Series C convertible preferred stock........................ -- 2,000,001
Series D cumulative convertible preferred stock............. -- 18,128,091
Common stock options........................................ 3,498,000 10,465,750
Common stock warrants....................................... -- 360,000
Series E cumulative convertible preferred stock(1).......... -- 4,672,155
Series E cumulative convertible preferred stock
warrants(1)............................................... -- 120,000
---------- ----------
Total potentially dilutive shares of common stock........... 5,610,003 55,243,393
========== ==========
</TABLE>

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

(1) Assuming 3-to-1 conversion. This conversion rate could increase as described
in Note 12.

NOTE 12 -- CONVERTIBLE PREFERRED STOCK AND WARRANTS

During 1998, UAI issued 335,334 shares of Series A Redeemable Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") for gross proceeds of
$1,006,000. Additionally, UAI received cash and accepted subscription documents
for 385,830 shares of Series A Redeemable Cumulative Convertible Preferred Stock
("Unissued Series A Preferred Stock") for gross proceeds of $1,157,000. This
amount, net of issuance costs of $153,000, was recorded as a liability as of
December 31, 1998. As of December 31, 1998, the Company had authorized 1,000,000
shares of Series A Preferred Stock. On February 8, 1999, UAI issued 436,997
shares of Series A Preferred Stock for gross proceeds of $1,311,000. Included in
this issuance were the 385,830 shares related to the amount presented as
Unissued Series A Preferred Stock at December 31, 1998.

In connection with the 1998 sale of Series A Preferred Stock, UAI issued
warrants (the "Series A Warrants") to purchase an additional 33,333 shares of
Series A Preferred Stock at $3.00 per share. These warrants were valued at
$36,000 using the Black-Scholes valuation model. In connection with the February
1999 sale of Series A Preferred Stock UAI issued warrants to purchase 43,900
shares of Series A Preferred Stock at $3.00 per share. These warrants were
valued at $47,000 using the Black-

F-18
<PAGE> 96
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Scholes option valuation model. The Series A Warrants are exercisable for a
period of five years after the issuance date. The Series A Preferred Stock is
shown net of the fair value of the Series A Warrants.

As of December 31, 1998, the holders of Series A Preferred Stock had the
right to demand the Company to redeem one-third of the shares originally
purchased on each of the fourth, fifth, and sixth anniversaries of the closing
and UAI had the right to redeem not less than all of the outstanding Series A
Preferred Stock between the third and sixth anniversaries of the closing. All
redemptions were to be made at amount equal to the sum of the original purchase
price of the Series A Preferred Stock plus accumulated but unpaid dividends. On
February 3, 1999, the Series A Preferred Stock holders approved an amended
Certificate of Designations, Rights and Preferences whereby this mandatory
redemption feature was terminated. Accordingly, the entire balance of the
redeemable cumulative convertible preferred stock and redeemable cumulative
convertible preferred stock warrants was reclassified to stockholders' equity on
February 3, 1999.

Changes in redeemable cumulative convertible preferred stock and redeemable
cumulative convertible preferred stock warrants are as follows (in thousands,
except share amounts):

<TABLE>
<CAPTION>
REDEEMABLE REDEEMABLE
CUMULATIVE CUMULATIVE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED
------------------ STOCK
SHARES AMOUNT WARRANTS
-------- ------ -----------
<S> <C> <C> <C>
Balance at December 31, 1997.......................... -- $ -- $ --
Issuance of Series A Preferred Stock.................. 335,334 875 --
Issuance of Series A Preferred Stock warrants......... -- -- 36
Accretion and dividends on Redeemable Series A
Preferred Stock..................................... -- 28 --
-------- ----- ----
Balance at December 31, 1998.......................... 335,334 903 36
Accretion and dividends on Redeemable Series A
Preferred Stock..................................... -- 9 --
Termination of mandatory redemption feature of Series
A
Preferred Stock..................................... (335,334) (912) (36)
-------- ----- ----
Balance at December 31, 1999.......................... -- $ -- $ --
======== ===== ====
</TABLE>

On February 8, 1999, UAI issued 2,000,000 shares of Series B Redeemable
Cumulative Convertible Preferred Stock ("Series B Preferred Stock") for gross
proceeds of $6,000,000. In conjunction with the issuance of the Series B
Preferred Stock, the Company issued warrants to purchase an additional 400,002
shares of Series B Preferred Stock (the "Series B Warrants") at an exercise
price of $0.01 per share and warrants to purchase 360,000 shares of Common Stock
at $.50 per share, and caused options to purchase 840,000 shares of Common Stock
at $.50 per share to be granted by certain principal shareholders of the
Company's Common Stock. The 840,000 common stock options granted by the
principal shareholders were valued at $31,000 using the Black-Scholes valuation
model. This amount was recorded as additional paid-in capital. Series B
Preferred Stock is convertible into Common Stock on a 6-for-1 basis. During the
six month period ended June 30, 1999, 233,335 of the Series B Warrants were
exercised.

On May 13, 1999, UAI issued 666,667 shares of Series C Convertible
Preferred Stock ("Series C Preferred Stock") for gross proceeds of $2,000,001.

F-19
<PAGE> 97
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

During the period from June 30, 1999 to September 30, 1999, UAI issued
5,957,611 shares of Series D Cumulative Convertible Preferred Stock ("Series D
Preferred Stock") for gross proceeds of $25,319,847. The Company also issued
82,353 shares valued at $4.25 per share in connection with the purchase of
certain assets of PCN (see Note 3). The Company also issued 2,733 shares of
Series D Preferred Stock on December 6, 1999 for gross proceeds of $50,014.

