As filed with the Securities and Exchange Commission on May 4, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Form S-1
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933

CTC COMMUNICATIONS CORP.
(Exact Name of Registrant as Specified in Its Charter)

MASSACHUSETTS 4812 04-2731202
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification No.)
of Incorporation or
Organization)

CTC Communications Corp.
360 Second Avenue
Waltham, Massachusetts 02451
Telephone: (781) 466-8080
(Address, including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)

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Robert J. Fabbricatore
Chief Executive Officer
CTC Communications Corp.
360 Second Avenue
Waltham, Massachusetts 02451
Telephone: (781) 466-8080
(Name, Address including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)

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Copies to:
Mary E. Weber, Esq. John D. Watson, Jr., Esq.
Ropes & Gray Latham & Watkins
One International Place 1001 Pennsylvania Avenue, N.W.,
Boston, Massachusetts 02110-2624 Suite 1300
(617) 951-7000 Washington, D.C. 20004
(202) 637-2200

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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.

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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_] 333-

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] 333-

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]

CALCULATION OF REGISTRATION FEE

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Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of to be Offering Price Offering Registration
Securities to be Registered Registered(1) Per Share(2) Price(2) Fee
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Common Stock, $.01 Par
Value................. 2,875,000 shs. $19.0625 $54,804,688 $15,236
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(1) Includes 375,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low prices for the common stock of CTC
Communications Corp. on April 27, 1999.

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

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 4, 1999

2,500,000 Shares

CTC Communications Corp.

Common Stock

--------

We are selling 2,500,000 shares of common stock.

The underwriters have an option to purchase a maximum of 375,000 additional
shares to cover over-allotments of shares.

Our common stock is quoted on the Nasdaq National Market under the symbol
"CPTL." On May 3, 1999, the last reported sale price for our common stock on
the Nasdaq National Market was $19.50.

Investing in the common stock involves risks. See "Risk Factors" on page 6.

Underwriting
Price to Discounts and Proceeds
Public Commissions to CTC
-------- ------------- --------

Per Share................................. $ $ $
Total..................................... $ $ $

Delivery of the shares of common stock will be made on or about , 1999.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Credit Suisse First Boston_______________________________________Lehman Brothers

The date of this prospectus is , 1999.

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TABLE OF CONTENTS

Page
----

Prospectus Summary....................................................... 1

Risk Factors............................................................. 6

Use of Proceeds.......................................................... 13

Price Range of Common Stock and Dividend Policy.......................... 13

Capitalization........................................................... 14

Selected Financial Data.................................................. 15

Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16

Business................................................................. 21

Management............................................................... 33

Principal Stockholders................................................... 38

Page
----

Certain Relationships and Related Transactions............................. 40

Description of Senior Facilities........................................... 40

Holding Company Reorganization............................................. 42

Description of Capital Stock............................................... 43

Underwriting............................................................... 46

Notice to Canadian Residents............................................... 48

Legal Matters.............................................................. 49

Experts.................................................................... 49

Where You Can Find More Information........................................ 49

Financial Statements....................................................... F-1

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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

PROSPECTUS SUMMARY

This summary only highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully. Unless we indicate
otherwise, information in this prospectus assumes the underwriters will not
exercise their over-allotment option.

Overview of Our Business

We are a rapidly growing integrated communications provider, or ICP, with 15
years of telecommunications marketing, sales and service experience. We offer
voice and data services to predominantly medium-sized business customers who
seek greater bandwidth, integrated telecommunications solutions and improved
levels of service. We have a large, experienced sales force consisting of 163
sales people supported by 95 network consultants. These personnel are located
close to our customers in 25 sales branches primarily in New England and New
York. We are currently moving to a facilities-based platform by deploying a
state-of-the-art, all packet-switched network based on advanced internet
protocol, or IP, and asynchronous transfer mode, or ATM, architecture. In May
1999, we will begin beta-testing of our network with some of our customers. By
late summer, we expect to begin providing commercial service and billing
customers on our network.

We became an ICP in January 1998. Prior to that, we were the largest
independent sales agent for NYNEX Corp. (now Bell Atlantic). At the end of
1997, before leaving the Bell Atlantic agency program, we were managing
relationships for approximately 7,000 customers, representing over 280,000
local access lines and over $200 million in annual local telecommunications
spending. As of March 31, 1999, after only 15 months as an ICP, we were serving
over 9,000 customers and had over 142,000 access line equivalents, or ALEs, in
service. For the quarter ended March 31, 1999, we generated approximately $
million of revenues representing over $ million on an annualized basis.

The first phase of our network includes 22 Cisco Systems, Inc. IP+ATM
switches and two fully redundant network operations centers. We are
interconnecting these facilities with leased fiber optic transmission capacity
from Level 3 Communications, LLC and NorthEast Optic Network, Inc., or NEON to
form three self-healing SONET rings. Cisco has designated our network as a
Cisco Powered Network(TM), indicating that Cisco has reviewed and approved our
network design. We intend to access our customer locations through a variety of
broadband technologies, including digital subscriber line, or DSL, service,
leased T-1s, wireless technologies and fiber optic facilities, as available. We
will offer dedicated long distance and data services over our network. We
believe that these services represent approximately 70% of our target
customers' fixed line telecommunications spending. The remaining 30% represents
local dial tone services which we currently obtain from other carriers. We plan
to incorporate local dial tone service into our packet-switching architecture
when that technology matures.

We focus on designing and selling data services. As of March 31, 1999, data
services represented approximately 20% of our total ALEs in service. We have
substantial expertise selling complex data circuits including frame relay,
point-to-point dedicated DS-3 and DS-1 data links, ISDN, ATM and dedicated
internet services. Over the last four years we sold digital data services to
more than 6,600 customer sites and designed and implemented more than 600 wide
area networks, or WANs.

Our Market Opportunity

The market potential for ICPs is large and growing. According to FCC data,
in 1997, the total market for U.S. retail telecommunications services was
approximately $187 billion. Data services, including internet, frame relay and
ATM services, represent one of the fastest growing segments of the
telecommunications market. Industry reports estimate that from 1997 to 2002,
internet services revenues will increase from $7.5 billion to $29.7 billion and
frame relay and ATM services revenues will increase from $2.9 billion to $7.6
billion. We are deploying our data-centric network to capitalize on this market
opportunity.

Our target market, the Northeastern and Mid-Atlantic region, represents an
attractive opportunity for us because it has a high concentration of
telecommunications traffic. According to FCC data, New York and New England
have an estimated 7.3 million local business access lines, which generated
retail telecommunications revenues of approximately $24.4 billion. As we expand
our business in the remaining portions of the New York-Washington, D.C.
corridor, our addressable market will increase by an estimated 8.4 million
business access lines, which generated approximately $26.3 billion in retail
telecommunications revenues. We are currently targeting the medium-sized
business segment of our markets. We estimate this segment represents over 50%
of the total business access lines in our target markets.

Our Competitive Strengths

Our goal is to be the leading ICP for medium-sized business customers in our
target markets. We believe that the following competitive strengths position us
well to achieve this goal:

. Over 15 years of telecommunications marketing, sales and service
experience.

. Over 250 experienced sales people and network consultants providing
personalized sales and customer care.

. A capital-efficient and scalable, all packet-switched network, capable
of providing advanced IP and ATM services.

. Significant experience designing and selling sophisticated data
services.

. A broad range of voice and data services incorporated on a single bill.

. A comprehensive, fully integrated billing and operational support
systems, or OSS.

. The ability to expand using our proven operating model for branch
offices, sales process, customer service and personnel training.

Holding Company Reorganization

Shortly after the closing of this offering, we expect to complete a
reorganization into a holding company structure. In this reorganization, we
will become a wholly owned subsidiary of CTC Communications Group, Inc. CTC
Communications Group, Inc. is a Delaware corporation formed by us for this
purpose and has no other business. All of our issued and outstanding common and
preferred stock, including the common stock offered in this prospectus, will be
converted into the same number of shares of common and preferred stock of CTC
Communications Group, Inc.

--------

Our principal executive offices are located at 360 Second Avenue, Waltham,
Massachusetts 02451, our telephone number is (800) 883-6000 and our internet
website address on the world wide web is www.ctcnet.com. The contents of our
website are not part of this prospectus. In this prospectus we refer to CTC
Communications Corp. and its subsidiary collectively as "CTC," "we" and "us."

The Offering

Common stock offered................ 2,500,000 shares

Common stock to be outstanding
after this offering................. 12,852,498 shares

Over-allotment option............... 375,000 shares

Use of proceeds..................... For general corporate purposes,
including capital expenditures,
working capital and operating
losses associated with the
continued deployment of our
network, further penetration of our
existing region and expansion into
new markets throughout the New
York--Washington, D.C. corridor.

Nasdaq National Market symbol....... CPTL

The shares of common stock to be outstanding after the offering are stated
as of April 30, 1999. The shares of common stock to be outstanding exclude:

. 3,615,809 shares of common stock issuable upon exercise of stock options
at exercise prices between $1.10 and $20 per share;

. 1,288,071 shares of common stock issuable upon exercise of warrants at
exercise prices between $6.75 and $11.81 per share; and

. 1,463,240 shares of common stock issuable upon conversion of Series A
redeemable convertible preferred stock, or Series A preferred stock. See
"Capitalization," "Management," and "Description of Capital Stock."

Summary Financial and Operating Data

You should read the following summary financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus.

Gross profit is not meaningful, n/m, for the fiscal year end March 31, 1998
and prior periods because our revenues for these periods consisted primarily of
agency commissions, while costs associated with agency revenues were included
primarily in selling, general and administrative expenses. EBITDA consists of
income (loss) before interest, income taxes, depreciation and amortization and
other income and expense. We have provided EBITDA because it is a measure of
financial performance commonly used in the telecommunications industry. Other
companies may calculate it differently from us. EBITDA is not a measurement of
financial performance under generally accepted accounting principles. EBITDA
should not be considered an alternative to net income (loss) as a measure of
performance or to cash flow as a measure of liquidity.

Nine Months
Fiscal Year ended March 31, ended December 31,
----------------------------- ------------------
1996 1997 1998 1997 1998
--------- --------- --------- ------------------
(dollars in thousands)

Statement of Operations
Data
Agency revenues............ $ 25,492 $ 29,195 $ 24,775 $ 24,582 $ --
Telecommunications
revenues.................. 5,383 11,095 16,172 10,078 46,376
--------- --------- --------- -------- ---------
Total revenues........... 30,875 40,290 40,947 34,660 46,376
Cost of telecommunications
revenues.................. 4,242 8,709 14,038 8,095 40,426
--------- --------- --------- -------- ---------
Gross profit............... n/m n/m n/m n/m 5,950
Selling, general and
administrative expenses... 20,009 23,820 31,492 21,370 36,800
--------- --------- --------- -------- ---------
Income (loss) from
operations................ 6,624 7,761 (4,583) 5,195 (30,850)
Net income (loss).......... 4,094 4,683 (2,884) 3,124 (30,912)
Other Financial Data
EBITDA (loss).............. $ 7,285 $ 8,504 $ (3,165) $ 5,945 $ (27,150)
Capital expenditures, in-
cluding equipment under
capital leases............ 759 1,222 4,765 4,556 22,262
Depreciation and
amortization.............. 660 743 1,418 750 3,699

The as adjusted balance sheet data below reflects the receipt of net
proceeds of this offering of $45,468,750, based upon an assumed public offering
price of $19.50 per share, after deducting underwriting discounts and
commissions and estimated offering expenses.

As of December 31, 1998
--------------------------
Historical As Adjusted
----------- ------------
(dollars in thousands)

Balance Sheet Data
Cash and cash equivalents.......................... $ 2,597 $ 48,066
Total assets....................................... 67,529 112,998
Total long-term debt, including current portion.... 41,942 41,942
Series A redeemable convertible preferred stock.... 12,562 12,562
Stockholders' equity (deficit)..................... (18,405) 27,064

Summary Quarterly Financial and Operating Data

Access line equivalents, or ALEs, represent the sum of the number of voice
circuits in service plus the data bandwidth purchased by our customers divided
by 64kbps, the capacity necessary to carry one voice channel.

Fiscal Quarter ended
----------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
--------- -------- ------------- ------------
(dollars in thousands)

Statement of Operations Data
Telecommunications revenues.... $ 6,288 $12,836 $14,516 $19,025
Cost of telecommunications
revenues...................... 5,944 11,614 12,383 16,429
Gross profit................... 344 1,222 2,133 2,596
Selling, general and
administrative expenses....... 10,122 9,495 13,002 14,304
Loss from operations........... (9,778) (8,273) (10,869) (11,708)
Net loss....................... (6,008) (7,931) (10,984) (11,997)
Other Financial Data
EBITDA (loss).................. $(9,110) $(7,718) $(9,735) $(9,697)
Capital expenditures including
equipment under capital
leases........................ 1,552 1,015 4,851 16,396
Depreciation and amortization.. 668 555 1,134 1,749
Operating Data
Net ALEs provisioned in the
quarter....................... 17,637 22,548 24,209 38,878
Cumulative ALEs in service at
the end of the quarter........ 17,637 40,185 64,394 103,272

RISK FACTORS

Investing in our common stock involves risk. You should carefully consider
the risks and uncertainties described below before deciding to purchase common
stock. These risks and uncertainties are not the only ones we face or which may
adversely affect our business. If any of the following risks or uncertainties
actually occur, our business, financial condition or results of operations
could be materially adversely affected. In this event, the trading price of our
common stock could decline, and you could lose all or part of your investment.

Our prospects are difficult to evaluate because most of our historical revenues
resulted from a business strategy we are no longer pursuing.

Although we have sold integrated telecommunications services for over 15
years, we only began offering local services as an ICP under our own brand name
in January 1998. We sold local telephone services as an agent for Bell Atlantic
until December 1997. Because we have terminated our agency relationship with
Bell Atlantic, we no longer receive agency revenues. Therefore, we can only
provide you limited historical operating and financial information about our
current business strategy for you to evaluate.

We expect to incur negative cash flows and operating losses for a significant
period of time.

For the nine months ended December 31, 1998 we incurred operating losses of
approximately $30.8 million, net losses of approximately $30.9 million and
negative cash flow from operating and investing activities of approximately
$39.0 million. Our expenses have increased significantly, and we expect our
expenses to continue to increase as we deploy our network and implement our
business plan. Accordingly, we expect to incur significant operating losses,
net losses and negative cash flow during the next several years. We cannot
assure you that we will achieve and sustain profitability or positive net cash
flow.

We cannot assure you that we will successfully execute our facilities-based,
ICP business plan.

If we fail to execute our strategy in a timely or effective manner we may be
unable to successfully compete in our markets. Our business strategy is complex
and requires that we successfully complete many tasks, a number of which must
be completed simultaneously, including:

. deploy, operate and maintain our network;

. attract and retain customers;

. attract and retain skilled employees;

. expand our sales presence in existing and new markets;

. develop and provide enhanced data services; and

. ultimately, incorporate local dial tone into our network.

If we are unable to effectively coordinate the implementation of these
multiple tasks effectively, our business is likely to suffer.

Implementing a facilities-based strategy is subject to technological and other
uncertainties.

The packet-switched design of our network is novel and has not been widely
deployed. The network may not provide the functionality that we expect. We also
cannot be sure that we will be able to incorporate local dial tone capabilities
into our network, and without this capability we will not be able to provide on
our network all of our target customers' fixed line telecommunications
services. Our ability to provide enhanced connectivity to our network and to
provide local dial tone services will require the negotiation of
interconnection agreements with incumbent local exchange carriers, or ILECs.
This can take considerable time, effort and expense, and these agreements are
subject to federal, state and local regulation. We may not be able to
effectively negotiate necessary interconnection agreements. Also, we cannot be
sure that our customers will choose to purchase telecommunications services
over our network.

We have limited experience deploying, operating and maintaining our own
network.

Currently we are not providing any services over our network to any
customers. We are still deploying the initial phase of our network and we have
limited experience operating and maintaining telecommunications networks. We
cannot assure you that we will effectively deploy, operate or maintain our
network. We may not be able to deploy our network within the time frame we
expect, and once the network is deployed we may encounter unanticipated
difficulties in operating and maintaining it.

Our high leverage creates financial and operating risk that could limit the
growth of our business.

We have a significant amount of indebtedness. As of March 31, 1999, we had
approximately $ million of total indebtedness outstanding. We expect to seek
substantial additional debt financing to fund our business plan. Our high
leverage could have important consequences to us, including,

. limiting our ability to obtain necessary financing for future working
capital, capital expenditures, debt service requirements or other
purposes;

. limiting our flexibility in planning for, or reacting to, changes in our
business;

. placing us at a competitive disadvantage to competitors with less
leverage;

. increasing our vulnerability in the event of a downturn in our business
or the economy generally;

. requiring that we use a substantial portion of our cash flow from
operations for the payment of principal and interest on our indebtedness
and not for other purposes.

We will need to refinance our existing indebtedness and may not generate
sufficient cash flow from operations to pay future indebtedness.

We expect we will not generate sufficient cash flow from operations to repay
our existing credit and vendor facilities, and it is likely that we will need
to refinance this indebtedness when it comes due. Also, we cannot assure you
that our business will generate sufficient cash flow from operations or that
alternative sources of cash flow will be available to us in amounts sufficient
to pay other future indebtedness or to fund our other needs. We will need to
generate cash in the future to make scheduled payments on and refinance our
indebtedness and to fund planned capital expenditures, operating losses and our
other needs. Our ability to generate cash will greatly depend on:

. our completing the buildout of our network timely and cost-effectively;

. the acceptance by the market of, and the demand for, our services; and

. our future operating performance.

Each of these elements may be affected by various factors that we cannot
control, including industry, general economic, financial, competitive,
legislative, regulatory and other factors. If we cannot generate sufficient
cash flow from operations, we may need to refinance all or some of our
indebtedness, sell assets, delay capital expenditures or sell additional
capital stock. If we sell additional capital stock, your interest in us will be
diluted. We cannot assure you that we will be able to refinance any of our
indebtedness on reasonable terms, or at all. We also cannot assure you that we
will be able to effect any other needed action on satisfactory terms, or at
all.

We may be unable to obtain the additional capital we will require to fund our
operations and finance our growth on terms acceptable to us or at all.

We will need significant additional capital to fund our business plan. We
expect to seek additional financing to further fund our business plan as soon
as practicable. The timing of these efforts will depend on market conditions.
We cannot assure you that additional funding will be available to us when we
need it or at all. If we are unable to obtain financing when we need it, we may
delay or abandon our development and expansion plans. That could have a
material adverse effect on our business, results of operations and financial

condition. The actual timing and amount of our capital requirements may be
materially affected by various factors, including the timing and actual cost of
the network, the timing and cost of our expansion into new markets, the extent
of competition and pricing of telecommunications services by others in our
markets, the demand by customers for our services, technological change and
potential acquisitions.

Our market is highly competitive, and we may not be able to compete
effectively; many of our competitors have greater resources and more
experience.

We operate in a highly competitive environment. We have no significant
market share in any market in which we operate. We will face substantial and
growing competition from a variety of data transport, data networking and
telephony service providers. We will face competition for the provision of
integrated telecommunications services as well for the individual service
components that comprise our integrated services. The number of competitors
able to provide integrated telecommunication services has increased as a result
of regulatory changes and industry consolidation. We expect that the incumbent
local exchange carriers ultimately will also be able to provide integrated
services. Many of our competitors are larger and better capitalized than we
are. Also, many of our competitors are incumbent providers with long standing
relationships with their customers and greater name recognition. See
"Business--Competition."

The failure of our information systems to produce accurate and prompt billing
and to process customer orders could materially adversely affect our business.

The accurate and prompt billing of our customers is essential to our
operations and future profitability. The deployment of our network will place
additional demands on our information systems. We cannot assure you that our
information systems will perform how we expect. Also, if our business grows as
we plan, we cannot assure you that our billing and management systems will be
sufficient to provide us with accurate and efficient billing and other
necessary processing capabilities. We may not identify all of our information
and processing needs (including issues related to the Year 2000) and may not
upgrade our information systems as needed. Either of these could materially
adversely affect our business, results of operations and financial condition.

If we do not receive timely and accurate call data records from our suppliers,
our billing and collection activities could be adversely affected.

Our billing and collection activities are dependent upon our suppliers
providing us accurate call data records. If we do not receive accurate call
data records in a timely manner, our business, results of operations and
financial condition could be materially adversely affected. In addition, we pay
our suppliers according to our calculation of the charges based upon invoices
and computer tape records provided by these suppliers. Disputes may arise
between us and our suppliers because these records may not always reflect
current rates and volumes. If we do not pay disputed amounts, a supplier may
consider us to be in arrears in our payments until the amount in dispute is
resolved. We cannot assure you that disputes with suppliers will not arise or
that such disputes will be resolved in our favor.

Our ability to serve our customers depends upon the reliability of the
networks, services and equipment of third party providers.

We do not currently provide any services over our network. We depend almost
entirely on facilities-based carriers for the switching and transmission of
customer traffic. After we complete deploying our network, we will still rely
to some extent on others for switching and transmission of customer traffic. We
will also rely on others for fiber optic backbone transmission facilities,
including Level 3 and NEON, for our network. We cannot be sure that any third
party switching or transmission facilities will be available when needed or on
acceptable terms.

Although we can exercise direct control of the customer care and support we
provide, most of the services we currently offer are provided by others. These
services are subject to physical damage, power loss, capacity

limitations, software defects, breaches of security and other factors which may
cause interruptions in service or reduced capacity for our customers. These
problems, although not within our control, could adversely affect customer
confidence and damage our reputation. Either of these could have a material
adverse effect on our business, results of operations and financial condition.

We have engaged a network services integrator to design, engineer and manage
the buildout of our network in our existing markets. If the network integrator
is not able to perform these functions, we may experience delays or additional
costs in providing services and building the network. The failure of our
network equipment to operate as anticipated or the inability of equipment
suppliers, including Cisco, to timely supply such equipment could materially
and adversely affect our business, results of operations and financial
condition.

Our operating results could be adversely affected by increases in customer
attrition rates.

We cannot assure you that our customers will continue to purchase local,
long distance, data or other services from us. Because we have been operating
as an ICP for a short time, our customer attrition rate is difficult to
evaluate. We could lose customers as a result of national advertising
campaigns, telemarketing programs and customer incentives provided by major
competitors as well as for other reasons not in our control. Increases in
customer attrition rates could have a material adverse effect on our business,
results of operations and financial condition.

If we fail to manage our growth, our business could be impaired.

We are pursuing a business plan that will result in rapid growth and
expansion of our operations if we are successful. This rapid growth would place
significant additional demands upon our current management and other resources.
Our success will depend on our ability to manage our growth. To accomplish this
we will have to train, motivate and manage an increasing number of employees.
We will also need to continually enhance our information systems. Our failure
to manage growth effectively could have a material adverse effect on our
business, results of operations and financial condition.

Our success will depend on a limited number of key personnel who could be
difficult to replace as well as on our ability to hire other skilled personnel.

We believe that our continued success will depend upon the abilities and
continued efforts of our management, particularly members of our senior
management team. The loss of the services of any of these individuals could
have a material adverse effect on our business, results of operations and
financial condition. Our success will also depend upon our ability to identify,
hire and retain additional highly skilled sales, service and technical
personnel. Demand for qualified personnel with telecommunications experience is
high and competition for their services is intense. We cannot be sure that we
will be able to attract and retain the additional employees we need to
implement our business strategy. Our inability to hire and retain such
personnel could have a material adverse effect on our business, results of
operations and financial condition.

Changes to the regulations applicable to our business could increase our costs
and limit our operations.

We are subject to federal, state, and local regulation of our local, long
distance, and data services. See "Business-Government Regulation." With the
passage of the Telecommunications Act in 1996, the regulation of our services
has been subject to numerous administrative proceedings at the federal and
state level, litigation in federal and state courts, and legislation in federal
and state legislatures. We cannot predict the outcome of the various
proceedings, litigation, and legislation or whether and to what extent they may
adversely affect our business or operations. We believe the current trend
toward relaxed regulatory oversight and competition will benefit us. Our
competitors, however, may benefit from this trend to a greater extent than we
will. If that occurs, our business may be adversely affected.

Rapid technological changes in the telecommunications industry could render our
services obsolete faster than we expect or could require us to spend more to
develop our network than we currently anticipate.

The telecommunications industry is subject to rapid and significant changes
in technology. We cannot predict the effect that changes in technology will
have on our business. Any changes could have a material adverse effect on our
business, operating results and financial condition. Advances in technology
could lead to more entities becoming facilities-based ICPs. We believe that our
long-term success will increasingly depend on our ability to offer advanced
services and to anticipate or adapt to evolving industry standards. We cannot
be sure that:

. we will be able to offer the services our customers require;

. our services will not be economically or technically outmoded by current
or future competitive technologies;

. our network or our information systems will not become obsolete;

. we will have sufficient resources to develop or acquire new technologies
or introduce new services that we need to effectively compete; or

. the cost of the network will decline as rapidly as the costs of our
competitors' infrastructures.

We may incur significant costs and our business could suffer if our systems and
network, or the systems of our suppliers and vendors, do not properly process
date information after December 31, 1999.

Currently, many computer systems and software products are coded to accept
only two digit, rather than four digit, entries in the date code field. Date-
sensitive software or hardware coded in this manner may not be able to
distinguish a year that begins with a "20" instead of a "19," and programs that
perform arithmetic operations, make comparisons or sort date fields may not
yield correct results with the input of a Year 2000 date. This Year 2000
problem could cause miscalculations or system failures that could affect our
operations. We cannot assure you that we have successfully identified all Year
2000 problems with our information systems and network. We also cannot assure
you that we will be able to implement any necessary corrective actions in a
timely manner. Our failure to successfully identify and remediate Year 2000
problems in critical systems could have a material adverse effect on our
business, results of operations and financial condition. Also, if the systems
of other companies that provide us services or with whom our systems
interconnect are not Year 2000 compliant, our business, operating results and
financial condition could be materially adversely affected. The Year 2000 issue
is discussed at greater length in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."

We may pursue acquisitions which would create risks to our business.

We may pursue strategic acquisitions as we expand. We currently have no
definitive agreement with respect to any acquisition. Acquisitions may increase
our risks because we may:

. experience difficulties integrating acquired operations and personnel
into our operations;

. disrupt our ongoing business;

. divert resources and management time;

. be unable to maintain uniform standards, controls, procedures and
policies; and

. enter markets or businesses in which we have little or no experience.

We cannot assure you that we will be able to obtain any additional financing
needed to finance potential acquisitions. If we do make any acquisition, the
acquired business might not perform as we expected.

Our existing principal stockholders, executive officers and directors control a
substantial amount of our voting shares and will be able to significantly
influence any matter requiring shareholder approval.

After this offering, our officers and directors and parties related to them
will control approximately 42% of our outstanding voting stock. Robert J.
Fabbricatore, our Chairman and Chief Executive Officer, will control
approximately 21% of our outstanding voting capital stock. Therefore, the
officers and directors will be able to significantly influence any matter
requiring shareholder approval. In addition, Mr. Fabbricatore and some of his
affiliates have agreed to vote shares they control to elect to our board up to
two persons designated by the holders of a majority of our Series A preferred
stock.

Our stock price is likely to be volatile.

The trading price of our common stock is likely to be volatile. The stock
market in general, and the market for technology and telecommunications
companies in particular, has experienced extreme volatility. This volatility
has often been unrelated to the operating performance of particular companies.
Other factors that could cause the market price of our common stock to
fluctuate substantially include:

. announcements of developments related to our business, or that of our
competitors, our industry group or our customers;

. fluctuations in our results of operations;

. hiring or departure of key personnel;

. a shortfall in our results compared to analysts' expectations and
changes in analysts' recommendations or projections;

. sales of substantial amounts of our equity securities into the
marketplace;

. regulatory developments affecting the telecommunications industry or
data services; and

. general conditions in the telecommunications industry or the economy as
a whole.

The market price of our common stock could be affected by the substantial
number of shares that are eligible for future sale.

After this offering is completed, 12,852,498 shares of common stock will be
issued and outstanding, assuming no exercise of the underwriters' over-
allotment option. We cannot be sure what effect, if any, future sales of shares
or the availability of shares for future sale will have on the market price of
the common stock. The market price of our common stock could drop due to sales
of a large number of shares in the market after this offering or the perception
that sales of large numbers of shares could occur. These factors could also
make it more difficult to raise funds through future offerings of common stock.
Over 90% of the shares of common stock outstanding immediately after this
offering will be freely tradeable under the Securities Act, subject to
compliance with Rule 144 under the Securities Act. On the consummation of our
reorganization all of CTC Communications Group, Inc.'s shares will be freely
tradeable, also subject to these restrictions. In connection with this
offering, our officers and directors and some of our stockholders will be
required not to sell any shares of common stock for a period of 90 days after
the date of this prospectus without the written consent of Credit Suisse First
Boston Corporation.

We have anti-takeover defenses that could delay or prevent an acquisition and
could adversely affect the price of our common stock

Provisions of our articles of organization and bylaws and Massachusetts law,
and, after our reorganization into a holding company structure, CTC
Communications Group, Inc.'s certificate of incorporation and bylaws and the
provisions of Delaware law, could make it more difficult for a third party to
acquire control of CTC even if a change in control would be beneficial to our
stockholders. These provisions may negatively affect the price of our common
stock and may discourage third parties from bidding for CTC. In addition, our
board of directors may issue, without stockholder approval, shares of preferred
stock with terms set by the board. In

addition to delaying or preventing an acquisition, the issuance of a
substantial number of preferred shares could depress the price of the common
stock. See "Description of Capital Stock--Preferred Stock."

Forward looking statements are inherently uncertain

Certain statements about us and our industry under the captions "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
elsewhere in this prospectus are "forward-looking statements." These forward-
looking statements include, but are not limited to, statements about our plans,
objectives, expectations, intentions and assumptions and other statements in
this prospectus that are not historical facts. When used in this prospectus,
the words "estimate," "project," "believe," "anticipate," "intend," "plan,"
"expect" and similar expressions are generally intended to identify forward-
looking statements. Because these forward-looking statements involve risks and
uncertainties, including those described in this "Risk Factors" section, actual
results could differ materially from those expressed or implied by these
forward-looking statements. We caution you not to place undue reliance on these
forward-looking statements. These forward-looking statements speak only as of
the date of this prospectus. We do not undertake any obligation to publicly
release any revisions to these forward-looking statements to reflect new
information, future events or otherwise.

USE OF PROCEEDS

We will receive net proceeds of approximately $45.5 million from the sale of
2,500,000 shares of common stock at an assumed public offering price of $19.50
per share, after deducting the underwriting discounts and commissions and
estimated offering expenses we will owe. This amount would be approximately
$52.4 million if the underwriters fully exercise their over-allotment option.
We intend to use these proceeds for general corporate purposes including
capital expenditures, working capital and operating losses associated with the
continued deployment of our network, further penetration of our existing region
and expansion into new markets throughout the New York--Washington, D.C.
corridor.

Until we apply the net proceeds as described above, we intend to either
invest the net proceeds of this offering in short-term, interest-bearing
instruments and other investment-grade securities or repay the revolving
portion of our credit facility. Advances under our credit facility bear
interest at 1.75% over the prime rate. The credit facility matures on September
1, 2001. We used advances under this credit facility for general corporate
purposes. See "Description of Senior Credit Facilities."

PRICE RANGE OF COMMON STOCK

Our common stock is listed on the Nasdaq National Market under the symbol
"CPTL." Following is the range of high and low trading prices on the Nasdaq
National Market for the common stock for the periods indicated.

Price Range
-------------
High Low
------ ------

Calendar Year 1997
Second Quarter.............................................. $10.00 $ 6.88
Third Quarter............................................... $ 9.75 $ 7.06
Fourth Quarter.............................................. $15.94 $ 8.00
Calendar Year 1998
First Quarter............................................... $14.94 $ 5.13
Second Quarter.............................................. $ 9.88 $ 6.50
Third Quarter............................................... $ 8.50 $ 4.75
Fourth Quarter.............................................. $ 9.00 $ 4.00
Calendar Year 1999
First Quarter............................................... $17.50 $ 8.38
Second Quarter (through May 3, 1999)........................ $24.00 $12.19

The last sale price of the common stock on the Nasdaq National Market on May
3, 1999 was $19.50.

DIVIDEND POLICY

We have never paid cash dividends on our common stock and we have no plans
to do so in the foreseeable future. We intend to retain earnings, if any, to
develop and expand our business. In addition, the terms of the credit and
vendor facilities and the Series A preferred stock restrict our ability to pay
cash dividends on our common stock. We also expect the terms of agreements
governing any future indebtedness to restrict our ability to pay cash
dividends.

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1998 on
an actual basis and as adjusted to reflect the sale of 2,500,000, shares of
common stock offered hereby at a public offering price of $19.50 per share, and
after deducting underwriting discounts and commissions and estimated offering
expenses. This information should be read in conjunction with our financial
statements and notes appearing elsewhere in this prospectus. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

As of December 31, 1998
-------------------------
As
Actual Adjusted
----------- ------------
(dollars in thousands)

Cash and cash equivalents............................. $ 2,597 $ 48,066
=========== ===========
Long-term debt, including current portion:
Notes payable....................................... $ 35,958 $ 35,958
Obligations under capital leases.................... 5,984 5,984
----------- -----------
Total long-term debt.............................. 41,942 41,942
Series A redeemable convertible preferred stock....... $12,562 $ 12,562
Stockholders' Equity:
Common stock (1).................................... 103 128
Additional paid-in capital.......................... 6,960 52,404
Deferred compensation............................... (239) (239)
Retained earnings (deficit)......................... (25,063) (25,063)
----------- -----------
Subtotal.......................................... (18,239) 27,230
Amounts due from stockholders....................... (166) (166)
----------- -----------
Total stockholders' equity (deficit).............. (18,405) 27,064
----------- -----------
Total capitalization............................ $ 36,099 $ 81,568
=========== ===========

- --------
(1) Consists of common stock, $.01 par value per share: 25,000,000 shares
authorized, 10,291,111 outstanding at December 31, 1998 and 12,791,111
outstanding, as adjusted. Does not include 3,131,894 shares of common stock
issuable upon exercise of outstanding stock options; 1,422,013 shares of
common stock issuable upon conversion of the Series A preferred stock or
1,163,300 shares of common stock issuable upon the exercise of the
outstanding warrants at exercise prices between $6.75 and $9.00 per share.

SELECTED FINANCIAL DATA

The following selected financial data for the five years ended March 31,
1998 are derived from our financial statements which have been audited by Ernst
& Young LLP, independent auditors. The financial data for the nine month
periods ended December 31, 1998 and 1997 are derived from our unaudited
financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which we consider
necessary for a fair presentation of our financial position and the results of
operations for these periods.

Operating results for the nine months ended December 31, 1998 are not
necessarily indicative of the results that you may expect for the entire year
ending March 31, 1999. You should read the following financial data together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our financial statements and the related notes.

All earnings per share and weighted average share information included in
the accompanying financial statements have been restated to reflect the 25%
stock split effected in fiscal year ended March 31, 1995, and the three-for-two
stock split and the two-for-one stock split effected in fiscal year ended March
31, 1996.

Nine Months,
Fiscal Year ended March 31, ended December 31,
------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ---------- --------- ---------
(dollars in thousands, except per share information)

Statement of Operations
Data
Agency revenues......... $ 14,483 $ 18,898 $ 25,492 $ 29,195 $ 24,775 $ 24,582 $ --
Telecommunications
revenues............... 462 3,038 5,383 11,095 16,172 10,078 46,376
---------- ---------- ---------- ---------- ---------- -------- ---------
Total revenues....... 14,945 21,936 30,875 40,290 40,947 34,660 46,376
Cost of
telecommunications
revenue................ 369 2,451 4,242 8,709 14,038 8,095 40,426
---------- ---------- ---------- ---------- ---------- -------- ---------
Gross profit............ n/m n/m n/m n/m n/m n/m 5,950
Selling, general and
administrative
expenses............... 14,484 17,319 20,009 23,820 31,492 21,370 36,800
---------- ---------- ---------- ---------- ---------- -------- ---------
Income (loss) from
operations............. 92 2,166 6,624 7,761 (4,583) 5,195 (30,850)
Net income (loss)....... 75 1,472 4,094 4,683 (2,884) 3,124 (30,912)
Earnings (loss) per
share
Basic.................. 0.01 0.18 0.43 0.49 (.29) .32 (3.15)
Diluted................ 0.01 0.17 0.38 0.43 (.29) .29 (3.15)
Other Financial Data
EBITDA (loss)........... $ 853 $ 2,822 $ 7,285 $ 8,504 $ (3,165) $ 5,945 $ (27,150)
Capital expenditures,
including equipment un-
der capital leases..... 234 599 759 1,222 4,765 4,556 22,262
Depreciation and
amortization........... 761 656 660 743 1,418 750 3,699
Net cash provided (used)
by operating
activities............. (378) 1,580 2,192 3,572 (7,951) (2,700) (21,555)

As of
As of March 31, December 31,
------------------------------------- ------------
1994 1995 1996 1997 1998 1998
------ ------ ------- ------- ------- ------------
(dollars in thousands)

Balance Sheet Data
Cash and cash equivalents.. $1,239 $2,391 $ 3,942 $ 6,406 $ 2,168 $ 2,597
Total assets............... 5,399 7,726 12,509 20,186 30,967 67,529
Total long-term debt,
including current portion
.......................... -- -- -- -- 9,673 41,942
Series A redeemable
convertible preferred
stock..................... -- -- -- -- -- 12,562
Stockholders' equity
(deficit)................. 3,871 5,526 9,495 14,292 11,580 (18,405)

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

The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the financial statements and notes included
elsewhere in this prospectus.