On November 10, 1999, UAI issued 1,557,385 shares of Series E Cumulative
Convertible Preferred Stock ("Series E Preferred Stock") and warrants to
purchase an additional 40,000 shares of Series E Preferred Stock for gross
proceeds of $28.5 million. The Company ascribed $136,000 of the proceeds to the
warrants using the Black-Scholes option valuation model. Series E Preferred
Stock is convertible into Common stock on a 3-for-1 basis. The conversion ratio
for the Series E Preferred Stock will be multiplied by the quotient of $750
million divided by the product of the number of fully diluted shares of common
stock outstanding immediately before an initial public offering multiplied by
the initial public offering per share price (such quotient is not to be less
than 1). The conversion ratio cannot exceed 3.75-for-1. At an initial public
offering price per share of $14.00, the Series E Preferred Stock will convert to
common stock on a 3-for-1 basis, and no "deemed dividend" will be recorded. The
Series E Preferred Stock warrants have an exercise price of $18.30 per share.

A portion of the Series D Preferred Stock was issued at a price that was
below the deemed fair market value of the equivalent amount of common stock.
Accordingly, the Company recorded a deemed dividend of $9.0 million related to
the issuance of Series D Preferred Stock. The deemed dividend has been included
in the accretion and dividends on redeemable and nonredeemable cumulative
convertible preferred stock for purposes of determining basic and diluted net
loss per common share.

Upon liquidation or dissolution, shareholders of Preferred Stock will be
distributed available assets up to the sum of the original purchase price plus
accumulated but unpaid dividends. This distribution has preference over any
distribution to common stock holders.

Holders of the Company's Preferred Stock are entitled to cumulative
dividends (payable in cash or stock at the Company's discretion) and have the
right to convert their shares at any time into shares of UAI Common Stock as
follows:

<TABLE>
<CAPTION>
ANNUAL
DIVIDEND CONVERSION
RATE RATIO
-------- ----------
<S> <C> <C> <C>
Series A.............................. 8% 6-to-1
Series B.............................. 5% 6-to-1
Series C.............................. None 3-to-1
Series D.............................. 6% 3-to-1
3-to-1 (subject
to
Series E.............................. 1.4% adjustment)
</TABLE>

A qualified initial public offering of at least $1 per share triggers a
mandatory conversion of all outstanding Preferred Stock into Common Stock, and
of all outstanding Preferred Stock Warrants into warrants to purchase Common
Stock at the above conversion ratios.

The holders of the Preferred Stock and the holders of Common Stock vote as
one class, subject to certain provisions. Each share of Preferred Stock is
entitled to cast the number of votes equal to the number of Common Shares into
which their preferred stock is convertible.

F-20
<PAGE> 98
UNIVERSAL ACCESS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 13 -- COMMON STOCK

At December 31, 1999, UAI had authorized 300,000,000 shares of $.01 par
value Common Stock and 31,975,021 shares were issued and outstanding.

The Company has a sufficient number of authorized Common Stock shares
available to issue upon the conversion of the outstanding preferred stock,
warrants and stock options.

As of December 31 1999, Common Stock shares reserved for issuance are as
follows:

<TABLE>
<S> <C>
Series A cumulative convertible preferred stock............. 4,633,986
Series A cumulative convertible preferred stock warrants.... 463,398
Series B cumulative convertible preferred stock............. 13,400,010
Series B cumulative convertible preferred stock warrants.... 1,000,002
Series C convertible preferred stock........................ 2,000,001
Series D cumulative convertible preferred stock............. 18,128,091
Series E cumulative convertible preferred stock(1).......... 4,672,155
Series E cumulative convertible preferred stock
warrants(1)............................................... 120,000
Common stock options........................................ 10,465,750
Common stock warrants....................................... 360,000
</TABLE>

- ---------------
(1) Assuming 3-to-1 conversion.

From its inception on October 2, 1997 through June 23, 1999 the Company's
common stock had no designated par value and the dollar amounts ascribed to
common stock transactions have been reflected in the common stock account. Upon
its reincorporation in Delaware on June 24, 1999, the Company's common stock has
a par value of $0.01 per share and the dollar amounts ascribed to common stock
were adjusted on such reincorporation date to reflect the par value. All
subsequent common stock transactions were reported at the $.01 par value per
share with the residual reflected in additional paid-in capital.

NOTE 14 -- SUPPLEMENTAL CASH FLOW DISCLOSURE

During 1999, UAI acquired certain assets and assumed certain liabilities
from Pacific Crest Networks, Inc. Assets acquired included $510,000 of computer
hardware subject to capital leases, and liabilities assumed included $418,000 of
obligations under capital leases.

During 1999, UAI executed notes receivable with three of the Company's
officers in consideration for the exercise of stock options as described in Note
8.

During 1999, UAI issued 325,000 shares of common stock in exchange for UTX
equipment. The common stock had a fair market value of $1.42 per share on the
date of issuance.

During 1999, UAI agreed to issue 70,592 shares of Series D Preferred Stock
at a price below fair market value in exchange for services. UAI recorded
$992,000 of operations and administration expense related to these transactions.

At December 31, 1999, $518,000 of equipment purchases were included in
accounts payable.

No amounts were paid for income taxes in 1997, 1998 or 1999. UAI paid
interest of $0, $0 and $81,000 in 1997, 1998 and 1999, respectively.