Overview

Historically, we have generated agency revenues and telecommunications
revenues. Agency revenues consist of commissions we earned as an agent of Bell
Atlantic and other Regional Bell Operating Companies, or RBOCs, and long
distance providers. Telecommunications revenues are generated by our sale of
local, long distance, frame relay, internet access and other communications
services. For the fiscal year ended March 31, 1998, agency commissions
accounted for approximately 60% of our revenues, with telecommunications
revenues accounting for the other 40%. As a result of our transition to an ICP
strategy in December 1997, agency commissions earned after that date are not
material.

Our financial information for periods ending on or before December 31, 1997
primarily reflects our operations as an agent for Bell Atlantic. Because of our
transition to an ICP strategy and our network buildout, most of the financial
information for these periods does not reflect our current business and is not
comparable to results for subsequent periods.

A common basis for measurement of an ICP's progress is the growth in access
line equivalents, or ALEs. ALEs represent the sum of the number of voice
circuits in service plus the data bandwidth purchased by our customers divided
by 64kbps, the capacity necessary to carry one voice channel.

Results of Operations

Results of Operations--Nine Months Ended December 31, 1998 Compared to the Nine
Months Ended December 31, 1997.

Total revenues for the nine months ended December 31, 1998 were $46,376,000,
an increase of 34% from $34,660,000 for the same period of the preceding year.
The results for the nine months ended December 31, 1998 reflect our operations
as an ICP. The results for the nine months ended December 31, 1997 primarily
reflect our operations as an agent for Bell Atlantic. Because substantially all
revenues since January 1, 1998 have resulted from operations as an ICP,
comparisons between the two periods are not relevant.

During the quarter ended December 31, 1998, we provisioned 38,878 net ALEs.
That brought our total ALEs in service to 103,272 for our first year as an ICP.
Net ALEs provisioned during the quarter ended December 31, 1998 represented a
61% increase over net ALEs provisioned during the quarter ended September 30,
1998. We experienced the strongest growth in data ALEs. Data ALEs increased by
approximately 67% from the quarter ended September 1998 to 19,638, or 19% of
total ALEs as of December 31, 1998.

For the nine months ended December 31, 1998, costs of telecommunications
revenues were $40,426,000, compared to $8,095,000 for the same period of the
preceding fiscal year. As a percentage of telecommunications revenues, cost of
telecommunications revenues was 86% for the quarter ended December 1998,
compared to 85% for the quarter ended September 1998. The decrease in gross
margin is due primarily to our agency revenue declining as a percentage of
total revenue. Excluding the effects of the non-resale revenue, the gross
margin due to resale revenue remained unchanged from the quarter ended
September 1998.

For the nine months ended December 31, 1998, selling, general and
administrative expenses were $36,800,000, as compared to $21,370,000 for the
same period of the preceding fiscal year, or an increase of 72%. This increase
was due to the opening of additional branch sales offices during the nine
months ended

December 31, 1998 and the associated increased number of sales and service
employees hired in connection with the transition to our ICP strategy. As of
December 31, 1998, we employed 389 people including 172 account executives and
95 network consultants in 25 sales branches throughout New England and New
York. Selling, general and administrative expenses also increased for the nine
month period ended December 31, 1998 due to operating expenses associated with
the network buildout, as well as an additional $2,600,000 of depreciation
expense year-to-date associated with investments in the network. The final
significant component of this increase is legal and regulatory expenses. Legal
expenses in prosecuting an action against Bell Atlantic in federal court and
various state regulatory proceedings, together with the expenses incurred in
obtaining certification as a reseller in additional states, were $3,444,000 for
the nine months ended December 31, 1998. See "Business-Legal Proceedings."

Interest and other expense increased to $2,389,000 for the nine months ended
December 31, 1998, as compared to interest and other income of $118,000 for the
nine months ended December 31, 1997. The increase is due to increased
borrowings to fund our operating losses and to fund the deployment of our
network, the fees associated with our credit facility and vendor facility, and
the amortization of the interest expense associated with warrants issued to the
lenders under the credit facility.

The benefit for income taxes, which is limited to refunds available on a
loss carryback basis, has been recognized ratably as a percentage of our
estimated pre-tax loss over each of the four quarters of the fiscal year. The
effective rate of the benefit may vary with changes in management's estimates.

Fiscal Year Ended March 31, 1998 Compared to Fiscal Year Ended March 31, 1997

The results for the fiscal year ended March 31, 1998 reflect our decision to
leave the Bell Atlantic agency program in December 1997 and our commencement of
operations as an ICP. This decision adversely affected revenues and expenses to
a certain extent in the third quarter as we prepared for this transition and
significantly affected revenues in the fourth quarter after the transition had
been effected. Total revenues of $40,947,000 for fiscal 1998 were essentially
flat as compared to $40,290,000 for the fiscal year ended March 31, 1997.
Agency revenues decreased 15% to $24,775,000 for fiscal 1998 from $29,195,000
in fiscal 1997, primarily as a result of fourth quarter revenues of only
$194,000, as compared to $8,354,000 for the same period of fiscal 1997. This
decrease reflects the fact that we left the Bell Atlantic agency program in
December 1997, and thus no Bell Atlantic agency revenues were reported in the
fourth quarter of fiscal 1998. Telecommunications revenues increased 46% to
$16,172,000 for fiscal 1998 from $11,095,000 for fiscal 1997. This increase
reflects the increased sales of long distance, internet access, and frame relay
data services as well as the commencement of our sale of local
telecommunications services as an ICP in the fourth quarter of fiscal 1998.
Although local telecommunications sales increased during the fourth quarter,
they were significantly less than we expected as a result of the imposition of
the temporary restraining order in connection with the Bell Atlantic litigation
in February 1998, which required us to sell these local services only to new
customers, resulting in a longer sales cycle. This temporary restraining order
was dissolved in August 1998.

Costs of telecommunications revenues increased 61% to $14,039,000 for fiscal
1998 from $8,709,000 for fiscal 1997. As a percentage of telecommunications
revenues, cost of telecommunications revenues was 87% for fiscal 1998 as
compared to 78% for fiscal 1997. This overall increase was due primarily to
increased sales of telecommunications services and increased costs for those
services sold. Due largely to the initiation of local telecommunications sales
in the fourth fiscal quarter, cost of telecommunications revenues for this
period increased 127% to $5,944,000 from $2,615,000 for the same period in
fiscal 1997. These increases as a percentage of revenues were attributable to
fixed costs associated with the sale of local telecommunications services,
lower long distance rates extended to customers in advance of rate decreases
from our long distance supplier, increased costs associated with adding new
customers and services, and costs associated with phasing out our debit card
program.

Selling, general and administrative expenses increased 32% to $31,492,000 in
fiscal 1998 from $23,820,000 in fiscal 1997. This increase was a result of the
increased number of sales and service employees hired in connection with the
transition to our ICP strategy, increased payments of commission and bonuses,

increased corporate and administrative expenses, increased depreciation
associated with greater capital expenditures, expenses related to new branch
openings and a $1,200,000 charge for estimated costs to be incurred in
connection with our litigation with Bell Atlantic.

Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996

Total revenues for fiscal 1997 increased 30% to $40,290,000 as compared to
$30,876,000 for the fiscal year ended March 31, 1996. Agency revenues increased
15% to $29,195,000 in fiscal 1997 compared to $25,493,000 for fiscal 1996 due
to the addition of new customers, increased sales to existing customers and the
addition of new services to our portfolio. Effective January 1996, NYNEX (now
Bell Atlantic) reduced some fees and commissions payable under its 1996 agency
agreement with us. As a result, although unit sales of Centrex and Data
Products, two NYNEX products, increased 30% and 66%, respectively, revenues as
stated above, increased only 15%.

Telecommunications revenues increased 106% to $11,095,000 for fiscal 1997
from $5,383,000 for fiscal 1996. This increase can be attributed to the
addition of new customers to the service, as well as the introduction of new
products, primarily internet access.

Selling, general and administrative expenses increased 19% to $23,820,000
for fiscal 1997 from $20,009,000 for fiscal 1996. As a percentage of revenues,
these expenses were 59% for fiscal 1997, compared to 65% for fiscal 1996. The
increase in selling, general and administrative expenses is attributable to the
increase in variable sales commission and bonus expenses incurred in connection
with the substantial increase in revenues. In addition, we increased the number
of sales offices, particularly in the Northeast, hired additional sales
executives, expanded the facilities at several of our existing sales branches
and made additional investments in our information systems in fiscal 1997.

Net income increased to $4,683,000 in fiscal 1997 from $4,094,000 in fiscal
1996, as a result of revenue growth primarily in the Northeast, combined with a
continuing effort to control operating expenses.

Quarterly Financial Information

The following table sets forth certain statements of operations data for the
four quarters since the transition to our ICP strategy. This information is
from our unaudited financial statements. You should read this information in
conjunction with the financial statements and related notes included elsewhere
in this prospectus. The operating results for any quarter are not necessarily
indicative of results for any future period.

Statement of Operations Data
Telecommunications revenues.... $ 6,288 $12,836 $14,516 $19,025
Cost of telecommunications rev-
enues......................... 5,944 11,614 12,383 16,429
Gross profit................... 344 1,222 2,133 2,596
Selling, general and adminis-
trative expenses.............. 10,122 9,495 13,002 14,304
Loss from operations........... (9,778) (8,273) (10,869) (11,708)
Net loss....................... (6,008) (7,931) (10,984) (11,997)
Other Financial Data
EBITDA (loss).................. $(9,110) $(7,718) $(9,735) $(9,697)
Capital expenditures including
equipment under capital
leases........................ 1,552 1,015 4,851 16,396
Depreciation and amortization.. 668 555 1,134 1,749
Operating Data
Net ALEs provisioned in the
quarter....................... 17,637 22,548 24,209 38,878
Cumulative ALEs in service at
the end of the quarter........ 17,637 40,185 64,394 103,272

Liquidity and Capital Resources

Until March 1998, we had funded our working capital and operating
expenditures primarily from cash flow from operations. Since April 1998, we
have funded our transition to an ICP strategy, expansion of our sales branches
and sales force, operating losses and the deployment of our network by raising
additional capital.

In April 1998, we completed a $12 million private placement of Series A
convertible preferred stock and warrants to Spectrum Equity Investors II, L.P.
Also, on June 30, 1998, we received a commitment from Spectrum to purchase, at
our option, an additional $5 million of preferred stock on the same terms and
conditions as the Series A convertible preferred stock, which option extends
until June 30, 1999. We do not expect to exercise this option.

On September 1, 1998, we entered into a senior secured credit facility with
Goldman Sachs Credit Partners and Fleet National Bank. Under the terms of this
senior secured credit facility, the lenders have provided a three-year credit
facility to us consisting of revolving loans in the aggregate amount of up to
$75 million. Under our senior secured credit facility we may borrow $15 million
unconditionally and an additional $60 million based on trailing 120 days
accounts receivable collections, reducing to the trailing 90 days accounts
receivable collections by March 31, 2000. As of December 31, 1998, we had
availability of $36 million and of which we had borrowed approximately $33
million under this senior secured credit facility.

On October 14, 1998, we entered into an agreement with Cisco Systems Capital
Corporation, or Cisco Capital, for up to $25 million of vendor financing. Under
the terms of the agreement, we have agreed to a three-year, $25 million volume
purchase commitment of Cisco equipment and services and Cisco Capital has
agreed to advance funds as these purchases occur. Up to $10 million of the
vendor facility can be utilized for costs associated with the integration of
Cisco equipment and related peripherals. Under the terms of the vendor
facility, we are required to pay interest on funds advanced under the facility
at an annual rate of 12.5%. As of December 31, 1998, we had borrowed $2.7
million under the vendor facility.

Since September 30, 1998, we have entered into various lease and vendor
financing agreements which provide for the acquisition of up to $16.2 million
of equipment and software. As of December 31, 1998, the aggregate amount
borrowed under these agreements was approximately $4.6 million.

In order to provide liquidity, we entered into a loan agreement dated as of
March 15, 1999 with Toronto Dominion (Texas), Inc. to provide an unsecured
standby credit facility for up to $30 million for capital expenditures and
other general corporate purposes. This facility will terminate upon the closing
of this offering.

As we continue to deploy our network, further penetrate our existing region
and expand into new markets throughout the Boston--Washington, D.C. corridor,
we will need significant additional capital. We believe that the estimated net
proceeds of this offering, together with cash on hand, the proceeds of our
lease and vendor financing arrangements and the amounts we expect to be
available under our credit and vendor facilities will be sufficient to fund our
capital requirements for at least the next 12 months. During this period we
will seek to raise additional capital through the issuance of debt and possibly
equity securities, the timing of which will depend on market conditions, and
which could occur in the near future. We may also seek to raise additional
capital through vendor financing, equipment lease financing and bank loans.

We cannot assure you that additional financing will be available on terms
acceptable to us when we need it. The agreements governing our existing
indebtedness limit our ability to obtain debt financing. If we are unable to
obtain financing when we need it, we may delay or abandon our development and
expansion plans. That could have a material adverse effect on our business,
results of operations and financial condition. The actual timing and amount of
our capital requirements may be materially affected by various factors,
including the timing and actual cost of the network, the timing and cost of our
expansion into new markets, the extent of competition and pricing of
telecommunications services by others in our markets, the demand by customers
for our services, technological change and potential acquisitions.

On February 24, 1999, we settled our lawsuit against Bell Atlantic Corp.
Under the terms of the settlement agreement we received cash and will receive
other consideration to satisfy claims of commissions we earned while we were an
agent for Bell Atlantic. Both parties have agreed to keep the specific terms of
the settlement confidential.

Although we believe that the terms of the settlement will permit us to
actively expand our customer base and increase our revenues and improve our
margins from the sale of communications products and services, there is no
assurance that we will do so. We do not expect to incur any additional material
costs related to this matter subsequent to March 31, 1999.

Working capital at December 31, 1998 was $5,156,000 compared to $11,342,000
at March 31, 1998, a decrease of 55%, due to an increase in accounts payable
resulting from approximately $8,000,000 of fixed assets purchased during the
quarter that were not yet funded under our vendor facility. These assets were
funded during the fourth quarter of fiscal 1999, reducing accounts payable and
increasing notes payable by $8,000,000. This was partially offset by a
reclassification of $1,834,000 deferred income taxes from non-current assets to
current assets. Cash balances at December 31, 1998 and March 31, 1998 totaled
approximately $2,597,000 and $2,167,000, respectively.

Year 2000 Compliance

Our State of Readiness

We have evaluated the effect of the Year 2000 problem on our information
systems. We are implementing plans to permit our systems and applications to
effectively process information in order to support ongoing operations in the
Year 2000 and beyond. We believe our information technology, or IT, and non-IT
systems will be Year 2000 compliant by the end of 1999.

In connection with the deployment of our new network, we have designed a new
database architecture for our computer systems which we expect will be Year
2000 compliant. We expect installation of the network and related software to
be completed in the summer of 1999 and testing of the system, including its
Year 2000 compliance, commenced in May 1999. While we expect that all
significant IT-related systems will be Year 2000 compliant by mid-1999, we
cannot assure you that all Year 2000 problems in the new system will be
identified or that the necessary corrective actions will be completed in a
timely manner.

We have requested certification from our significant vendors and suppliers
demonstrating their Year 2000 compliance. Approximately 60% of vendors and
suppliers have delivered these certifications. We anticipate that we will
receive additional certifications. We intend to continue to identify critical
vendors and suppliers and communicate with them about their plans and progress
in addressing Year 2000 problems. We cannot assure you that the systems of
these vendors and suppliers will be timely converted. We also cannot assure you
that any failure of their systems to be Year 2000 compliant will not adversely
affect our operations.

Our Costs of Year 2000 Remediation

We have not incurred material costs related specifically to Year 2000 issues
and do not expect to in the future. However, we cannot assure you that the
costs associated with Year 2000 problems will not be greater than we
anticipate.

Our Year 2000 Risk

Based on the efforts described above, we currently believe that our systems
will be Year 2000 compliant in a timely manner. We have completed the process
of identifying Year 2000 issues in our IT and non-IT systems and expect to
complete any remediation efforts by the summer of 1999.

Our Contingency Plans

We plan by mid-year 1999 to develop contingency plans to be implemented in
the event planned solutions prove ineffective in solving Year 2000 compliance.
If it becomes necessary for us to implement a contingency plan, such plan may
not avoid a material Year 2000 issue.

BUSINESS

Overview

We are a rapidly growing ICP with 15 years of telecommunications marketing,
sales and service experience. We offer voice and data services to predominantly
medium-sized business customers who seek greater bandwidth, integrated
telecommunications solutions and improved levels of service. We have a large,
experienced sales force consisting of 163 sales people supported by 95 network
consultants. These personnel are located close to our customers in 25 sales
branches primarily in New England and New York. We are currently moving to a
facilities-based platform by deploying a state-of-the-art, all packet-switched
network based on advanced internet protocol, or IP, and asynchronous transfer
mode, or ATM, architecture. In May 1999, we will begin beta-testing of our
network with some of our customers. By late summer, we expect to begin
providing commercial service and billing customers on our network.

We became an ICP in January 1998. Prior to that, we were the largest
independent sales agent for NYNEX Corp. (now Bell Atlantic). At the end of
1997, before leaving the Bell Atlantic agency program, we were managing
relationships for approximately 7,000 customers, representing over 280,000
local access lines and over $200 million in annual local telecommunications
spending. As of March 31, 1999, after only 15 months as an ICP, we were serving
over 9,000 customers and had over 142,000 ALEs in service. For the quarter
ended March 31, 1999, we generated approximately $ million of revenues
representing over $ million on an annualized basis.

Our Market Opportunity

We believe that our network will enable us to capitalize on the rapid growth
in demand for internet services, private networks and other broadband data
services. In particular, we will provide ATM and frame relay services on our
own network. These are two of the fastest growing data services. Market studies
estimate that from 1997 to 2001, ATM and frame relay service revenues in the
U.S. will increase at compound annual growth rates of 68% and 37%,
respectively.

Our Competitive Strengths

Our goal is to be the leading ICP for medium-sized business customers in our
target markets. We believe that the following competitive strengths position us
well to achieve this goal:

. Over 15 years of telecommunications marketing, sales and service
experience. We have sold local telecommunications services as agent
since 1984 and have sold long distance and data services

under our own brand name since 1994. During this period, we successfully
introduced ISDN, frame relay, ATM and other new services in response to
technological change. Collectively, our nine-person senior management
team has over 200 years of telecommunications experience. Six members of
this team have worked together at CTC for more than 10 years.

. Over 250 experienced sales people and network consultants providing
personalized sales and customer care. Our sales and service teams
consist of a sales executive and a network consultant assigned to each
customer. This provides a single, responsive point of contact for all of
our customer's service and billing inquiries. Our sales and service
teams seek to develop a long-term relationship with customers. We
believe that our focus on customer care and our integration of sales and
service create higher levels of customer satisfaction. We expect this
will lead to better referral and retention rates.

. A capital-efficient and scalable, all packet-switched network, capable
of providing advanced IP and ATM services. We believe that our state-of-
the-art packet-switched network strategy is superior to a circuit-
switched strategy for several reasons:

. our network requires approximately 50-60% less capital and
significantly less time to deploy than a circuit-switched network;

. our network is based on open architecture standards and will allow us
to adapt to future technological developments and network
innovations;

. we believe our network will enable us to provide a more advanced and
differentiated service offering than other local exchange carriers
can provide over their legacy voice switches; and

. we believe our network will be significantly more cost efficient for
ongoing operations and maintenance.

. Significant experience designing and selling sophisticated data
services. We have substantial expertise designing, selling and
implementing sophisticated data services including frame relay, point-
to-point dedicated DS-3 and DS-1 data links, ISDN, ATM and dedicated
internet services. Over the last four years, we have sold digital data
services to more than 6,600 customer sites, designed and implemented
more than 600 wide area data networks and assisted customers in
transitioning from point-to-point networks to more advanced frame relay
and ATM networks.

. A broad range of voice and data services incorporated on a single
bill. As an ICP, we provide our customers with the convenience of a
single source and a single bill for all of their telecommunications
services. We believe that our ability to deliver a single source
solution to our target market is a key element in building our customer
base. We also believe this will allow us to increase our share of
customers' telecommunications billings and will promote customer
retention.

. A comprehensive, fully integrated billing and operational support
systems, or OSS. Over the past decade we have used our extensive
experience with the provisioning systems used by ILECs to develop our
comprehensive information systems. Our systems fully integrate and
automate all aspects of our business, including marketing, provisioning,
trouble management, billing and customer service. This integration
facilitates accurate and timely customer care and billing. The system
also allows us to provide our customers with a single, integrated bill
for multiple services. Our customers can download information about
their accounts directly to their own systems through online, near real-
time access via the internet. Our information systems electronically
interface with most of our major suppliers. In late 1998, we became one
of the first competitive local exchange carriers to complete a full EDI
interface with Bell Atlantic. This allows our systems to connect
directly with those of Bell Atlantic. We believe that our information
systems are a primary reason for our success in provisioning a high
volume of access lines during our first five quarters as an ICP.

. The ability to expand using our proven operating model for branch
offices, sales process, customer service and personnel training. Over
the last five years, we have developed a successful and replicable
approach to branch expansion. We believe that our standardized approach
to opening new

branches, our uniform approach to sales and service and our extensive
training of new hires will enable us to expand without compromising our
solutions-oriented, customer-centric culture. New branch offices are
fully integrated with our information systems from the outset. This
allows our corporate headquarters to maintain control of quality and
productivity across our branch offices while enabling each branch office
to operate as an autonomous local sales and service organization.

Our Services

We offer the following services:

. Local Telephone Services. We offer connections between customers'
telecommunications equipment and the local telephone network, which we
currently lease from the ILECs. For large customers or customers with
specific requirements, we integrate customer-owned private branch
exchange, or PBX, systems with analog or digital trunks. We also provide
all associated call processing features as well as dedicated private
lines for both voice and data applications.

. Long Distance Telephone Services. We offer a full range of domestic
(interLATA and intraLATA) and international long distance services,
including "1+" outbound calling, inbound toll free service, standard and
customized calling plans. We also offer related services such as calling
cards, operator assistance and conference calling.

. High Speed Data Services. We offer a wide array of dedicated and
switched high speed digital data services. Dedicated services include
digital data services, DS-1 (T-1), Fiber Distributed Data Interface and
DS-3 products. Switched or virtual digital services include Integrated
Services Digital Network, or ISDN, frame relay and ATM products.

. Internet Services. We offer dedicated high speed internet access and
services via digital data services, frame relay, T-1 and T-3
connections. In addition, we offer switched digital access to the
internet via ISDN. We provide the necessary communications hardware,
configuration support and other support services on a 24-hour, 7-day a
week basis.

. Wholesale Services to Internet Service Providers. We provide a full
array of local services to internet service providers, or ISPs,
including telephone numbers and switched and dedicated access to the
internet.

. Future Service Offerings. Following deployment of the network, we may
offer the following additional services: systems integration, consulting
and network monitoring services, customized virtual private networks and
other data and voice network products.

Our Integrated Communications Network

We began deploying the first phase of our state-of-the-art, packet-switched
network in January 1999. We believe our network will enable us to improve
margins, enhance network and service quality and broaden our range of product
offerings. The network is an advanced IP and ATM-based network, using Cisco
BPX(R) and MGX(TM) IP+ATM wide-area switches. Our network will deliver enhanced
access services such as traditional dedicated services, frame relay, IP, video
and circuit emulation transport services. We believe that our network will
ultimately enable us to deliver voice and data services across a single multi-
service dedicated connection. We also expect our network to lower customers'
overall telecommunications costs and stimulate demand for new bandwidth
intensive services.

The first phase of our network includes 22 Cisco IP+ATM switches and two
fully redundant network operation centers. We are interconnecting these
facilities with leased fiber optic transmission capacity from Level 3 and NEON.
The initial transmission infrastructure will consist of three self-healing
SONET-based, fiber

optic rings covering the southern, western and eastern New England regions.
This advanced SONET technology permits full circuit redundancy and route
diversity. It will also allow us to take advantage of available technology such
as dense wave digital multiplexing, or DWDM, to meet increasing customer
demands for reliable, high bandwidth voice, data and video connectivity. We
have also arranged to co-locate our switching hubs in Level 3 and NEON
buildings along selected fiber routes.

We intend to access our customer locations through a variety of broadband
technologies, including DSL service, leased T-1, wireless technologies and
fiber optic facilities, as available. Initially, we will offer dedicated long
distance and data services over our network. We believe that these services
represent approximately 70% of our target customers' fixed line
telecommunications spending. The remaining 30% represents local dial tone
services which we currently obtain from other carriers. We plan to incorporate
local dial tone service into our packet-switching architecture when that
technology matures.

Our network strategy to incorporate local dial tone functionality at a later
stage will allow us to simplify the transitioning of existing customers on-net
because a disconnection from the incumbent local exchange carrier and
reconnection to our network will not be required. To transition our customers
on-net, we will simply be required to reprogram our customer's PBX and/or wide
area network routers to direct long distance and data traffic to our network.
This strategy will also allow our customers to retain their existing phone
numbers as well as have the built-in redundancy of the separate physical
connection to the incumbent local exchange carrier. At a later stage, using
telephone number portability which we expect to be available throughout our
territory, we will be able to more easily transition our customers' local dial
tone service onto our network.

The network will include the following data services: point-to-point private
line, frame relay, ATM, internet access, virtual private network services for
on-net data traffic and network-to-network interface points to other data
carrier networks and internet service providers. The network will initially
include the following voice services: dedicated long distance and corporate
intranet services. We expect that the network will handle the full range of
voice services when we integrate local dial tone capabilities into our network.

Sales and Customer Care

We market telecommunications services by developing long-term business
relationships with our customers and offering them comprehensive management of
their telecommunications requirements. Each of our customers is assigned a
local dedicated team consisting of a sales executive and a network consultant.
This team provides a single point of contact for our customer's needs. This
team works together with the customer to design, implement and maintain an
integrated telecommunications solution. This team also reviews and updates the
customer's services on a regular basis. We believe that providing localized,
high quality customer care promotes continued sales of new services and reduces
customer churn.

Sales and Service Infrastructure. Our branches are currently staffed with
over 300 individuals, representing approximately 80% of our employees. As of
April 15, 1999, there were 163 sales executives, 95 network consultants, 26
branch/regional managers and 15 service managers located in 25 sales branches
serving markets in Connecticut, Maine, Maryland, Massachusetts, New Hampshire,
New York, Rhode Island and Vermont.

Customer Sales and Service Model. At their first meeting with a prospective
customer, our sales executives analyze the customer's current
telecommunications usage and costs. Sales executives then outline the range of
services and potential savings we offer and make recommendations to optimize
the customer's current network. Sales executives also discuss the benefits of
our comprehensive customer care program and develop account telemanagement
plans designed to balance network expense and utility. Sales executives and
network consultants continue to review the customer's telecommunications usage
and requirements and update the customer's suite of services and network
design. We believe the relationship-intensive approach of assigning sales
executives and network consultants to each customer account results in high
customer satisfaction and retention rates.

Our sales executives regularly participate in training programs on subjects
such as solution-oriented sales, comprehensive customer care, network design
and other technical features of our services. We seek to motivate and retain
our sales executives through extensive training and a commission structure that
supports our relationship oriented sales and service policies.

Customer Care. Our network consultants are trained in our service offerings
and are responsible for customer care. Network consultants are located in each
of our sales branches and are assigned directly to individual customer accounts
in direct support of the sales executives. Our localized, multi-step customer
care process provides an ongoing and comprehensive service program to our
customers. This process ranges from long-term consultative planning to day-to-
day handling of service issues.

Our customer care program is designed to provide prompt action in response
to customer inquiries and complaints. The local sales branches are staffed 11
hours a day, 5 days a week. At other times, incoming calls automatically roll
over to a central customer care center which is staffed 24 hours a day, 7 days
a week. We believe that our network consultants are motivated to provide the
highest level of customer care because a significant portion of their
compensation is based on customer retention and satisfaction.

Our Information Systems

Our information systems include five central applications which fully
integrate our sales and account management, customer care, provisioning,
billing and financial processes. Automation of each of these processes is
designed for high transaction volumes, accurate throughput, timely
installation, accurate billing feeds and quality customer service. Data entered
in one application is generally exported into all other applications. Each
branch office is served by a LAN connected via frame relay to the central
processor. Our employees have online access to our information systems from
their branch desktops or docking stations.

We also have an electronic interface to most of our major suppliers. When a
sales executive places an order for one of these suppliers, our information
systems electronically direct it to the appropriate supplier and monitors any
delays in provisioning the order. Once the order is provisioned, our
information systems automatically remove it from the in-process order file,
update the customer's service inventory and network configuration, initiate
billing, post the sales executive's commission and update our financial
reports.

Our information systems include the following applications:

. Account and Sales Management. Our account management application is the
hub of our information systems. It stores all of our customer-related
information, such as location detail, contact information, transaction
history and account profile. Our account management application also
automatically exports data to our customized sales application. Our
sales application is a fully-integrated database that provides sales
personnel with access to information for pricing services, customized
sales proposals, customer correspondence, sales performance, referencing
methods and procedures, service descriptions, competitive information
and historical profiles of our current and prospective customers. These
historical profiles include details of installed services, recent
transactions and billing history. Our sales system can be used both on-
and off-line. All entries made while off-line are automatically updated
to the central processor and all relevant data is simultaneously
exported to the other central applications each time a salesperson
connects to the network.

. Customer Care. Our network consultants use our account care application
to review installed services, make additions, changes and deletions to
accounts, initiate and track repair and service work and review past
billing for any customer. This closed loop application provides
automatic follow up and records all transactions in a customer history
file. Service orders and repair requests input in our account care
application are automatically exported into our provisioning
application.

. Provisioning. We generally direct customer orders through our
provisioning application electronically to our major suppliers. We track
these orders through our account care application from

initiation through completion. If any delay in provisioning occurs, the
proactive nature of this application alerts the sales executive or
network consultants who can take corrective action and notify the
customer of the delay. Once the order has been filled the information is
automatically fed to our billing application.

. Billing and Customer Interface. Our billing application allows us to
provide our customers a single bill for all the services we provide. Our
billing application also allows the customer to review historic bill
detail, perform customized usage analyses and download information
directly to their own accounting applications. Using a secure Web-based
application called ItelliVIEW, our customers have near real-time online
access to our billing application. Customer billing statements are also
available on CD ROM, diskette or paper. Paper statements generated by
our billing application offer our customers different telemanagement
formats.

. Financial. Data from our billing application is automatically exported
to our financial application. Our financial application tracks and
prepares reports on sales activity, commissions, branch operations,
branch profitability and cash flows. The financial application also
compiles this data for our periodic financial reports. In addition, this
application provides internal controls for revenue tracking and costing.
The integrated nature of our information systems allows us to operate
each branch as a separate profit and loss center.

We are actively upgrading our information systems to a three-tiered
client/server architecture in order to support our network. We have selected
Oracle's relational database for the first tier, which is our data repository
and warehouse. We will vertically integrate our second tier business
applications described above with the data repository using a messaging product
from TIBCO Corporation. Third tier users, such as customers, vendors, partners
and internal users, will access the second tier business applications using
either UNIX, Windows 95 or standard browsers. We expect that this three-tiered
architecture will allow us to grow and expand our business, replace and upgrade
business applications without impacting other applications and provide us with
reliable data.

Competition

In addition, the continuing trend toward business combinations and alliances
in the telecommunications industry may create significant new competitors.
Examples of some of these alliances include: Bell Atlantic's proposed
acquisition of GTE, SBC's proposed merger with Ameritech, AT&T's acquisition of
TCI and proposed acquisition of Media One, Global Crossing's proposed
acquisition of Frontier Corp. and SBC's acquisition of SNET. Many of these
combined entities have or will have resources far greater than ours. These
combined entities may provide a bundled package of telecommunications products
that is in direct competition with our products. These combined entities may be
capable of offering these products sooner and at more competitive rates than we
can.

Competition for Provision of Integrated Telecommunications Services. The
number of competitors able to provide integrated telecommunications services
has increased because of the current regulatory trend toward fostering
competition and the continued consolidation of telecommunications service
providers. Many facilities-based ICPs and long distance carriers have committed
substantial resources to building their own networks or to purchasing carriers
with complementary facilities. Through these strategies, a facilities-based
provider can offer single source local, long distance and data services similar
to those that we will offer. The alternative strategies available to these
competitors may provide them with greater flexibility and a lower cost
structure.

Once the RBOCs are allowed to offer in-region long distance services under
the terms of Section 271 of the Telecommunications Act, they will be in a
position to offer local and long distance services similar to the services we
offer. No RBOC is currently permitted to provide inter-LATA services for calls
originating in their region. We cannot assure you that this will continue to be
the case. The FCC must approve RBOC provision of in-region interLATA long
distance services and can only do so upon finding that the RBOC has complied
with the 14-point checklist outlined in Section 271 of the Telecommunications
Act. This 14-point checklist is designed to ensure that RBOC competitors have
the ability to provide local telephone services in competition with the RBOC.
The FCC has not yet found that any RBOC has complied with the 14-point
checklist.

Although the Telecommunications Act and other federal and state regulatory
initiatives will provide us with new business opportunities, as competition
increases regulators are likely to provide the ILECs with more pricing
flexibility. Our revenues may be adversely affected if the ILECs elect to lower
their rates and sustain these lower rates over time. We believe that we may be
able to offset the effect of lower rates by offering new services to our target
customers, but we cannot assure you that this will occur. In addition, if
future regulatory decisions give ILECs increased pricing flexibility or other
regulatory relief, such decisions could have a material adverse effect on our
business.

Competition for Provision of Local Exchange Services. In the local exchange
market, ILECs, including RBOCs, continue to hold near-monopoly positions. We
also face competition or prospective competition from one or more ICPs, and
from other competitive providers, including non-facilities-based providers.
Many of these competitors are larger and better capitalized than we are. Some
carriers have entered into interconnection agreements with ILECs and either
have begun, or in the near future likely will begin, offering local exchange
service in each of our markets. Further, as of February 8, 1999, the largest
long distance carriers were permitted to bundle local and long distance
services. This removes one of our competitive advantages. Other entities that
currently offer or are potentially capable of offering switched services
include cable television companies, electric utilities, other long distance
carriers, microwave carriers, and large customers who build private networks.

Wireless telephone system operators are also competitors in the provision of
local services. Cellular, personal communications service, and other commercial
mobile radio services providers may offer wireless services to fixed locations,
rather than just to mobile customers. This ability to provide fixed as well as
mobile services will enable wireless providers to offer wireless local loop
service and other services to fixed locations (e.g., office and apartment
buildings) in direct competition with us and other providers of traditional
fixed telephone service. In addition, the FCC recently auctioned substantial
blocks of spectrum for fixed use including local exchange services. We expect
exploitation of this spectrum to increase competition in the local market.

The World Trade Organization recently concluded an agreement that could
result in additional competitors entering the U.S. local and long-distance
markets. Under the WTO agreement, the United States committed to open
telecommunications markets to foreign-owned carriers. The FCC has adopted
streamlined procedures for processing market entry applications from foreign
carriers, making it easier for such carriers to compete in the U.S. We cannot
predict whether foreign-owned carriers will enter our markets as a result of
the WTO agreement.

Competition for Provision of Long Distance Services. The long distance
market is significantly more competitive than the local exchange market. In the
long distance market numerous entities compete for the same customers. In
addition, customers frequently change long distance providers in response to
lower rates or promotional incentives by competitors. This results in a high
average rate of customer loss, or churn, in the long distance market. Prices in
the long distance market have declined significantly in recent years and are
expected to continue to decline. Competition in this market will further
increase once RBOCs are permitted to offer interLATA long distance services.

Data and Internet Services. The market for high speed data services and
access to the internet is highly competitive. We expect competition in this
market to continue to intensify. Our competitors in this market will include
ISPs and other telecommunications companies, including large IXCs and RBOCs.
Many of these competitors have greater financial, technological and marketing
resources than those available to us. Recently, various RBOCs have filed
petitions with the FCC requesting regulatory relief in connection with the
provision of their own data services, including DSL services. In response to
these petitions, the FCC issued a decision that data services generally are
telecommunications services that, when provided by ILECs, are subject to the
unbundling, resale, and other independent local exchange carrier obligations
prescribed in Section 251 of the Telecommunications Act. Petitions have been
filed with the FCC asking them to reconsider this decision. The FCC also has
initiated a proceeding to determine whether independent local exchange carriers
will be able to escape their Section 251 obligations by providing data services
through "truly" separate affiliates, whether the FCC will require ILECs to
unbundle their DSL equipment and resell DSL services, and whether the FCC will
grant RBOCs interLATA relief for the provision of data services. We cannot
predict the effect that this proceeding will have on our ability to obtain
facilities and services from ILECs and on the competition that we will face
from ILECs in the data services market.