F-21
<PAGE> 99

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Pacific Crest Networks, Inc. d/b/a The Pond

In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows, and of changes in stockholders' equity (deficit)
present fairly, in all material respects, the financial position of Pacific
Crest Networks, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois
July 30, 1999

F-22
<PAGE> 100

PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1997 1998 1999
----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 12 $ -- $ --
Accounts receivable:
Trade, net of allowance of $6, $1 and $7............. 34 43 97
Other................................................ -- 5 --
Other current assets.................................... -- 10 3
----- ------ -------
Total current assets............................... 46 58 100
Property and equipment, net............................... 160 725 804
Other assets, net......................................... 6 4 1
----- ------ -------
Total assets....................................... $ 212 $ 787 $ 905
===== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft.......................................... $ -- $ 1 $ 31
Accounts payable........................................ 25 87 186
Accrued expenses........................................ 3 42 --
Notes payable........................................... 18 64 54
Current obligations under capital leases................ 21 185 142
Note payable, shareholder............................... -- 158 369
Due to shareholders..................................... 6 -- --
Line of credit, bank.................................... -- 150 150
Customer deposits....................................... 40 6 9
----- ------ -------
Total current liabilities.......................... 113 693 941
Obligations under capital leases, net of current
portion................................................. 25 342 298
Notes payable, net of current portion..................... 62 20 20
Due to Universal Access, Inc.............................. -- -- 341
----- ------ -------
Total liabilities.................................. 200 1,055 1,600
----- ------ -------
Commitments (Note 5)
Stockholders' equity (deficit):
Common stock, no par value; 100,000,000 shares
authorized; 5,800,000, 13,449,275 and 13,449,275
shares issued and outstanding at December 31, 1997,
1998, and June 30, 1999, respectively................ 100 108 108
Additional paid-in capital.............................. 73 321 321
Accumulated deficit..................................... (161) (697) (1,124)
----- ------ -------
Total stockholders' equity (deficit)............... 12 (268) (695)
----- ------ -------
Total liabilities and stockholders' equity
(deficit)....................................... $ 212 $ 787 $ 905
===== ====== =======
</TABLE>

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

F-23
<PAGE> 101

PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------- --------------
1997 1998 1998 1999
---- ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................ $370 $ 551 $ 260 $ 424
---- ------ ----- -----
Costs and operating expenses:
Cost of revenues...................................... 54 206 85 298
Operations and administration (excluding stock option
plan compensation)................................. 298 498 160 418
Operations and administration (stock option plan
compensation)...................................... 20 248 232 --
Depreciation and amortization......................... 33 91 20 86
---- ------ ----- -----
Total operating expenses........................... 405 1,043 497 802
---- ------ ----- -----
Operating loss........................................ (35) (492) (237) (378)
Interest expense........................................ 11 44 6 49
---- ------ ----- -----
Net loss.............................................. $(46) $ (536) $(243) $(427)
==== ====== ===== =====
</TABLE>

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

F-24
<PAGE> 102

PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------- --------------
1997 1998 1998 1999
---- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(46) $(536) $(243) $(427)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Stock option compensation.......................... 20 248 232 --
Depreciation....................................... 27 38 12 36
Amortization....................................... 6 53 8 50
Provision for doubtful accounts.................... 6 (5) -- 6
Loss on disposition of assets...................... -- 1 -- --
Changes in operating assets and liabilities:
Accounts receivable.............................. (11) (4) (5) (60)
Other assets..................................... (3) (15) (4) 15
Accounts payable................................. 8 62 48 99
Accrued expenses................................. 6 39 (3) (42)
Customer deposits................................ 24 (34) 3 3
---- ----- ----- -----
Net cash provided by (used in) operating
activities.................................. 37 (153) 48 (320)
---- ----- ----- -----
Cash flows used in investing activities:
Purchases of property and equipment................... (30) (106) (23) (165)
Proceeds from disposal of equipment................... -- 2 -- --
---- ----- ----- -----
Net cash used in investing activities......... (30) (104) (23) (165)
---- ----- ----- -----
Cash flows from financing activities:
Bank overdraft........................................ -- 1 -- 30
Payments on capital leases............................ (17) (70) (15) (87)
Proceeds from issuance of notes payable............... 20 --
Payments on notes payable............................. (21) (16) (8) (10)
Proceeds from note payable to Universal Access,
Inc................................................ -- -- -- 341
Proceeds from notes payable to and advances from
shareholders....................................... 6 156 -- 211
Payments on notes payable to and advances from
shareholders....................................... -- (4) -- --
Proceeds from line of credit, bank.................... -- 150 -- --
Proceeds from exercise of stock options............... -- 8 -- --
---- ----- ----- -----
Net cash provided by (used in) financing
activities.................................. (32) 245 (23) 485
---- ----- ----- -----
Net increase (decrease) in cash and cash equivalents.... (25) (12) 2 --
Cash and cash equivalents, beginning of year............ 37 12 12 --
---- ----- ----- -----
Cash and cash equivalents, end of year.................. $ 12 $ -- $ 14 $ --
==== ===== ===== =====
</TABLE>