Government Regulation

The local and long distance telephony services and, to a lesser extent, the
data services we provide are regulated by federal, state, and, to some extent,
local government authorities. The FCC has jurisdiction over all
telecommunications common carriers to the extent they provide interstate or
international communications services. Each state regulatory commission has
jurisdiction over the same carriers with respect to the provision of intrastate
communications services. Local governments sometimes impose franchise or
licensing requirements on telecommunications carriers and regulate construction
activities involving public rights-of-way. Changes to the regulations imposed
by any of these regulators could have a material adverse effect on our
business, operating results and financial condition.

In recent years, the regulation of the telecommunications industry has been
in a state of flux as the United States Congress and various state legislatures
have passed laws seeking to foster greater competition in telecommunications
markets. The FCC and state utility commissions have adopted many new rules to
implement this legislation and encourage competition. These changes, which are
still incomplete, have created new opportunities and challenges for us and our
competitors. The following summary of regulatory developments and legislation
is not intended to describe all present and proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Some of
these and other existing federal and state regulations are the subject of
judicial proceedings, legislative hearings and administrative proposals which
could change, in varying degree, the manner in which this industry operates. We
cannot predict the outcome of these proceedings, or their impact on the
telecommunications industry at this time.

Federal Regulation

We are currently not subject to price cap or rate of return regulation at
the federal level and are not currently required to obtain FCC authorization
for the installation, acquisition or operation of our domestic interexchange
network facilities. However, we must comply with the requirements of common
carriage under the Communications Act. We are subject to the general
requirement that our charges and terms for our telecommunications services be
"just and reasonable" and that we not make any "unjust or unreasonable
discrimination" in our charges or terms. The FCC has jurisdiction to act upon
complaints against any common carrier for failure to comply with its statutory
obligations.

Comprehensive amendments to the Communications Act were made by the
Telecommunications Act, which was signed into law on February 8, 1996. The
Telecommunications Act effected changes in regulation at both the federal and
state levels that affect virtually every segment of the telecommunications
industry. The stated purpose of the Telecommunications Act is to promote
competition in all areas of telecommunications. While it may take years for the
industry to feel the full impact of the Telecommunications Act, it is already
clear that the legislation provides us with new opportunities and challenges.

The Telecommunications Act greatly expands the interconnection requirements
on the incumbent local exchange carriers, or ILECs. The Telecommunications Act
requires the ILECs to:

. provide physical collocation, which allows companies such as us and
other competitive local exchange carriers, or CLECs, to install and
maintain their own network termination equipment in ILEC central
offices, and virtual collocation only if requested or if physical
collocation is demonstrated to be technically infeasible;

. unbundle components of their local service networks so that other
providers of local service can compete for a wide range of local
services customers; and

. establish "wholesale" rates for their services to promote resale by
CLECs.

In addition, all local exchange carriers, or LECs, must:

. establish number portability, which will allow a customer to retain its
existing phone number if it switches from the LEC to a competitive local
service provider;

. provide nondiscriminatory access to telephone poles, ducts, conduits and
rights-of-way.

. compensate other LECs on a reciprocal basis for traffic originated on
one LEC and terminated on the other LEC.

The FCC is charged with establishing national guidelines to implement
certain portions of the Telecommunications Act. The FCC issued its
interconnection order on August 8, 1996. On July 18, 1997, however, the United
States Court of Appeals for the Eighth Circuit issued a decision vacating the
FCC's pricing rules, as well as certain other portions of the FCC's
interconnection rules, on the grounds that the FCC had improperly intruded into
matters reserved for state jurisdiction. On January 25, 1999, the Supreme Court
largely reversed the Eighth Circuit's order, holding that the FCC has general
jurisdiction to implement the local competition provisions of the
Telecommunications Act. In so doing, the Supreme Court stated that the FCC has
authority to set pricing guidelines for unbundled network elements, to prevent
ILECs from disaggregating existing combinations of network elements, and to
establish "pick and choose" rules regarding interconnection agreements. "Pick
and choose" rules would permit a carrier seeking interconnection to "pick and
choose" among the terms of service from other interconnection agreements
between the ILECs and other CLECs. This action reestablishes the validity of
many of the FCC rules vacated by the Eighth Circuit. Although the Supreme Court
affirmed the FCC's authority to develop pricing guidelines, the Supreme Court
did not evaluate the specific pricing methodology adopted by the FCC and has
remanded the case to the Eighth Circuit for further consideration. Thus, while
the Supreme Court resolved many issues, including the FCC's jurisdictional
authority, other issues remain subject to further consideration by the courts
and the FCC. We cannot predict the ultimate disposition of those matters. We
also cannot predict the possible impact of this decision, including the portion
dealing with unbundled network elements, on existing interconnection agreements
between ILECs and CLECs or on agreements that may be negotiated in the future.

Although most of the FCC rules that the Supreme Court was considering were
upheld, the Court vacated the FCC's rule that identifies the unbundled network
elements that ILECs must provide to CLECs. The FCC recently initiated a new
proceeding to reexamine whether it will identify which unbundled network
elements ILECs must provide, and, if so, how to identify those elements. It is
unclear how the FCC will decide this issue or the effect that the FCC's
decision will have on our business or operations.

The FCC recently adopted new rules designed to make it easier and less
expensive for CLECs to obtain collocation at ILEC central offices by, among
other things, restricting the ILECs' ability to prevent certain types of
equipment from being collocated and requiring ILECs to offer alternative
collocation arrangements to CLECs. The FCC also initiated a new proceeding to
address line sharing, which, if implemented, would allow CLECs to offer data
services over the same line that a consumer uses for voice services without the
CLEC having to provide the voice service. While we expect that the FCC's new
collocation rules will be beneficial to us, we cannot be certain that these new
rules will be implemented in a favorable manner. Moreover, ILECs or

other parties may ask the FCC to reconsider some or all of its new collocation
rules, or may appeal these rules in federal court. We cannot predict the
outcome of these actions or the effect they may have on our business.

Under the Communications Act, ILECs have an obligation to negotiate with us
in good faith to enter into interconnection agreements. We will need
interconnection agreements to provide enhanced connectivity to our network and
to provide local dial tone services. If we cannot reach agreement, either side
may petition the applicable state commission to arbitrate remaining
disagreements. These arbitration proceedings can last up to 9 months. Moreover,
state commission approval of any interconnection agreement resulting from
negotiation or arbitration is required, and any party may appeal an adverse
decision by the state commission to federal district court. The potential cost
in resources and delay from this process could harm our ability to compete in
certain markets, and there is no guarantee that a state commission would
resolve disputes, including pricing disputes in our favor. Moreover, as
explained above, the FCC rules governing pricing standards for access to the
networks of the traditional telephone companies are currently being challenged
in federal court. If the courts overturn the FCC's pricing rules, the FCC may
adopt a new pricing methodology that would require us to pay a higher price to
traditional telephone companies for interconnection. This could have a
detrimental effect on our business.

The Telecommunications Act permits RBOCs to provide long distance services
outside their local service regions immediately, and will permit them to
provide in-region long distance service upon demonstrating to the FCC and state
regulatory agencies that they have adhered to the Telecommunication Act's 14-
point competitive checklist. Some RBOCs have filed applications with various
state public utility commissions and the FCC seeking approval to offer in-
region interLATA service. Some states have denied these applications while
others have approved them. However, to date, the FCC has denied each of the
RBOC's applications brought before it because it found that the RBOC had not
sufficiently made its local network available to competitors. We anticipate
that a number of RBOCs will file additional applications in 1999.

In May 1997, the FCC released an order establishing a significantly expanded
universal service regime to subsidize the cost of telecommunications service to
high cost areas, as well as to low-income customers and qualifying schools,
libraries, and rural health care providers. Providers of interstate
telecommunications services, like us, as well as certain other entities, must
pay for these programs. We are also eligible to receive funding from these
programs if we meet certain requirements, but we are not currently planning to
do so. Our share of the payments into these subsidy funds will be based on our
share of certain defined telecommunications end-user revenues. Currently, the
FCC is assessing such payments on the basis of a provider's revenue for the
previous year. Various states are also in the process of implementing their own
universal service programs. We are currently unable to quantify the amount of
subsidy payments that we will be required to make and the effect that these
required payments will have on our financial condition. Moreover, the FCC's
universal service rules remain subject to judicial appeal and further FCC
review. Additional changes to the universal service program could increase our
costs.

On November 1, 1996, the FCC issued an order that required nondominant
interexchange carriers, like us, to cease filing tariffs for our domestic
interexchange services. The order required mandatory detariffing and gave
carriers nine months to withdraw federal tariffs and move to contractual
relationships with their customers. This order subsequently was stayed by a
federal appeals court, and it is unclear at this time whether the detariffing
order will be implemented. In June 1997, the FCC issued another order stating
that non-dominant LECs, like us, could withdraw their tariffs for interstate
access services provided to long distance carriers. The FCC continues to
require that carriers obtain authority to provide service between the United
States and foreign points and file tariffs for international service. If the
FCC's orders become effective, nondominant interstate services providers will
no longer be able to rely on the filing of tariffs with the FCC as a means of
providing notice to customers of prices, terms and conditions under which they
offer their interstate services. If we cancel our FCC tariffs as a result of
the FCC's orders, we will need to implement replacement contracts which could
result in substantial administrative expenses.

In March 1999, the FCC adopted further rules that, while still maintaining
mandatory detariffing, nonetheless require long distance carriers to make
specific public disclosures on the carriers' Internet websites of their rates,
terms and conditions for domestic interstate services. The effective date for
these rules is also delayed until a court decision on the appeal of the FCC's
detariffing order.

Recently, the FCC has determined that both dedicated access and dial-up
calls from a customer to an Internet service provider ("ISP") are interstate,
not local, calls, and, therefore, are subject to the FCC's jurisdiction. The
FCC has initiated a proceeding to determine the effect that this regulatory
classification will have on the obligation of a LEC to pay reciprocal
compensation for dial-up calls to ISPs that originate on one LEC network and
terminate on another LEC network. In addition, one RBOC has petitioned the FCC
for a ruling that telephone-to-telephone calls made over the Internet are
subject to regulation as a telecommunications service under the Communications
Act. Although the FCC has suggested that such Internet-based telephone-to-
telephone calls may be considered a telecommunications service, it has not
reached a final decision on that issue. We cannot predict the effect that the
FCC's resolution of these issues will have on our business.

In August 1997, the FCC issued rules transferring responsibility for
administering and assigning local telephone numbers from the RBOCs and a few
other LECs to a neutral entity in each geographic region in the United States.
In August 1996, the FCC issued new numbering regulations that prohibit states
from creating new area codes that could unfairly hinder local exchange carriers
by requiring their customers to use 10 digit dialing while existing independent
local exchange carrier customers use 7 digit dialing. These regulations also
prohibit ILECs which are still administering central office numbers pending
selection of the neutral administrator from charging "code opening" fees to
competitors unless they charge the same fee to all carriers including
themselves. In addition, each carrier is required to contribute to the cost of
numbering administration through a formula based on net telecommunications
revenues. In July 1996, the FCC released rules requiring all LECs to have the
capability to permit both residential and business consumers to retain their
telephone numbers when switching from one local service provider to another,
known as "number portability."

A customer's choice of local or long distance telecommunications company is
encoded in a customer record, which is used to route the customer's calls so
that the customer is served and billed by the desired company. A user may
change service providers at any time, but the FCC and some states regulate this
process and require that specific procedures be followed. When these procedures
are not followed, particularly if the change is unauthorized or fraudulent, the
process is known as "slamming." Slamming is such a significant problem that it
was addressed in detail by Congress in the Telecommunications Act, by some
state legislatures, and by the FCC in recent orders. The FCC has levied
substantial fines for slamming. The risk of financial damage and business
reputation from slamming is significant. Even one slamming complaint could
cause extensive litigation expenses for us. The FCC recently decided to apply
its slamming rules (which originally covered only long distance) to local
service as well.

State Regulation

To the extent that we provide telecommunications services which originate
and terminate in the same state, we are subject to the jurisdiction of that
state's public service commission. As our local service business and product
lines expand, we will offer more intrastate service and become increasingly
subject to state regulation. The Telecommunications Act maintains the authority
of individual state utility commissions to preside over rate and other
proceedings, as discussed above, and impose their own regulation of local
exchange and interexchange services so long as such regulation is not
inconsistent with the requirements of the Telecommunications Act. For instance,
states may impose tariff and filing requirements, consumer protection measures
and obligations to contribute to universal service, and other funds.

We are subject to requirements in some states to obtain prior approval for,
or notify the state commission of, any transfers of control, sales of assets,
corporate reorganizations, issuances of stock or debt instruments

and related transactions. Although we believe such authorizations could be
obtained in due course, there can be no assurance that the FCC or state
commissions would grant CTC authority to complete any of these transactions.

We have state regulatory authority to provide competitive local exchange
services and interexchange services in nine states. We also have state
regulatory authority to provide interexchange services in approximately 31
additional states. In some states, in which we have or have had de minimis
intrastate interexchange revenues, we have not obtained authorization to
provide such interexchange services or have allowed such authorization to
lapse. We have either subsequently obtained, or are in the process of applying
to obtain, the appropriate authorization in these states.

The Telecommunications Act generally preempts state statutes and regulations
that restrict the provision of competitive local services. States, however, may
still restrict competition in some rural areas. As a result of this preemption,
we will be free to provide the full range of local, long distance, and data
services in any state. While this action greatly increases our potential for
growth, it also increases the amount of competition to which we may be subject.

Local Government Regulation

We may be required to obtain from municipal authorities street opening and
construction permits to install our facilities in some cities. In some of the
areas where we provide service, we are subject to municipal franchise
requirements requiring us to pay license or franchise fees either on a
percentage of gross revenue, flat fee or other basis. The Telecommunications
Act requires municipalities to charge nondiscriminatory fees to all
telecommunications providers, but it is uncertain how quickly this requirement
will be implemented by particular municipalities in which we operate or plan to
operate or whether it will be implemented without a legal challenge.

Properties

We are headquartered in leased space in Waltham, Massachusetts. We intend to
relocate our headquarters in the spring of 1999 and have entered into a new
lease for space at 220 Bear Hill Road in Waltham, Massachusetts. We will
continue to occupy the leased space at 360 Second Avenue for other purposes. We
also lease one office in California, two in Connecticut, eight in
Massachusetts, two in Maine, one in New Hampshire, nine in New York, one in
Maryland and one in Vermont. Although we believe that our leased facilities are
adequate at this time, we expect to lease a significant number of additional
sales facilities in connection with our planned expansion in existing markets
and into new markets.

Legal Proceedings

In December 1997, the Company terminated its agency contract and filed suit
against Bell Atlantic for, among other things, breach of contract, including
the failure of Bell Atlantic's retail division to pay agency commissions owed
to the Company. This litigation was settled on February 24, 1999. Under the
terms of the settlement, the Company will receive cash and other consideration.
Both parties have agreed to keep the specific terms of the settlement
confidential.

We are otherwise party to suits and regulatory proceedings arising in the
normal course of business which we believe are not material individually or in
the aggregate.

Employees

As of April 30, 1999, CTC employed 385 persons. None of our employees are
represented by a collective bargaining agreement.

MANAGEMENT

Executive Officers, Directors and Significant Employees

Our executive officers and directors, and their ages as of May 3, 1999, are
as follows:

Name Age Current Office Held
---- --- -------------------

Robert J. Fabbricatore.. 56 Chairman and Chief Executive Officer
Steven P. Milton........ 45 President and Chief Operating Officer
John D. Pittenger....... 45 Executive Vice President, Chief Financial Officer
and Treasurer
David E. Mahan.......... 57 Vice President--Marketing and Strategic Planning
Michael H. Donnellan.... 45 Vice President--Operations
Thomas Fabbricatore..... 40 Vice President--Marketing
Anthony D. Vermette..... 38 Vice President--Sales
Frederick Kunzi......... 47 Vice President and Chief Technology Officer
Jeffrey C. Lavin........ 43 Vice President--Corporate Development
Katherine D. Courage.... 41 Director
Henry Hermann........... 57 Director
Kevin J. Maroni......... 36 Director
J. Richard Murphy....... 54 Director
Robert A. Nicholson..... 31 Director
Carl Redfield........... 51 Director
Richard J. Santagati.... 55 Director
Ralph C. Sillari........ 44 Director

Robert J. Fabbricatore, a founder of CTC and a director since its inception
in 1980, became Chairman of the Board of Directors in March 1983 and served as
President from October 1993 to August 1995. Robert J. Fabbricatore is the
brother of Thomas Fabbricatore, Vice President--Marketing.

Steven P. Milton has been employed by CTC since 1984 and has served as
President and Chief Operating Officer since August 1995. Prior to that, he held
various positions within CTC including Branch Manager, District Manager,
Regional Manager and Vice President--Sales and Marketing.

John D. Pittenger has served as Chief Financial Officer since April 14,
1999, as Executive Vice President--Finance and Administration since April 1998
and as Treasurer and Clerk of CTC since August 1989. Mr. Pittenger served as
Vice President--Finance from 1991 until April 1998, and as Chief Financial
Officer from 1989 to April 1998.

David E. Mahan joined CTC in October 1995 as Vice President--Marketing and
Strategic Planning. Prior to joining CTC, Mr. Mahan held a number of senior
management level positions with NYNEX, including Vice President--Sales Channel
Management from 1993 to 1995.

Michael H. Donnellan has been employed by CTC since 1988 in a number of
positions. He was named Vice President--Operations in 1995.

Thomas Fabbricatore joined CTC in 1982. He was named Vice President--
Regulatory and Electronic Media in 1991, and was named Vice President--
Marketing in November 1998. Thomas Fabbricatore is the brother of Robert J.
Fabbricatore.

Anthony D. Vermette has been employed by CTC in a variety of positions since
1987. Mr. Vermette was named Vice President--Sales in 1996.

Frederick Kunzi joined CTC as a Vice President and Chief Technology Officer
in September 1998. Mr. Kunzi has over 25 years experience in information
technology. From 1985 to September 1998, he was employed by Digital Equipment
Corporation, most recently as Senior Manager, Global Network Services where he
was responsible for Digital's worldwide enterprise network infrastructure.

Jeffrey C. Lavin joined CTC in June 1998 as Vice President--Corporate
Development. Mr. Lavin has 19 years of sales and operational management
experience in the telecommunications industry. From December 1996 to May 1998,
Mr. Lavin was Vice President of Sales, Americas/Asia Pacific for NovaSoft
Systems, Inc., a software development corporation. From 1979 to 1996, Mr. Lavin
was employed by Comlink Incorporated, a communication network integrator, most
recently as Senior Vice President. Following the acquisition of Comlink in 1996
by Williams Communications, Mr. Lavin served as Vice President and General
Manager of Network Systems Integration.

Katherine D. Courage became a director of CTC in April 1999. Ms. Courage is
a managing director in the Global Telecommunications and Media Group in the
Investment Banking Department of Credit Suisse First Boston, one of the
underwriters of this offering. Prior to joining Credit Suisse First Boston in
September 1996, Ms. Courage worked at Salomon Brothers Inc for ten years where
she was a managing director in the Global Telecommunications Group. Ms. Courage
also worked at Merrill Lynch & Co. in the corporate finance department. Ms.
Courage currently serves as a director of NorthEast Optic Network, Inc. and
Lightpath Technologies, Inc.

Henry Hermann became a director of CTC in September 1996. Since November
1997, he has operated Hermann Companies, a financial services company. Mr.
Hermann is registered as an Investment Advisor with the State of Texas, a
Chartered Financial Analyst and, as an independent contractor, offers general
securities through SWS Financial. In 1997, he was employed by Kuhns Brothers &
Company, Inc., as a principal and Executive Vice President. For the previous
nine years, he was employed by WR Lazard, Laidlaw and Luther, Inc., a
securities brokerage firm, as Vice President, Securities Analyst and Portfolio
Manager. Mr. Hermann has been an NASD Board of Arbitrators Member since 1991.

Kevin J. Maroni became a director of CTC in April 1998 as one of the two
designees of the Series A preferred stockholders. Mr. Maroni is a general
partner of Spectrum which he joined in 1994. Spectrum is a leading private
equity fund which manages $1 billion of capital for investment in the
communications and media industries. Prior to joining Spectrum, he worked at
Time Warner Telecommunications and Harvard Management Company. Mr. Maroni is a
director of PathNet, Inc., Formus Communications, Inc., WNP Communications,
Inc. and American Cellular Corp.

J. Richard Murphy became a director of CTC in August 1995. Mr. Murphy has
been the director of the Corporate Advisory Group of Moody, Cavanaugh and
Company, LLP, a North Andover, Massachusetts public accounting firm, since
April 1996. Mr. Murphy was an officer, director and principal stockholder from
1990 to 1995 of Arlington Data Corporation, a systems integration company
located in Amesbury, Massachusetts; from 1992 to 1996 of Arlington Data
Consultants, Inc., a company engaged in the installation and maintenance of
computer systems and hardware; and from 1994 to 1996 of Computer Emporium,
Inc., a company engaged in processing parking violations for municipalities. In
June 1996, Arlington Data Corporation filed for bankruptcy under Chapter 11 of
the U.S. Bankruptcy Code.

Robert A. Nicholson is one of the two designees of the Series A preferred
stockholders and became a director of CTC in November 1998. Mr. Nicholson
joined Spectrum in 1995 as a Vice President and became a partner in July 1998.
From 1990 to 1993, Mr. Nicholson was an Associate Consultant and then
Consultant at Bain & Company, a leading strategy consulting firm, where he was
responsible for strategy and operations projects in the communications
industry. Mr. Nicholson currently serves as a Director of Navitar
Communications Group, Inc., a Canadian competitive local exchange carrier.

Carl Redfield became a director of CTC in January 1999. He has been Senior
Vice President, Manufacturing and Logistics of Cisco since February 1997. From
September 1993 to February 1997 he was Vice President of Manufacturing. Mr.
Redfield also is a director of VA Research Inc. and Paragon Electronics Inc.

Richard J. Santagati became a director of CTC in September 1991. He has been
the President of Merrimack College in North Andover, Massachusetts since 1994.
From March 1992 to February 1994,

Mr. Santagati was the Chairman of the Board, Chief Executive Officer and
President of Artel Communications Corp., a publicly held data communications
firm located in Hudson, Massachusetts. Mr. Santagati also serves as a director
of Celerity Solutions, Inc., a software company.

Ralph C. Sillari became a director of CTC in October 1997. Since 1991, Mr.
Sillari has been employed by Fleet National Bank where he is currently an
Executive Vice President in the Business and Entrepreneurial Services Division.

We currently have nine members on our board of directors: three Class I
Directors (Messrs. Hermann, Sillari and Redfield), three Class II Directors
(Messrs. Murphy and Santagati and Ms. Courage) and three Class III Directors
(Messrs. Fabbricatore, Maroni and Nicholson). The terms of the Class I, Class
II and Class III directors expire upon the election and qualification of their
successors at the annual meetings of stockholders held following the end of
fiscal years 2001, 1999 and 2000, respectively.

Director Compensation

Non-employee directors receive an annual retainer of $10,000. On February
17, 1999, we granted Messrs. Sillari, Murphy and Hermann options to purchase
10,000 shares of our common stock. We also granted Messrs. Nicholson, Maroni
and Santagati options to purchase 20,000 shares of our common stock. All of the
above options were at a purchase price of $10.125 per share. At the same time
we granted Robert Fabbricatore options to purchase 50,000 shares of our common
stock at a purchase price of $11.1375, 50,000 shares at a purchase price of
$15.00 per share and 50,000 shares at a purchase price of $20.00 per share. On
January 19, 1999, we granted Mr. Redfield an option to purchase 40,000 shares
of our common stock at a purchase price of $11.25 per share. On April 5, 1999,
we granted Ms. Courage an option to purchase 40,000 shares of our common stock
at a purchase price of $12.375 per share.

Committees of the Board of Directors

Our board of directors has established an audit committee, a compensation
committee and a nominating committee.

The audit committee consists of Messrs. Murphy and Hermann. The audit
committee is responsible for reviewing the internal accounting controls of CTC,
meeting and conferring with our independent auditors and reviewing the results
of the accountants' auditing engagement.

The compensation committee consists of Messrs. Maroni, Santagati and Murphy.
The compensation committee establishes compensation and benefits for our senior
executives. The committee also determines the number and terms of stock options
granted to employees, directors and consultants under our stock option plans.

The nominating committee consists of Messrs. Santagati, Murphy and Sillari.
The nominating committee recommends candidates for nomination to the board of
directors. The committee also reviews and makes recommendations regarding
compensation for non-employee directors.

Voting Agreement

Pursuant to a voting agreement between Robert J. Fabbricatore and certain of
his affiliates and Spectrum, Mr. Fabbricatore and certain of his affiliates
agreed to vote at each annual or special meeting at which directors of CTC are
to be elected all of the shares of common stock held by them in favor of two
persons designated by a majority of the outstanding shares of Series A
preferred stock as nominees for directors, subject to certain limitations based
on the number of shares of Series A preferred stock outstanding at any time. As
of April 27, 1999, Spectrum owned 657,555 of the 666,666 shares, or 98.6%, of
the Series A preferred stock outstanding. Kevin J. Maroni and Robert A.
Nicholson, partners of Spectrum and designees of the Series A preferred
stockholders, are Class III directors of CTC.

Executive Compensation

The following table provides summary information concerning compensation of
our Chief Executive Officer and each of the four other most highly paid
executive officers (the "Named Executive Officers") during the fiscal year
ended March 31, 1999:

Summary Compensation Table

Annual Compensation Long Term Compensation
-------------------- ---------------------------
Fiscal Securities
Year Ended Annual Underlying All Other
March 31, Salary Bonus Options (#)(1) Compensation
---------- ---------- --------- -------------- ------------

Robert J.
Fabbricatore,.......... 1999 $ 240,000 $ 78,000 150,000 $20,900(/2/)
Chairman and Chief 1998 240,000 60,000 150,000 19,550(/2/)
Executive Officer 1997 240,000 60,000 -- 18,075(/2/)
Steven C. Jones,........ 1999 150,000 75,000 -- 3,375(/3/)
Executive Vice
President, 1998 12,500 -- 300,000 --
Chief Financial Officer
and 1997 -- -- -- --
Director of Corporate
Development(/4/)
Steven P. Milton,....... 1999 150,000 54,500 100,000 5,625(/3/)
President and Chief 1998 100,000 40,000 150,000 4,200(/3/)
Operating Officer 1997 100,000 40,000 -- 4,075(/3/)

David E. Mahan,......... 1999 110,000 52,000 20,000 4,440(/3/)
Vice President-- 1998 100,000 40,000 260,000 4,075(/3/)
Marketing and Strategic
Planning 1997 100,000 40,000 -- 4,075(/3/)

John D. Pittenger,...... 1999 100,000 62,000 36,000 4,860(/3/)
Executive Vice
President-- 1998 90,000 36,000 80,000 3,900(/3/)
Finance and
Administration, 1997 86,100 34,000 -- 3,437(/3/)
Treasurer and Clerk

- --------
(1) On March 20, 1998 we repriced all previously granted options that had an
exercise price in excess of $7.19 per share. The 1998 information includes
75,000, 75,000, 130,000 and 40,000 shares underlying options previously
granted to Messrs. Fabbricatore, Milton, Mahan and Pittenger that were
canceled as a result of the repricing.
(2) Includes 50% matching contributions in the amounts of $4,800, $4,750 and
$4,500 in 1999, 1998 and 1997 to the CTC Communications Corp. 401(k)
Savings Plan. Also included is the actuarial benefit on the "split-dollar"
life insurance policy for the benefit of Mr. Fabbricatore in the amounts of
$16,100, $14,800 and $13,575 in 1999, 1998 and 1997.
(3) Includes 50% matching contributions to the CTC Communications Corp. 401(k)
Savings Plan.
(4) Mr. Jones began working for CTC on February 27, 1998 and resigned on April
21, 1999. Does not include $135,879 of severance benefits that we paid to
Mr. Jones after March 31, 1999.

Option Grants in Last Fiscal Year

The following table sets forth the aggregate number of stock options granted
to each of the Named Executive Officers during the fiscal year ended March 31,
1999. Options are exercisable for our common stock, par value $.01 per share.
No options were granted to Mr. Jones in the last fiscal year.

Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rate of
Underlying Granted to Exercise Stock Price
Options Employees in Price Expiration Appreciation for
Granted (#) Fiscal Year ($/Share) Date Option Term
----------- ------------- --------- ---------- ----------------------
5% 10%
---------- ----------

Robert J. Fabbricatore.. 50,000 4.2% 20.00 2/17/2003 (353,882) (184,679)
50,000 4.2% 15.00 2/17/2003 (103,882) 65,321
50,000 4.2% 11.138 2/17/2003 89,243 258,446
Steven P. Milton........ 33,000 3% 20.00 2/17/2003 (233,562) (122,996)
33,000 3% 15.00 2/17/2003 (68,562) 43,112
34,000 3% 10.125 2/17/2003 95,110 210,168
David E. Mahan.......... 20,000 2% 10.125 2/17/2003 55,947 123,628
John D. Pittenger....... 36,000 3% 10.125 2/17/2003 100,705 222,531

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

The following table sets forth information concerning the exercise of
options by the Named Executive Officers during the fiscal year ended March 31,
1999 and the March 31, 1999 aggregate value of unexercised options held by each
of the Named Executive Officers.

Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money Options
Options at Fiscal at Fiscal Year End ($)
Year-End (#)(1) (1)(2)
Shares ----------------------- -----------------------
acquired on Value Exercisable/ Exercisable/
exercise(#) Realized ($) Unexercisable Unexercisable
----------- ------------ ----------------------- -----------------------

Robert J. Fabbricatore.. -- -- 89,806 168,750 445,384 266,625
Steven C. Jones(/3/).... -- -- 150,000 150,000 796,875 796,875
Steven P. Milton........ -- -- 79,750 131,250 501,482 312,019
David E. Mahan.......... -- -- 100,000 100,000 605,265 474,645
John D. Pittenger....... -- -- 58,000 57,000 420,096 216,360

- --------
(1) All shares and amounts, as necessary, have been adjusted to reflect the 25%
common stock dividend effected in March 1995, the three-for-two stock split
effected in July 1995 and the two-for-one stock split effected in October
1995.
(2) Assumes a fair market value of the Common Stock at March 31, 1999 of
$12.375 per share.
(3) In connection with Mr. Jones resignation in April 1999, we vested an
additional 37,500 options and extended the exercise period of his vested
options until April 21, 2004.

PRINCIPAL STOCKHOLDERS

Common Stock

The following table sets forth information as of April 27, 1999 with respect
to the beneficial ownership of our common stock by:

. each person known by us to beneficially own more than 5% of the
outstanding shares of our common stock;

. our directors and our Named Executive Officers; and

. all executive officers and directors as a group.

Based on the information furnished by the beneficial owners of the common
stock listed below, we believe that each such stockholder exercises sole voting
and investment power with respect to the shares beneficially owned.

Beneficial Ownership
--------------------
Before the After the
Name Number Offering Offering
---- --------- ---------- ---------

Robert J. Fabbricatore(/1/)...................... 2,830,870 27.1% 21.8%
Spectrum Equity Investors II, L.P.(/2/).......... 1,629,292 13.6% 11.3%
Kevin J. Maroni(/2/)(/3/)........................ 1,634,292 13.6% 11.3%
Robert A. Nicholson(/2/)(/4/).................... 1,635,373 13.6% 11.3%
Goldman, Sachs & Co.(/5/)........................ 662,600 6.0% 4.9%
Henry Hermann(/6/)............................... 225,755 2.2% 1.8%
Richard J. Santagati(/7/)........................ 96,000 * *
Carl Redfield(/8/)............................... 24,000 * *
J. Richard Murphy(/9/)........................... 25,167 * *
Ralph C. Sillari(/10/)........................... 6,334 * *
Katherine D. Courage(/11/)....................... 10,000 * *
Steven P. Milton(/12/)........................... 480,848 4.6% 3.7%
David E. Mahan(/13/)............................. 187,100 1.8% 1.4%
John D. Pittenger(/14/).......................... 263,588 2.5% 2.0%
Steven C. Jones(/15/)............................ 237,500 2.3% 1.8%
All directors and executive
officers as a group (16 persons)(/16/).......... 6,571,082 50.9% 42.6%

- --------
* Less than 1%.
(1) Includes 62,498 shares owned by Mr. Fabbricatore as trustee of a trust for
his children and 1,133,239 shares as a general partner of a family
partnership; also includes 108,556 shares issuable upon exercise of
options exercisable within 60 days of April 27, 1999. Mr. Fabbricatore's
address is c/o CTC Communications Corp., 360 Second Avenue, Waltham,
Massachusetts 02451.
(2) Includes 187,066 shares issuable upon the exercise of warrants exercisable
within 60 days of April 27, 1999 and 1,442,226 shares issuable upon
conversion of Series A preferred stock as of April 27, 1999. As partners
of Spectrum Equity Investors II, L.P., Mr. Maroni, Mr. Nicholson, William
Collatos and Brion B. Applegate may be deemed to be beneficial owners of
the shares owned by Spectrum. The address of Spectrum and its partners is
One International Place, 29th Floor, Boston, Massachusetts 02110.
(3) Includes 5,000 shares issuable to Mr. Maroni upon the exercise of options
exercisable within 60 days of April 27, 1999.
(4) Includes 83 shares issuable to Mr. Nicholson upon the exercise of warrants
and 5,000 shares issuable upon the exercise of options exercisable within
60 days of April 27, 1999, and 998 shares issuable upon conversion of
Series A preferred stock as of April 27, 1999.
(5) Consists of 662,600 shares issuable upon exercise of a warrant exercisable
within 60 days of April 27, 1999. The address of Goldman, Sachs & Co. is
85 Broad St., New York, NY 10004.

(6) Includes 9,750 shares held by Mr. Hermann's spouse and 20,167 shares
issuable upon the exercise of options exercisable within 60 days of April
27, 1999.
(7) Includes 21,000 shares issuable to Mr. Santagati upon the exercise of
options exercisable within 60 days of April 27, 1999.
(8) Includes 10,000 shares issuable to Mr. Redfield upon the exercise of
options exercisable within 60 days of April 27, 1999.
(9) Includes 24,167 shares issuable to Mr. Murphy upon the exercise of options
exercisable within 60 days of April 27, 1999.
(10) Includes 5,834 shares issuable to Mr. Sillari upon the exercise of options
exercisable within 60 days of April 27, 1999.
(11) Consists of 10,000 shares issuable to Ms. Courage upon the exercise of
options exercisable within 60 days of April 27, 1999.
(12) Includes 4,500 shares owned by Mr. Milton as trustee of a trust for his
children and 89,916 shares issuable upon the exercise of options
exercisable within 60 days of April 27, 1999.
(13) Includes 120,000 shares issuable to Mr. Mahan upon the exercise of options
exercisable within 60 days of April 27, 1999.
(14) Includes 65,000 shares issuable to Mr. Pittenger upon the exercise of
options exercisable within 60 days of April 27, 1999.
(15) Includes 187,500 shares issuable to Mr. Jones upon the exercise of options
exercisable within 60 days of April 27, 1999.
(16) Represents directors and executive officers as of April 27, 1999 and
includes the shares described in footnotes (1) through (4) and (6) through
(14) above.

Preferred Stock

As of April 30, 1999, Spectrum Equity Investors II, L.P., owned 657,555
shares, or 98.6%, of the Series A preferred stock outstanding.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We lease from a trust, of which Robert J. Fabbricatore, our Chairman and
Chief Executive Officer, is a beneficiary, office space in Springfield,
Massachusetts. Until March 1, 1999 we also leased from another trust, of which
Robert J. Fabbricatore is a beneficiary, office space in southern New
Hampshire. Rental payments under the leases totaled approximately $392,000 for
the last three fiscal years. We sublease part of our Waltham facility at our
cost to Comm-Tract Corp., a company in which Mr. Fabbricatore is a principal
stockholder. Sublease income totaled $306,125 for the last three fiscal years.
We also contract with Comm-Tract Corp. for the installation of telephone lines
and for the service and maintenance of equipment marketed by CTC. During the
last three fiscal years, Comm-Tract Corp. provided us with services, inventory
and equipment totaling $829,481. We believe that the payments to the trusts and
Comm-Tract Corp. are comparable to the costs for such services, inventory and
equipment, and for rentals of similar facilities, which we would be required to
pay to unaffiliated individuals in arms-length transactions.

Carl Redfield, one of our directors, is an executive officer of Cisco. We
have purchased, and expect to continue purchasing, most of our network
equipment from Cisco. Also, we have entered into a vendor facility with Cisco
Capital, an affiliate of Cisco. See "Description of Senior Secured Facilities".