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

F-25
<PAGE> 103

PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ------------------- ADDITIONAL
$1 STATED PAID-IN ACCUMULATED
SHARES VALUE SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- --------- ---------- ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... 90,000 $ 90 580,000 $ 10 $ -- $ (115) $ (15)
Conversion of preferred stock to
common stock.................. (90,000) (90) 5,220,000 90 -- -- --
Stock option plan
compensation.................. -- -- -- -- 20 -- 20
Conversion of shareholder loan
to additional paid-in
capital....................... -- -- -- -- 53 -- 53
Net loss........................ -- -- -- -- -- (46) (46)
------- ---- ---------- ---- ---- ------- -----
Balance at December 31, 1997.... -- -- 5,800,000 100 73 (161) 12
Stock option plan
compensation.................. -- -- -- -- 248 -- 248
Common stock issued upon
exercise of stock options..... -- -- 7,649,275 8 -- -- 8
Net loss........................ -- -- -- -- -- (536) (536)
------- ---- ---------- ---- ---- ------- -----
Balance at December 31, 1998.... -- -- 13,449,275 108 321 (697) (268)
Net loss (unaudited)............ -- -- -- -- -- (427) (427)
------- ---- ---------- ---- ---- ------- -----
Balance at June 30, 1999
(unaudited)................... -- $ -- 13,449,275 $108 $321 $(1,124) $(695)
======= ==== ========== ==== ==== ======= =====
</TABLE>

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

F-26
<PAGE> 104

PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED

NOTE 1 -- DESCRIPTION OF THE COMPANY

Pacific Crest Networks, Inc. (the "Company" or "PCN"), an Oregon
Corporation, was originally organized in 1995 as Cascade Communications Group
("Cascade"), a partnership, for the purpose of providing internet access
services. In May 1996, the partners of Cascade formed a new corporation, Pacific
Crest Interactive, Inc., and assigned all of the assets and liabilities of
Cascade to the new corporation. During 1997, Pacific Crest Interactive continued
to provide internet access services; however, it also began to focus on the
development and deployment of broadband network access and introduced its core
broadband network products in 1998. In October 1998, the Company changed its
name to Pacific Crest Networks, Inc. The Company presently provides internet
access services to the general public and high-speed broadband network
technologies and data transport services primarily to internet service providers
and business customers. During 1998, all of the Company's customers were located
in the State of Oregon, and in 1999, operations were expanded to the State of
Washington.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying interim financial statements as of June 30, 1999 and for
the six months ended June 30, 1998 and 1999 and the related notes have not been
audited. However, they have been prepared in conformity with the accounting
principles stated in the audited financial statements for the years ended
December 31, 1997 and 1998 and include all adjustments, which were of a normal
and recurring nature, which in the opinion of management are necessary to
present fairly the financial position of the Company and results of operations
and cash flows for the periods presented. The operating results for the interim
periods are not necessarily indicative of results expected for the full years.

REVENUE RECOGNITION

The following describes PCN's revenue recognition policy for each type of
revenue:

Internet access (Pond) -- This revenue relates to internet access service
that PCN provides to business and residential customers. This service is billed
monthly in advance at the beginning of each calendar month. This revenue is then
recognized during the month that the service is provided.

Digital subscriber line (DSL or SNAP) service -- This revenue relates to
the provision of digital subscriber lines to both end users and internet service
providers (ISPs). This service is billed monthly on a calendar month basis in
the month that the service is provided. Revenue is recognized each month as the
service is provided.

DSL service to multi-unit residences (DASH) -- This revenue relates to the
provision of DSL service to multi-unit residences. This service is billed
monthly on a calendar month basis in the month that the service is provided.
Revenue is recognized each month as the service is provided.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, money market funds and all
investments with an initial maturity of three months or less. All cash
equivalents are recorded at cost.

F-27
<PAGE> 105
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED

STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of the Company's common stock at the date of
grant. The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (Note 7). All stock-based
awards to non-employees are accounted for at their fair value in accordance with
SFAS No. 123.

COMPREHENSIVE INCOME

SFAS No. 130 requires that a full set of general purpose financial
statements include the reporting of "comprehensive income." Comprehensive income
is comprised of two components: net income and other comprehensive income, with
other comprehensive income being comprised of foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. During the years ended December 31,
1997 and 1998, comprehensive income was comprised solely of net income. As a
result, the adoption of SFAS No. 130 had no impact on the Company's financial
statements.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost with depreciation provided for
under the straight-line method. Leasehold improvements are amortized over the
remaining life of the lease. Depreciable lives used by the Company for its
classes of assets are as follows:

<TABLE>
<S> <C>
Furniture and fixtures..................................... 7 years
Computer hardware.......................................... 5 years
Computer software.......................................... 3 years
</TABLE>

Certain property and equipment has been acquired through capital leasing
arrangements. This property and equipment is recorded at the present value of
total lease payments using the rate of interest implicit in the lease. The
recorded amount is then amortized over the lesser of the useful life of the
related asset or the term of the lease.

INCOME TAXES

Deferred income taxes 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 basis and for tax
carryforwards. Deferred tax assets are offset by a valuation allowance to the
extent it is more likely than not that the future tax benefit of the deferred
tax asset will not be realized.

The Company has established a net deferred tax asset which reflects the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts. The deferred tax asset was
recorded net of a valuation allowance to reduce the deferred tax asset to an
amount that is more likely than not going to be realized.