Ralph Sillari, one of our directors, is an Executive Vice President of Fleet
National Bank. We have entered into a senior secured credit facility with Fleet
National Bank. See "Description of Senior Secured Facilities."

Katherine D. Courage, one of our directors, is a Managing Director of Credit
Suisse First Boston, one of the underwriters of this offering. Ms. Courage is
also a director of NEON. We have commitments with NEON for the provision of
leased transmission facilities.

DESCRIPTION OF SENIOR SECURED FACILITIES

Fleet/Goldman Credit Facility

As of September 1, 1998, we entered into a senior secured credit facility
with Goldman Sachs Credit Partners, L.P., or GSCP, and Fleet National Bank, or
Fleet. GSCP and Fleet provided us with a three-year senior secured credit
facility consisting of revolving loans in the aggregate amount of up to $75
million. Advances under the facility bear interest at 1.75% over the prime
rate. Advances under the facility are secured by a first priority perfected
security interest on all of our assets, except that we have the ability to
exclude assets we acquire through purchase money financing. In addition, we are
required to pay a commitment fee of 0.5% per annum on any unused amounts under
the facility. We are also required to pay a monthly line fee of $150,000 per
month. In connection with this credit facility we issued to Goldman Sachs & Co.
warrants to purchase 662,600 shares of our common stock and to Fleet National
Bank warrants to purchase 311,812 shares of our common stock. We may borrow $15
million unconditionally and $60 million based on trailing 120 days accounts
receivable collections, reducing to the trailing 90 days of collections by
March 31, 2000. If we wish to prepay the loan during the first 18 months we
must pay a prepayment penalty of 2% of the aggregate amount of the facility. As
of March 31, 1999, we had borrowed $36,100,000 under this credit facility.

Under this credit facility, we have agreed, among other things, to maintain
minimum quarterly net revenues, to achieve minimum EBITDA targets for rolling
six-month periods measured at the end of each fiscal quarter and to achieve a
minimum quarterly target of provisioned ALEs.

We have also agreed that we will not, without the prior written consent of
the lenders, with various exceptions:

. create, incur or assume any secured indebtedness,

. create, incur or assume any liens,

. enter into any merger, consolidation, reorganization, recapitalization
or reclassification of our stock,

. sell, lease, assign, transfer or otherwise dispose of any of our assets,

. declare or pay any cash dividends or purchase, acquire or redeem any of
our stock,

. make, acquire or incur any liabilities in connection with the
acquisition of any entity or the acquisition of all or substantially all
of the assets of any entity,

. make capital expenditures in excess of $32 million for the period from
September 1, 1998 to March 31, 2000 and $87 million for the period from
April 1, 2000 through September 1, 2001.

Events of default under this credit facility include:

. failure to make payments on the loan,

. failure to observe various covenants,

. insolvency proceedings,

. the filing of any governmental liens in an amount exceeding $2 million,

. the filing of any judgment liens in an amount exceeding $2 million,

. default on a material agreement with obligations exceeding $2 million,

. payment of any subordinated indebtedness, except as specifically
permitted,

. any material misrepresentation or misstatement in any warranty or
representation,

. the limitation or termination of any guaranty, or

. the occurrence of a change of control, except in connection with the
reorganization.

Cisco Capital Vendor Facility

On October 14, 1998, we entered into a three-year vendor facility for up to
$25 million with Cisco Capital. We have agreed to a three year, $25 million
total volume purchase commitment of Cisco equipment and services. Cisco Capital
has agreed to advance funds as these purchases occur. We can also use the
facility for working capital costs associated with the integration and
operation of Cisco solutions and related peripherals.

Under the terms of the vendor facility and an intercreditor agreement
between Cisco Capital and GSCP, we have agreed to give Cisco Capital a senior
security interest in all products Cisco provides to us or other products
purchased with the proceeds of the first $15 million advanced under the
facility and a subordinate security interest in all of our other assets. We are
required to repay 5% of the outstanding amount of the first $15 million of
indebtedness advanced under the facility at the end of each of the ninth, tenth
and eleventh quarterly periods during the term of the facility. We are required
to pay interest on funds advanced under the facility at an annual rate of
12.5%. In addition to other amounts, we are also required to pay a commitment
fee of .50% per annum on any unused amounts under the facility.

This vendor facility limits or restricts, except as permitted under our
senior secured credit facility and other than other various exceptions, our
ability to: merge with or acquire all of the assets of any entity; sell or
dispose of assets; purchase or otherwise acquire the capital stock or assets of
any person, or extend any credit to any person; declare or pay any cash
dividends; or redeem or purchase any capital stock.

This vendor facility also limits or restricts, among other things, our
ability to: incur additional indebtedness; amend, modify or waive some
provisions of our senior secured facility; voluntarily repay any subordinated
debt; or amend or modify any document or instrument governing subordinated
debt. Events of default under the vendor facility include:

. failure to make payments on the loan,

. any representation or warranty is incorrect when made or deemed made,

. failure to perform or observe our covenants,

. insolvency proceedings,

. failure to pay any amounts due or observe any covenants under our senior
secured facility or other indebtedness in an amount over $2 million
which failure results in the acceleration of such indebtedness,

. failure to pay under, or be in breach of, any other agreement with
Cisco, Cisco Capital, or their subsidiaries,

. failure of any guarantor to perform or observe any covenant contained in
any guaranty,

. any event of default in any other loan documents as defined therein,

. revocation of any consent, authorization or other approval necessary to
enable us to borrow under the vendor facility,

. the occurrence of a change of control, as defined therein,

. any payment of indebtedness subordinated to the vendor facility, except
as expressly permitted,

. the entrance of various judgments against us.

HOLDING COMPANY REORGANIZATION

Shortly after the closing of this offering, we expect to complete a
reorganization into a holding company structure. As a result of the
reorganization, we will become a wholly owned subsidiary of CTC Communications
Group, Inc. CTC Communications Group, Inc. is a Delaware corporation formed by
us for this purpose and has no other business. We will complete the merger by
causing CTC-Newco, a subsidiary of CTC Communications Group, Inc. organized for
this purpose, to merge into us. All of our issued and outstanding common and
preferred stock will be converted into the same number of shares of common and
preferred stock of CTC Communications Group, Inc. CTC Communications Group,
Inc.'s business will initially consist of owning all of our common stock. We
will continue to carry on our existing business. Our directors and some
executive officers will continue as directors and executive officers of CTC
Communications Group, Inc. Following the reorganization, CTC Communications
Group, Inc., will pledge our shares to the lenders under the credit facility
with GSCP and Fleet.

DESCRIPTION OF CAPITAL STOCK

The following summary describes the material terms of our capital stock.
However, you should refer to the actual terms of the capital stock contained in
our amended and restated articles of organization, the certificate of
designation for the Series A preferred stock, and our amended and restated by-
laws.

The authorized capital stock of the Company consists of 25,000,000 shares of
common stock and 1,000,000 shares of preferred stock. The common stock has a
par value of $.01 per share and the preferred stock has a par value of $1.00
per share. We have designated 666,666 shares of our preferred stock as Series A
convertible preferred stock.

As of April 30, 1999, there were 10,352,498 shares of our common stock
outstanding, and after the offering there will be 12,852,498 shares
outstanding. Our common stock was held by 366 stockholders of record. As of
April 30, 1999, options to purchase 3,615,809 shares of our common stock were
outstanding. As of April 30, 1999 666,666 shares of our Series A preferred
stock were outstanding. We also have warrants to purchase common stock
outstanding as described below.

Common Stock

The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. After the payment of any
required preferential amounts to the holders of any outstanding preferred
stock, holders of common stock are entitled to receive dividends that may be
declared by the board of directors. In the event of the liquidation,
dissolution or winding up of CTC, holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the payment of
any required preferential amounts to the holders of any outstanding preferred
stock. 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.

Preferred Stock

Each share of our Series A preferred stock accrues a dividend in an amount
equal to an annual rate of 9% of the $18.00 per share purchase price per annum
compounding every six months. This dividend is payable upon redemption,
liquidation or conversion of the Series A preferred stock. The holders of a
majority of the Series A preferred stock may elect to cause us to redeem the
Series A preferred stock after April 9, 2003. Upon any liquidation, dissolution
or winding up of CTC, holders of the Series A preferred stock will be entitled
to receive the payment of a preferential amount, before any distribution or
payment is made with respect to any junior class of our capital stock. The
preference amount payable for each share of our Series A preferred stock will
be an amount in cash equal to the greater of: the purchase price plus all
accrued dividends through the date of payment, or the purchase price plus all
accrued dividends plus an acceleration of the dividend due through April 9,
2003. Prior to any liquidation, dissolution or winding up of CTC, the Series A
preferred stock will automatically convert into common stock if the liquidation
amount is less than the amount the holder of Series A preferred stock would
have received had the holder converted to common stock.

The Series A preferred stock can be converted into common stock. In
addition, we have the right to convert the Series A preferred stock under some
circumstances. On the date of issuance, the 666,666 shares of Series A
preferred stock were convertible into 1,333,333 shares of our common stock. The
number of shares of common stock into which the Series A preferred stock can be
converted increases by an amount equal to the accrued dividend divided by
$9.00. The number of shares of common stock also adjusts on some issuances of
common stock, or securities convertible into or exercisable for common stock,
that would dilute the economic interest of the holders of the Series A
preferred stock. Holders of the Series A preferred stock are entitled to a
number of votes equal to the lesser of (1) the whole number of shares of common
stock they would receive if they converted their Series A preferred stock plus
the number of warrants they hold that were issued with the preferred stock and
(2) the number of shares of Series A preferred stock they hold multiplied by
2.476. Except

as required by law or the certificate of designation, the holders of Series A
preferred stock vote with the holders of the common stock as a single class.

Our board of directors may issue the 333,334 shares of authorized but
unissued preferred stock from time to time in one or more series. The rights,
preferences, privileges and restrictions of the different series may be
determined by our board of directors without any further vote or action by the
stockholders. Accordingly, our board of directors, without stockholder
approval, can issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of common stock. The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control.

Warrants

In connection with the issuance of the Series A preferred stock we issued
warrants to purchase an aggregate of 133,333 shares of common stock. As of
April 30, 1999, we also had outstanding other warrants to purchase an aggregate
of 1,154,738 shares of common stock at exercise prices from $6.75 to $11.8125
per share.

Registration Rights

Under the terms of a registration rights agreement with the purchasers of
the Series A preferred stock, those purchasers can request that we register
their sale of the shares of common stock issuable upon exercise of the warrants
or upon conversion of the Series A preferred stock under the Securities Act.
Toronto Dominion, Relational Funding Corporation, GSCP and Fleet have similar
registration rights under the terms of warrants we issued to them.

Certain Provisions of our Charter and Bylaws

Our charter and bylaws may prevent, discourage or delay any change in the
control of CTC and may make it more difficult to remove our board and
management. Our board has the authority to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
effect a change in control of CTC. Our bylaws provide for three classes of
directors serving for staggered three-year terms. Our directors can be removed
only for cause and only by either a vote of not less than a majority of the
total number of votes of our outstanding capital stock entitled to elect
directors, or by the vote of a majority of the directors. These provisions
could also impede the success of any attempt to acquire control of CTC.

Our bylaws establish procedures for stockholders to nominate directors or
bring other matters to a vote by our stockholders at a meeting, including
advance notice procedures. In general, we must receive notice at least 60 and
no more than 90 days prior to the meeting. This notice must contain specified
information concerning the stockholder submitting the proposal. Such procedures
also authorize regulation of the order of business and conduct of stockholder
meetings, the authority of the presiding officer and attendance at such
meetings. These provisions can be amended only by a majority of the directors
or by a majority of votes of our outstanding capital stock at a meeting held
for the purpose of considering the amendment. The provisions could make it more
difficult for a third party to acquire control of our board. In addition, these
provisions could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, a majority of our
outstanding voting stock and may make more difficult or discourage a takeover
of CTC.

Massachusetts Anti-Takeover Laws

We are subject to the Massachusetts Business Combination Statute. This
statute prohibits a publicly-held Massachusetts corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the time of the transaction in which the person became an
interested stockholder, unless:

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

. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 90% of the outstanding voting stock (excluding shares held by
persons who are both directors and officers of the corporation and
employee stock plans), or

. on or after the consummation date, the business combination is approved
by the board of directors and by the affirmative vote of at least 66
2/3% of the outstanding voting stock that is not owned by the interested
stockholder.

A "business combination" generally includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is generally a person who, together with affiliates
and associates, owns, or within three years, owned, 5% or more of the
corporation's voting stock.

Our bylaws provide that Chapter 110D of the Massachusetts General Laws does
not apply to us. However, our board may in the future amend the bylaws to
become subject to the statute. In general, if Chapter 110D were applicable to
us, any person or entity that acquired 20% or more of our outstanding voting
stock could not vote that stock unless authorized by our other stockholders.

Our board is permitted under Massachusetts law to consider noneconomic
factors, such as employee welfare, suppliers, creditors, customers, the economy
of the state, region and nation, community and societal consideration and long-
term and short-term corporate and stockholder interests when considering
business combinations as defined in the Business Combination Statute.

Limitation of Liability of Directors and Indemnification of Directors and
Officers

Our charter provides that our directors will not be personally liable for
monetary damages to us or our stockholders for breach of fiduciary duty as a
director, except for liability for any breach of the director's duty of loyalty
to us or our stockholders, for acts or omissions not in good faith, for acts or
omissions involving intentional misconduct or a knowing violation of law or for
any transaction from which the director derived an improper benefit. Our bylaws
provide that our directors and officers will be indemnified against liabilities
that arise from their service as directors and officers.

Transfer Agent and Registrar

Boston EquiServe L.P. is the transfer agent and registrar for the common
stock.

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation and Lehman Brothers Inc.
are acting as representatives, the following respective numbers of shares of
common stock:

Underwriters Number of Shares
------------ ----------------

Credit Suisse First Boston Corporation......................
Lehman Brothers Inc.........................................
---------
Total..................................................... 2,500,000
=========

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of the common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 375,000 additional shares at the public offering price less
the underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.

The following table summarizes the compensation that we will pay the
underwriters and the expenses we will pay:

Total
-----------------------------
Without With
Per Share Over-Allotment Over-Allotment
--------- -------------- --------------

Underwriting discounts and commissions
paid by us........................... $ $ $
Expenses payable by us................ $ $ $

We, our officers and directors and certain other stockholders have agreed
that we will not offer, sell, contract to sell, announce our intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to any additional shares of our common stock or
securities convertible into or exchangeable or exercisable for any of our
common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 90 days after the date of this prospectus with
various exceptions.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.

The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making in
accordance with Regulation M under the Securities Exchange Act of 1934.

. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.

. In "passive" market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the common stock until the
time, if any, at which a stabilizing bid is made.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discounted at any time.

Katherine D. Courage, a Managing Director of Credit Suisse First Boston
Corporation, is one of our directors.

NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the common stock are effected. Accordingly, any resale of common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of Purchasers

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (3) such purchaser has reviewed the text above under "Resale
Restrictions."

Rights of Action (Ontario Purchasers)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of Legal Rights

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.

Notice to British Columbia Residents

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from CTC. Only one such
report must be filed in respect of common stock acquired on the same date and
under the same prospectus exemption.

Taxation and Eligibility for Investment

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
common stock for investment by the purchaser under relevant Canadian
legislation.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for CTC by Ropes & Gray, Boston, Massachusetts, and for the underwriters
by Latham & Watkins, Washington, D.C.

EXPERTS

The financial statements of CTC at March 31, 1998 and 1997, and for each of
the three years in the period ended March 31, 1998, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act of 1933,
as amended, with respect to the common stock offered under this prospectus.
This prospectus does not contain all of the information contained in the
registration statement and the exhibits and schedules to the registration
statement. Some items are omitted in accordance with the rules and regulations
of the Securities and Exchange Commission. For further information about CTC
and the common stock offered under this prospectus, you should review the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Descriptions of contracts or other documents referred
to in this prospectus are not necessarily complete. If the contract or other
document is filed as an exhibit to the registration statement, you should
review that contract or document. You should be aware that when we discuss
these contracts or documents in the prospectus we are assuming that you will
read the exhibits to the registration statement for a more complete
understanding of the contract or documents.

We are subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, we file reports, proxy statements and other information
with the Securities and Exchange Commission. Such reports, proxy statements and
other information filed by us can be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following regional offices of the Securities and Exchange Commission: 500 West
Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, New York, New
York 10048. Copies of such material can be obtained by mail from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material may
also be accessed electronically by means of the Securities and Exchange
Commission's home page on the internet at http://www.sec.gov.

CTC COMMUNICATIONS CORP.

INDEX TO FINANCIAL STATEMENTS

Audited Financial Statements
Report of Independent Auditors........................................... F-2
Balance Sheets as of March 31, 1998 and 1997............................. F-3
Statements of Operations for the years ended March 31, 1998, 1997 and
1996.................................................................... F-4
Statements of Stockholders' Equity for the years ended March 31, 1998,
1997 and 1996........................................................... F-5
Statements of Cash Flows for the years ended March 31, 1998, 1997 and
1996.................................................................... F-6
Notes to Financial Statements............................................ F-7
Unaudited Financial Statements
Condensed Balance Sheets as of December 31, 1998 and March 31, 1998...... F-22
Condensed Statements of Operations for the nine months ended December 31,
1998 and 1997........................................................... F-23
Condensed Statements of Cash Flows for the nine months ended December 31,
1998 and 1997........................................................... F-24
Notes to Condensed Financial Statements.................................. F-25

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors
CTC Communications Corp.

We have audited the accompanying balance sheets of CTC Communications Corp.,
as of March 31, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

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

/s/ Ernst & Young LLP

Boston, Massachusetts
May 28, 1998, except for
Note 1, as to which the
date is July 15, 1998

F-2

CTC COMMUNICATIONS CORP.