F-28
<PAGE> 106
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED

USE OF ESTIMATES

NOTE 3 -- PROPERTY AND EQUIPMENT

Property and equipment not subject to capital leases consists of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Office equipment and furniture.............................. $ 4,000 $ 14,000
Leasehold improvements...................................... 4,000 9,000
Computer hardware........................................... 131,000 210,000
Computer software........................................... 8,000 14,000
-------- --------
147,000 247,000
Less: accumulated depreciation.............................. (37,000) (72,000)
-------- --------
Property and equipment, not subject to capital leases,
net....................................................... $110,000 $175,000
======== ========
</TABLE>

Property and equipment subject to capital leases consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Office equipment and furniture.............................. $18,000 $ 18,000
Computer hardware........................................... 38,000 573,000
Computer software........................................... -- 16,000
------- --------
56,000 607,000
Less: accumulated amortization.............................. (6,000) (57,000)
------- --------
Property and equipment subject to capital leases, net....... $50,000 $550,000
======= ========
</TABLE>

Amortization expense on capital leases was $6,000 and $51,000 for the years
ended December 31, 1997 and 1998, respectively.

F-29
<PAGE> 107
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED

NOTE 4 -- DEBT

Debt is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Current:
Notes payable............................................... $18,000 $ 64,000
Notes payable, shareholders............................... -- 158,000
Due to shareholders......................................... 6,000 --
Line of credit, bank...................................... -- 150,000
------- --------
Total current debt................................ 24,000 372,000
Notes payable, noncurrent................................... 62,000 20,000
------- --------
Total debt........................................ $86,000 $392,000
======= ========
</TABLE>

During 1998, the Company issued an unsecured note payable to an unrelated
individual for $20,000. The note bears interest at a rate of 10% payable
monthly. The entire principal is due on December 17, 2000. The note can be
prepaid by the Company at any time without penalty.

During 1998, the Company obtained an unsecured line of credit of $400,000
from a shareholder. At December 31, 1998, the balance outstanding was $158,000.
The line of credit does not bear interest and all outstanding borrowings are due
on December 31, 1999 or upon the sale of the Company. An interest rate on the
borrowings was imputed at a rate of 12%, which represents management's estimate
of the Company's unsecured borrowing rate. Interest expense on this note was
$2,000 in 1998. The imputed interest is included in the balance of the note
since the Company intends to repay the shareholder the principal balance plus
all imputed interest.

During 1997, two shareholders advanced funds to the Company. As of December
31, 1997, the balance of the outstanding borrowings was $6,000. During 1998,
$4,000 of this balance was paid in full, and the remaining $2,000 was added to
the $158,000 note payable described above. These borrowings were not subject to
any written agreement. The Company did not record imputed interest on these
borrowings since the estimated interest charges were insignificant.

In August 1998, the Company issued a $150,000 note payable to a Bank. This
note bears interest at a rate of prime plus 3% with interest payments due
monthly. The interest rate at December 31, 1998 was 10.75%. The entire balance
of this note is due upon demand with an established final maturity of August 1,
1999. The note is collateralized by substantially all of the assets of the
Company. Further, the entire principal balance of the note and accrued interest
are personally guaranteed by the three stockholders of the Company.

In September 1996, the Company entered into a business loan agreement with
the City of Eugene, Oregon in the amount of $100,000. The note bears interest at
7%. The Company is currently paying monthly interest and principal payments of
approximately $2,000 with a final principal payment of $51,000 due on August 1,
1999. This loan is collateralized by substantially all of the assets of the
Company. In addition, a stockholder of the Company personally guaranteed the
entire loan balance and accrued interest and also pledged certain personal real
property as collateral.

F-30
<PAGE> 108
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED

Debt maturities are as follows:

NOTE 5 -- COMMITMENTS

The Company leases office facilities over periods of up to three years.
Total rent expense during 1997 and 1998 was $17,000 and $32,000, respectively.
Future rentals for operating leases at December 31, 1998 are as follows:

<TABLE>
<S> <C>
1999........................................................ $39,000
2000........................................................ 24,000
2001........................................................ 12,000
-------
Total minimum operating lease payments............ $75,000
=======
</TABLE>

The Company also leases certain equipment under capital leasing
arrangements with periods ranging from two to five years. Future minimum lease
payments as of December 31, 1998 related to the capital leasing arrangements are
as follows:

<TABLE>
<S> <C>
1999........................................................ $ 247,000
2000........................................................ 233,000
2001........................................................ 151,000
---------
Total minimum capital lease payments........................ 631,000
Less: imputed interest...................................... (104,000)
---------
Present value of minimum capital lease payments............. 527,000
Less: current portion....................................... (185,000)
---------
Long-term capital lease obligations......................... $ 342,000
=========
</TABLE>

The Company has entered into non-cancellable contracts with certain vendors
whereby such vendors provide the Company network access, domain name service and
certain other services. Commitments under these contracts are as follows as of
December 31, 1998:

<TABLE>
<S> <C>
1999........................................................ $204,000
2000........................................................ 106,000
2001........................................................ 65,000
2002........................................................ 43,000
2003........................................................ 25,000
Thereafter.................................................. 1,000
--------
$444,000
========
</TABLE>

NOTE 6 -- INCOME TAXES

There is no current provision or benefit for income taxes recorded for the
years ended December 31, 1997 and 1998, as the Company has generated net
operating losses for income tax purposes for which there is no carryback
potential. There is no deferred provision or benefit for

F-31
<PAGE> 109
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED

income taxes recorded as the Company is in a net asset position for which a full
valuation allowance has been recorded due to the uncertainty of realization.

The components of the net deferred income tax asset are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards..................... $ 53,000 $210,000
Basis of property and equipment...................... (10,000) (45,000)
Other................................................ 2,000 4,000
-------- --------
Net deferred tax asset............................... 45,000 169,000
Less: valuation allowance............................ (45,000) (169,000)
-------- --------
Total...................................... $ -- $ --
======== ========
</TABLE>

At December 31, 1997 and 1998, the Company had a federal and state net
operating loss carryforwards of $131,000 and $518,000, respectively. The net
operating losses will expire in 2016 through 2018 for federal purposes, and 2011
through 2013 for state purposes. Upon cumulative ownership changes of more than
50% over a three year period (see Note 10), certain limitations apply to the
amount of net operating loss that can be deducted from taxable income in each
future year. The net operating loss carryforward limitation in each year in the
carryforward period approximates the product of the fair market value of the
Company immediately before ownership transfer multiplied by the long-term
federal interest rate.

NOTE 7 -- STOCK OPTIONS

During 1997 and 1998, the Company's Board of Directors granted stock
options to two individuals who were both employees of the Company and members of
the Board of Directors. The Company does not have a formal stock option plan,
nor are there any shares specifically reserved for stock option grants. All
options issued had an exercise price of $.001, were immediately exercisable, and
expired three years after the date of grant.

During 1997 and 1998, the Company calculated compensation cost based on the
fair value of the underlying Common Stock on the date of grant. The fair value
of the Common Stock was deemed to represent the fair value of the stock options,
since the exercise price of the stock options was de minimis.

During 1997 and 1998, the Company recognized stock option plan compensation
expense of $20,000 and $248,000, respectively.

F-32
<PAGE> 110
PACIFIC CREST NETWORKS, INC.
D/B/A THE POND

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED

The following summarizes stock option activity:

<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
Balance at December 31, 1996................................ --
Granted................................................... 664,444
----------
Balance at December 31, 1997................................ 664,444
Granted................................................... 6,984,831
Exercised................................................. (7,649,275)
----------
Balance at December 31, 1998................................ --
==========
</TABLE>

The weighted average fair value of all options granted during 1997 and 1998
was $.0305 and $.0354, respectively.

As set forth in Note 2, the Company accounts for stock based awards to
employees in accordance with APB 25. Compensation cost would remain unchanged
had the Company elected to recognize compensation cost in accordance with SFAS
123.

NOTE 8 -- PREFERRED STOCK CONVERSION

Effective January 1, 1997, the sole shareholder of the Company converted
all of the issued and outstanding preferred stock to common stock. This action
was authorized by the Company's Board of Directors at a conversion rate equal to
the initial issuance price of the common stock.

NOTE 9 -- SUPPLEMENTAL CASH FLOW DISCLOSURES

<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Interest paid......................................... $ 27,000 $11,000
======== =======
Property and equipment acquired subject to capital
leases.............................................. $551,000 $56,000
======== =======
</TABLE>

NOTE 10 -- SUBSEQUENT EVENT

On July 30, 1999, substantially all of the assets and liabilities of the
Company were sold to Universal Access, Inc. ("UAI") in exchange for $833,000 in
cash, $224,000 of debt assumed by UAI, and 82,353 shares of UAI Series D
Convertible Preferred Stock ("Series D"). The Series D had a per share value of
$4.25 on the date of sale. Assets sold included all property and equipment,
cash, accounts receivable, software, customer lists and intellectual property.
Also, as part of the sale, UAI assumed certain liabilities of the Company
including $276,000 of accounts payable, obligations under leases and vendor
contracts, and advances made by UAI to the Company during 1999.

F-33
<PAGE> 111

REPORT OF INDEPENDENT ACCOUNTANTS

INFORMATION FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED

To the Board of Directors and
Stockholders of Stuff Software, Inc.

In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of Stuff Software, Inc.
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
October 1, 1999

F-34
<PAGE> 112

STUFF SOFTWARE, INC.

BALANCE SHEET
(IN THOUSANDS)

INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED

<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1997 1998 1999
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 1 $ 5 $ 6
Accounts receivable, net................................ 11 16 16
---- ---- ----
Total current assets............................ 12 21 22
---- ---- ----
Total assets.................................... $ 12 $ 21 $ 22
==== ==== ====

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Unearned revenue........................................ $ 29 $ 41 $ 58
Total current liabilities....................... 29 41 58
---- ---- ----
Stockholders' deficit:
Common stock, $.01 par value; 1,000 shares authorized
issued and outstanding............................... -- -- --
Additional paid-in capital.............................. 5 5 5
Accumulated deficit..................................... (22) (25) (41)
---- ---- ----
Total stockholders' deficit..................... (17) (20) (36)
---- ---- ----
Total liabilities and stockholders' deficit..... $ 12 $ 21 $ 22
==== ==== ====
</TABLE>

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

F-35
<PAGE> 113

STUFF SOFTWARE, INC.

STATEMENT OF OPERATIONS
(IN THOUSANDS)

INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------- -------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................. $ 70 $114 $ 56 $113
Operating expenses:
Cost of revenues....................................... (9) (6) (5) (4)
Operations and administration.......................... (20) (23) (16) (33)
---- ---- ---- ----
Total operating expenses............................ (29) (29) (21) (37)
---- ---- ---- ----
Operating income.................................... 41 85 35 76
---- ---- ---- ----
Interest expense......................................... (1) (1) (1) --
---- ---- ---- ----
Net income............................................... $ 40 $ 84 $ 34 $ 76
==== ==== ==== ====
</TABLE>

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

F-36
<PAGE> 114

STUFF SOFTWARE, INC.

STATEMENT OF CASH FLOWS
(IN THOUSANDS)

INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 40 $ 84 $ 34 $ 76
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities:
Accounts receivable............................ (5) (5) (2) --
Unearned revenue............................... 13 12 6 17
---- ---- ---- ----
Net cash provided by operating activities... 48 91 38 93
---- ---- ---- ----
Cash flows from financing activities:
Distributions to stockholders....................... (50) (87) (34) (92)
---- ---- ---- ----
Net (decrease) increase in cash....................... (2) 4 4 1
Cash, beginning of period............................. 3 1 1 5
---- ---- ---- ----
Cash, end of period................................... $ 1 $ 5 $ 5 $ 6
==== ==== ==== ====
</TABLE>

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

F-37
<PAGE> 115

STUFF SOFTWARE, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)

INFORMATION FOR THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED

<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL
PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ----- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996.......... 1,000 $-- $ 5 $(12) $ (7)
Distributions to stockholders......... -- -- -- (50) (50)
Net income............................ -- -- -- 40 40
------ --- --- ---- ----
Balance at December 31, 1997.......... 1,000 -- 5 (22) (17)
Distributions to stockholders......... -- -- -- (87) (87)
Net income............................ -- -- -- 84 84
------ --- --- ---- ----
Balance at December 31, 1998.......... 1,000 -- 5 (25) (20)
Distributions to stockholders
(unaudited)......................... -- -- -- (92) (92)
Net income (unaudited)................ -- -- -- 76 76
------ --- --- ---- ----
Balance at September 30, 1999
(unaudited)......................... 1,000 $-- $ 5 $(41) $(36)
====== === === ==== ====
</TABLE>

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

F-38
<PAGE> 116

STUFF SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Stuff Software, Inc. (the "Company") operates as a Florida Subchapter S
Corporation. From its inception through November 30, 1998, Stuff Software, Inc.
operated as a sole proprietorship. The November 30, 1998 reorganization is
reflected retroactively throughout the financial statements for all periods
presented. The Company develops software and databases for use in the area of
telecommunications cost and benefit analysis.

BASIS OF PRESENTATION

The accompanying interim financial statements as of September 30, 1999 and
for the nine months ended September 30, 1998 and 1999 and the related notes have
not been audited. However, they have been prepared in conformity with the
accounting principles stated in the audited financial statements for the years
ended December 31, 1997 and 1998 and include all adjustments, which were of a
normal and recurring nature, which in the opinion of management are necessary to
present fairly the financial position of the Company and results of operations
and cash flows for the periods presented. The operating results for the interim
periods are not necessarily indicative of results expected for the full years.

REVENUE RECOGNITION

Substantially all of the Company's revenues are derived from selling
information in a database maintained by the Company, and providing customers
with either quarterly or monthly updates of this database information. The
initial database and subsequent updates are provided to customers on CD-ROM. For
sales of the CD-ROM database that provide for periodic updates, revenue is
recognized on a straight-line basis over the term of the respective customer
contract. For sales of the CD-ROM database where the Company is not obligated to
provide any future updates or services, the entire sale amount is recognized
upon delivery of the CD-ROM database.

ACCOUNTS RECEIVABLE

Financial instruments that could potentially subject Stuff Software to
concentration of credit risk primarily include accounts receivable. As of
December 31, 1998, three customers represented 43% of total accounts receivable
and no customer represented more than 10% of total revenues during 1998. As of
December 31, 1997, no customer represented more than 10% of total accounts
receivable and no customer represented more than 10% of total revenues during
1997. If any of these individually significant customers are unable to meet
their financial obligations, results of operations of the Company could be
adversely affected.

COMPREHENSIVE INCOME

SFAS No. 130 requires that a full set of general purpose financial
statements include the reporting of "comprehensive income." Comprehensive income
is comprised of two components: net income and other comprehensive income, with
other comprehensive income being comprised of foreign currency items, minimum
pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity securities. During the years ended December 31,
1997 and 1998, comprehensive income was comprised solely of net income. As a
result, the adoption of SFAS No. 130 had no impact on the Company's financial
statements.

F-39
<PAGE> 117
STUFF SOFTWARE, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED

ADVERTISING COSTS

The Company expenses advertising costs as incurred. For the years ended
December 31, 1997 and 1998, advertising expense totaled $5,000 and $6,000,
respectively.

USE OF ESTIMATES

NOTE 2 -- INCOME TAXES

Stuff Software, Inc. changed status from a sole proprietor to a
S-Corporation on November 30, 1998. For both a sole proprietorship and a
S-Corporation, all attributes for federal and state income taxes pass through to
the stockholder. Accordingly, no income tax provision or deferred tax amounts
have been recorded.

NOTE 3 -- INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

During the years ended December 31, 1997 and 1998, substantially all of the
Company's identifiable assets were located in the United States. During that
same period, substantially all of the Company's revenues were derived from sales
to customers based in the United States.

F-40
<PAGE> 118

UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS

The following unaudited pro forma combined statement of operations assumes
the acquisitions of Pacific Crest Networks, Inc. d/b/a The Pond ("Pacific Crest
Networks" or "PCN") and Stuff Software, Inc. ("Stuff Software" or "SSI") by
Universal Access, Inc. ("Universal Access" or "UAI") accounted for on the
purchase method of accounting and are based on the respective historical
financial statements and the notes thereto, which are included in this
Registration Statement. No unaudited pro forma balance sheet is presented, as
all assets and liabilities of PCN and SSI are included in the audited balance
sheet of UAI as of December 31, 1999. This unaudited pro forma statement of
operations gives effect to the acquisitions as if they had occurred on January
1, 1999. The unaudited pro forma combined statement of operations for the year
ended December 31, 1999 combines UAI's audited historical results for the year
ended December 31, 1999 with the unaudited historical statements of operations
of Pacific Crest Networks and Stuff Software for the periods from January 1,
1999 to July 30, 1999 and November 1, 1999, the respective acquisition dates.

There were no material differences between the accounting policies of UAI
and those of Pacific Crest Networks and Stuff Software.

The unaudited pro forma information included herein is presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisitions been consummated at the
beginning of the period presented, nor is it necessarily indicative of future
operating results.

These pro forma financial statements are based on, and should be read in
conjunction with, the historical financial statements and the related notes
thereto of Universal Access, Pacific Crest Networks and Stuff Software included
in this Registration Statement.

F-41
<PAGE> 119

PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
PACIFIC CREST
NETWORKS, INC.
UNIVERSAL D/B/A STUFF PRO FORMA PRO FORMA
ACCESS, INC. THE POND SOFTWARE, INC. ADJUSTMENTS COMBINED
------------ -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Circuit access............... $ 13,360 $ 524 -- $ -- $ 13,884
UTX....................... 601 -- -- -- 601
Other..................... 298 -- 123 -- 421
-------- ------ ---- ----- --------
Total revenues.......... 14,259 524 123 -- 14,906
-------- ------ ---- ----- --------
Operating expenses:
Cost of circuit access....... 12,021 380 4 -- 12,405
Operations and administration
(excluding stock option
plan compensation)........ 13,607 580 33 -- 14,220
Operations and administration
(stock option plan
compensation expense)..... 8,146 -- -- -- 8,146
Depreciation and
amortization.............. 829 113 -- 366(1) 1,308
-------- ------ ---- ----- --------
Total operating
expenses............. 34,603 1,073 37 366 36,079
-------- ------ ---- ----- --------
Operating (loss)
income............... (20,344) (549) 86 (366) (21,173)
-------- ------ ---- ----- --------
Other income (expense):
Interest expense............. (81) -- -- -- (81)
Interest income.............. 739 -- -- -- 739
Other expense................ 33 -- -- -- 33
-------- ------ ---- ----- --------
Total other income
(expense)............ 691 -- -- -- 691
-------- ------ ---- ----- --------
Net (loss) income.............. (19,653) (549) 86 (366) (20,482)
Accretion and dividends on
redeemable and nonredeemable
cumulative convertible
preferred stock.............. (10,207) -- -- -- (10,207)
-------- ------ ---- ----- --------
Net (loss) income applicable to
common stockholders.......... $(29,860) $ (549) $ 86 $(366) $(30,689)
======== ====== ==== ===== ========
Basic and diluted net loss per
share........................ $ (0.96) $ (0.98)
Shares used in computing basic
and diluted net loss per
share........................ 31,142 31,184
</TABLE>

The accompanying note is an integral part of these unaudited pro forma combined
financial statements.

F-42
<PAGE> 120

NOTE TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS

(1) To record amortization expense on acquired intangibles. All intangible
assets are being amortized on a straight-line basis over a period of five
years.

The purchase price was assigned as follows (in thousands):

<TABLE>
<CAPTION>
PCN SSI
------ ------
<S> <C> <C>
Property and equipment................................. $ 778 $ --
Accounts receivable.................................... 102 28
Accounts payable....................................... (276) --
Obligations under capital leases....................... (418) --
Other liabilities, net................................. (24) (63)
Intangible assets:
Customer base........................................ -- 840
Databases............................................ 150 --
Software and copyrights.............................. -- 380
Company business name and domain name................ -- 50
Goodwill............................................. 1,095 --
------ ------
Total purchase price................................... $1,407 $1,235
====== ======
</TABLE>

F-43
<PAGE> 121

ALTERNATE VERSION OF THE TABLE OF CONTENTS
WHICH WILL FOLLOW THE COVER PAGE IN THE ELECTRONIC PROSPECTUS

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 8
Note Regarding Forward-Looking Statements................... 21
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Dilution.................................................... 24
Selected Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Business.................................................... 34
Management.................................................. 48
Transactions With Related Parties and Insiders.............. 62
Principal Stockholders...................................... 67
Description of Capital Stock................................ 70
Shares Eligible for Future Sale............................. 73
Underwriting................................................ 75
Where You May Find Additional Information................... 77
Validity of Common Stock.................................... 77
Experts..................................................... 78
Index to Financial Statements............................... F-1
</TABLE>
<PAGE> 122

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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
----------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Note Regarding Forward-Looking
Statements......................... 21
Use of Proceeds...................... 22
Dividend Policy...................... 22
Capitalization....................... 23
Dilution............................. 24
Selected Financial Data.............. 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................. 34
Management........................... 48
Transactions With Related Parties and
Insiders........................... 62
Principal Stockholders............... 67
Description of Capital Stock......... 70
Shares Eligible for Future Sale...... 73
Underwriting......................... 75
Where You May Find Additional
Information........................ 77
Validity of Common Stock............. 77
Experts.............................. 78
Index to Financial Statements........ F-1
</TABLE>

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Through and including April 10, 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.

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

11,000,000 Shares

UNIVERSAL ACCESS, INC.

Common Stock
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[UNIVERSAL ACCESS LOGO]

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GOLDMAN, SACHS & CO.

CHASE H&Q

ROBERTSON STEPHENS
Representatives of the Underwriters

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