BALANCE SHEETS

March 31
------------------------
1998 1997
----------- -----------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 2,167,930 $ 6,405,670
Accounts receivable, less allowance for doubtful
accounts of $492,000 in 1998 and $377,000 in
1997.............................................. 17,288,183 10,904,820
Prepaid expenses and other current assets.......... 791,736 447,441
Amounts due from officers and employees............ 84,754 46,112
Income tax receivable.............................. 2,152,579
----------- -----------
Total current assets............................. 22,485,182 17,804,043
EQUIPMENT:
Equipment.......................................... 13,376,970 7,268,372
Accumulated depreciation........................... (6,837,683) (5,565,650)
----------- -----------
6,539,287 1,702,722
Deferred income taxes................................ 1,834,000 566,000
Other assets......................................... 108,885 113,685
----------- -----------
$30,967,354 $20,186,450
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.............. $ 8,958,476 $ 3,238,416
Accrued income taxes............................... 225,948
Accrued salaries and related taxes................. 756,159 2,423,825
Deferred revenue................................... 6,588
Current portion of obligations under capital
leases............................................ 231,796
Current portion of note payable to bank............ 1,196,400
----------- -----------
Total current liabilities........................ 11,142,831 5,894,777
Obligations under capital leases, net of current
portion............................................. 1,114,277
Note payable to bank, net of current portion......... 7,130,671
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series Preferred Stock--par value $1.00 per share;
authorized 1,000,000 shares, none outstanding.....
Common Stock, par value $.01 per share; authorized
25,000,000 shares, issued 9,980,661 and 9,629,407
shares in 1998 and 1997, respectively............. 99,806 96,294
Additional paid-in capital......................... 5,245,704 4,758,454
Deferred compensation.............................. (318,410)
Retained earnings.................................. 6,688,300 9,572,750
----------- -----------
11,715,400 14,427,498
Amounts due from stockholders...................... (135,825) (135,825)
----------- -----------
11,579,575 14,291,673
----------- -----------
$30,967,354 $20,186,450
=========== ===========

See accompanying notes.

F-3

CTC COMMUNICATIONS CORP.

STATEMENTS OF OPERATIONS

Year Ended March 31
--------------------------------------
1998 1997 1996
------------ ----------- -----------

REVENUES:
Agency.............................. $ 24,775,420 $29,195,261 $25,492,511
Telecommunications.................. 16,171,716 11,094,838 5,383,414
------------ ----------- -----------
40,947,136 40,290,099 30,875,925
COSTS AND EXPENSES:
Cost of telecommunications
revenues........................... 14,038,565 8,709,122 4,241,575
Selling, general and administrative
expenses........................... 31,491,963 23,819,714 20,009,432
------------ ----------- -----------
45,530,528 32,528,836 24,251,007
------------ ----------- -----------
Income (loss) from operations......... (4,583,392) 7,761,263 6,624,918
OTHER:
Interest income..................... 145,012 201,369 195,979
Interest expense.................... (106,465) (17,753) (604)
Other............................... 174,395 15,052 9,631
------------ ----------- -----------
212,942 198,668 205,006
------------ ----------- -----------
Earnings (loss) before income taxes... (4,370,450) 7,959,931 6,829,924
Provision (benefit) for income taxes.. (1,486,000) 3,277,000 2,736,000
------------ ----------- -----------
Net income (loss)..................... $(2,884,450) $ 4,682,931 $ 4,093,924
============ =========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Basic............................... $ (0.29) $ 0.49 $ 0.43
============ =========== ===========
Diluted............................. $ (0.29) $ 0.43 $ 0.38
============ =========== ===========
SHARES USED IN COMPUTING EARNINGS
(LOSS) PER COMMON SHARE:
Basic............................... 9,886,000 9,600,000 9,446,000
============ =========== ===========
Diluted............................. 9,886,000 10,773,000 10,712,000
============ =========== ===========

See accompanying notes.

F-4

CTC COMMUNICATIONS CORP.

STATEMENTS OF STOCKHOLDERS' EQUITY

Common Stock Additional Amounts
-------------------- Paid-In Deferred Retained Treasury Due From
Shares Par Value Capital Compensation Earnings Stock Stockholders Total
--------- --------- ---------- ------------ ----------- --------- ------------ -----------

Balance at March 31,
1995................... 3,124,437 $31,244 $4,871,302 $ 796,734 $ (13,860) $(159,825) $ 5,525,595
Issuance of stock
pursuant to employee
stock purchase plan... 9,082 91 58,153 58,244
Exercise of employee
stock options......... 197,143 1,971 121,053 123,024
Acquisition of treasury
stock................. (329,125) (329,125)
Retirement of treasury
stock................. (25,454) (254) (342,731) 342,985
Settlement of amounts
due from
stockholders.......... 24,000 24,000
Issuance of stock upon
3 for 2 stock split... 1,560,742 15,607 (15,607) (839) (839)
Issuance of stock upon
2 for 1 stock split... 4,718,172 47,182 (47,182)
Net income............. 4,093,924 4,093,924
--------- ------- ---------- --------- ----------- --------- --------- -----------
Balance at March 31,
1996................... 9,584,122 95,841 4,644,988 4,889,819 0 (135,825) 9,494,823
Issuance of stock
pursuant to employee
stock purchase plan... 8,714 87 70,088 70,175
Exercise of employee
stock options......... 36,571 366 43,378 43,744
Net income............. 4,682,931 4,682,931
--------- ------- ---------- --------- ----------- --------- --------- -----------
Balance at March 31,
1997................... 9,629,407 96,294 4,758,454 9,572,750 0 (135,825) 14,291,673
Issuance of stock
pursuant to employee
stock purchase plan... 9,844 98 71,662 71,760
Exercise of employee
stock options......... 376,387 3,764 347,222 350,986
Acquisition of treasury
stock................. (271,072) (271,072)
Retirement of treasury
stock................. (34,977) (350) (270,722) 271,072
Deferred compensation.. 339,088 $(318,410) 20,678
Net loss............... (2,884,450) (2,884,450)
--------- ------- ---------- --------- ----------- --------- --------- -----------
Balance at March 31,
1998................... 9,980,661 $99,806 $5,245,704 $(318,410) $ 6,688,300 0 $(135,825) $11,579,575
========= ======= ========== ========= =========== ========= ========= ===========

See accompanying notes.

F-5

CTC COMMUNICATIONS CORP.

STATEMENTS OF CASH FLOWS

Year Ended March 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------

OPERATING ACTIVITIES
Net income (loss)...................... $(2,884,450) $ 4,682,931 $ 4,093,924
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........ 1,417,866 742,895 660,338
Provision for doubtful accounts...... 1,421,000 316,669 61,763
Deferred income taxes................ (1,268,000) (289,000) (124,000)
Stock compensation expense........... 20,678
Gain on sale of fixed asset.......... (143,333)
Changes in operating assets and
liabilities:
Accounts receivable................ (7,804,363) (4,664,260) (2,979,772)
Other current assets............... (382,937) (123,789) (231,642)
Income tax receivable.............. (2,152,579) 21,125 (21,125)
Other assets....................... 4,800 4,800 (90,200)
Accounts payable, accrued expenses,
accrued salaries and related
taxes............................. 4,052,394 2,657,149 1,103,061
Accrued income taxes............... (225,948) 225,948 (281,569)
Deferred revenue and other......... (6,588) (2,714) 1,128
----------- ----------- -----------
Net cash provided by (used in)
operating activities............ (7,951,460) 3,571,754 2,191,906
INVESTING ACTIVITY
Additions to equipment, net............ (4,765,025) (1,221,879) (759,204)
----------- ----------- -----------
Net cash used in investing activity.... (4,765,025) (1,221,879) (759,204)
FINANCING ACTIVITIES
Proceeds from issuance of common stock... 151,674 113,919 119,467
Borrowings under note payable to bank,
net of repayments....................... 8,327,071
Cash paid for fractional shares in
connection with stock splits............ (839)
----------- ----------- -----------
Net cash provided by financing
activities.............................. 8,478,745 113,919 118,628
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................. (4,237,740) 2,463,794 1,551,330
Cash and cash equivalents at beginning of
year.................................... 6,405,670 3,941,876 2,390,546
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................... $ 2,167,930 $ 6,405,670 $ 3,941,876
=========== =========== ===========

See accompanying notes.

F-6

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS
March 31, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

CTC Communications Corp. (the Company) is an integrated communications
provider (ICP), which offers local, long distance, Internet access, Frame Relay
and other data services under its own brand name on a single integrated bill.
The Company serves small to medium-sized business customers in seven
Northeastern states. Prior to becoming an ICP in January 1998, the Company was
a sales agent for Bell Atlantic Corp. (Bell Atlantic) and other
telecommunications providers selling local telecommunications services as an
agent since 1984. The Company has also offered long distance and data services
under its own brand name since 1994. In late 1998, the Company plans to begin
deploying a data-centric network in its existing markets.

The Company has obtained a commitment for an interim credit facility (the
Interim Facility) from its current lender. The Interim Facility, which would
mature on June 30, 1999, would provide secured revolving loans of up to $20
million to refinance the Company's existing credit facility (the Credit
Facility), to fund capital expenditures and significant operating losses
expected to be incurred in connection with the Company's transition to an ICP
strategy and for general corporate purposes. The commitment, which is subject
to certain conditions, extends to September 30, 1998. To satisfy one of those
conditions, the Company has received a commitment from Spectrum Equity
Investors, II, L.P. ("Spectrum") to purchase $5 million of Preferred Stock
which extends until June 30, 1999 (the Interim Spectrum Financing). The Company
believes that the Interim Facility and the Interim Spectrum Financing, if
required, together with cash on hand would be sufficient to refinance the
Credit Facility and to fund the Company's existing operations for at least the
next 12 months. However, CTC would be required to delay its proposed geographic
expansion and deployment of facilities or to obtain additional financing within
the next 6 months.

The implementation of the Company's business plan to further penetrate its
existing markets as an ICP, deploy the ICN in its existing markets, expand its
sales presence into six additional states in the Boston-Washington DC corridor
and enhance the CTC Information System and the repayment of the Credit Facility
will require the Company to raise significant capital. The Company has been
seeking and is actively engaged in the negotiation of commitments with
alternative sources of long-term financing to fund its business plans. Although
the Company is highly optimistic that it will be successful in obtaining such
financing based upon its negotiations, there can be no assurance that the
Company will be able to consummate financing in the amount, on the terms and on
the schedule required to implement the Company's business plan, if at all.

Agency revenues derived from commissions received from Bell Atlantic
represented 48%, 63% and 69% of the Company's total revenues in 1998, 1997 and
1996, respectively. Accounts receivable from Bell Atlantic amounted to 63% and
70% of total accounts receivable at March 31, 1998 and 1997, respectively. See
Note 2.

Cash and Cash Equivalents

The Company considers highly liquid investments with maturities of less than
three months at the date of acquisition as cash equivalents.

Equipment

Equipment is stated on the basis of cost. Depreciation, including
amortization of capitalized leases, is computed using the straight-line method.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in income for the period. The cost of maintenance and
repairs is charged to income as incurred; significant renewals and betterments
are capitalized.

F-7

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Revenue Recognition

Telecommunications revenues are recognized as the usage accrues on the
network. Agency revenues are recognized when ordered and, if commissions are
based on usage, revenues are recognized as earned. Provisions for cancellations
are made at the time revenue is recognized and actual experience, prior to the
developments described in Note 2, has consistently been within management's
estimates.

Income Taxes

The Company provides for income taxes under the liability method prescribed
by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under this method, deferred income taxes are recognized for the
future tax consequences of differences between the tax and financial accounting
bases of assets and liabilities at each year end. Deferred income taxes are
based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.

Accounting Pronouncements

In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, Reporting Comprehensive Income and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. Both SFAS 130 and SFAS 131
are effective for fiscal years beginning after December 15, 1997. The Company
believes that the adoption of these new accounting standards will not have a
material impact on the Company's financial statements.

Earnings Per Share

In 1997, the FASB issued SFAS No. 128, Earnings per Share. SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the SFAS No. 128 requirements.

Risks and Uncertainties

Concentration of Credit Risk

Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash and cash equivalents
and trade receivables. The carrying amount of cash and cash equivalents
approximates fair value due to the short maturity of these instruments.

Significant Estimates and Assumptions

The financial statements have been prepared in conformity with generally
accepted accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make significant estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates and assumptions
made by management affect the Company's provision for doubtful accounts,
cancellation of orders and certain accrued expenses. Actual results could
differ from those estimates.

F-8

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Accounting for Stock Issued to Employees

The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair market value of the shares at the date
of the grant (110% of the fair market value for owners of 20% or more of the
Company's Common Stock). The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and related Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting provided for
under SFAS No. 123, Accounting for Stock-Based Compensation, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

2. BELL ATLANTIC LITIGATION

In December 1997, the Company terminated its agency contract and filed suit
against Bell Atlantic for breaches of contract, including the failure of Bell
Atlantic's retail division to pay $14 million in agency commissions
(approximately $12 million at March 31, 1998) owed to the Company. The Company
also asserted violations by Bell Atlantic of antitrust laws and the
Telecommunications Act. The Company intends to pursue this suit vigorously.
Although the Company believes the collection of the agency commissions sought
in the suit is probable, there can be no assurance that the Company will be
successful in collecting those commissions. If the Company fails to collect any
of the agency commissions sought or if their collection becomes less than
probable, the Company would be required to write off the amounts reflected in
its financial statements that it is unable to collect or for which collection
becomes less than probable. Delay in collection of, or the write-off of, the
agency commissions sought may adversely affect the Company.

3. RELATED-PARTY TRANSACTIONS

The installation of telephone systems is generally subcontracted to a
company controlled by the Chairman of the Company. Amounts paid to this
subcontractor which are based on fair market value amounted to $1,723, $28,217
and $1,089 in 1998, 1997 and 1996, respectively. Additionally, inventory and
equipment purchased from this subcontractor at fair market value amounted to
$231,052, $68,973 and $39,791 in 1998, 1997 and 1996, respectively.

The Company leases office space from trusts in which the Chairman is a
beneficiary. Rent expense for these facilities aggregated $132,656, $132,656
and $133,949 in 1998, 1997 and 1996, respectively. These office space leases
expire in fiscal 1998.

The Company subleases a part of its corporate facility to a company
controlled by the Chairman of the Company. Terms of the sublease are identical
with those included in the Company's lease. Sublease income totaled $119,416,
$80,416 and $73,417 in 1998, 1997 and 1996, respectively.

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

March 31
---------------------
1998 1997
---------- ----------

Trade accounts payable................................ $5,778,048 $2,015,409
Accrued cost of telecommunications revenue.......... 888,031 790,039
Bell Atlantic litigation............................ 1,200,000
Other............................................... 1,092,397 432,968
---------- ----------
$8,958,476 $3,238,416
========== ==========

F-9

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

5. NOTE PAYABLE TO BANK

In November 1997, the Company replaced its existing $5,000,000 revolving
line of credit agreement with a bank credit facility consisting of $15,000,000
revolving line of credit, a $5,000,000 equipment line of credit, and a
$5,000,000 working capital line of credit. The revolving line of credit bears
interest at Libor plus 1.5% to 3.00%, or prime rate plus up to 0.5%, depending
on certain coverage ratios of the Company and expires in September, 2000. The
equipment and working capital lines of credit bear interest at Libor plus 1.75%
to 3.25%, or prime rate plus up to 1%, depending on certain leverage ratios of
the Company and expire in September 2000. At March 31, 1998, $1,339,000 and
$4,018,000 was available for borrowing under the revolving line of credit, and
the equipment line of credit, respectively, and no amounts were available for
borrowing under the working capital line of credit.

As of March 31, 1998, the Company was not in compliance with certain
covenants under its bank credit facility as a result of the Company's fourth
quarter net loss of approximately $6 million. The bank has waived such covenant
noncompliance under the Facility until September 30, 1998. See Note 1.

Note payable to bank consisted of the following at March 31, 1998:

Revolving line of credit due September 1, 2000................. $2,345,071
Equipment line of credit due in annual principal installments
of $196,400 through January 2003 (7.44% at March 31, 1998).. 982,000
Working capital line of credit due in annual principal
payments of $1,000,000 through March 2003 (7.44% at March
31, 1998)................................................... 5,000,000
-----------
8,327,071
Less: current portion........................................ (1,196,400)
-----------
$ 7,130,671
===========

Maturities of long-term debt are the following at March 31:

1999............................................................ $1,196,400
2000............................................................ 1,196,400
2001............................................................ 3,541,471
2002............................................................ 1,196,400
2003............................................................ 1,196,400

The bank has a security interest in and lien on all of the tangible and
intangible personal property and fixtures of the Company, including all
accounts receivable and equipment.

F-10

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

6. LEASES

The Company leases office facilities under long-term lease agreements
classified as operating leases. The following is a schedule of future minimum
lease payments, net of sublease income, for operating leases as of March 31,
1998:

Operating Sublease
Leases Income Net
---------- --------- ----------

Year ending March 31:
1999...................................... $1,399,383 $(107,766) $1,291,617
2000...................................... 1,098,624 (109,898) 988,726
2001...................................... 1,010,819 (111,420) 899,399
2002...................................... 937,665 (111,420) 826,245
2003...................................... 671,930 (111,420) 560,510
---------- --------- ----------
Net future minimum lease payments.......... $5,118,421 $(551,924) $4,566,497
========== ========= ==========

Rental expense for operating leases amounted to $1,121,916, $1,001,919 and
$673,321 in 1998, 1997 and 1996, respectively. Sublease income amounted to
$119,416, $90,016 and $82,217 in 1998, 1997 and 1996, respectively.

The Company leases equipment under capital leases. At March 31, 1998, the
Company has capitalized leased equipment totaling $1,346,073 with related
accumulated amortization of $134,607. The following is a schedule by year of
future minimum lease payments due under capital leases, together with the
present value of the minimum lease payments as of March 31, 1998:

Year ending March 31:
1999............................................................ $ 300,308
2000............................................................ 300,308
2001............................................................ 300,308
2002............................................................ 300,308
2003............................................................ 300,308
Thereafter...................................................... 25,026
----------
1,526,566
Less amount representing interest................................ (180,493)
----------
Present value of minimum lease payments.......................... 1,346,073
Less current portion of obligations under capital leases......... (231,796)
----------
Obligations under capital leases................................. $1,114,277
==========

7. TELECOMMUNICATIONS AGREEMENTS

On January 15, 1996, the Company entered into a four-year nonexclusive
agreement with a long-distance service provider for the right to provide long
distance service to its customers at prices affected by volume attainment
levels during the term of the agreement. The Company is not obligated to
purchase any minimum levels of usage over the term of the agreement, but rates
may be adjusted due to the failure of achieving certain volume commitments.
These provisions had no effect on the financial statements for the years ended
March 31, 1998, 1997 and 1996.

F-11

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

On October 20, 1994, the Company entered into a three-year non-exclusive
agreement with a long-distance service provider for the right to provide long
distance service to its customers at fixed prices by service during the term of
the agreement. On October 11, 1996, the Company entered into an amendment to
the agreement which extended the term of the agreement by five years from the
date of the amendment. Over such extension period, the Company shall be liable
for a minimum aggregate usage commitment of $25 million. Furthermore, the rates
set forth under the aforementioned amendment may be adjusted due to the failure
of meeting certain periodic volume commitments. Due to existing and expected
usage, these provisions had no effect on the financial statements for the years
ended March 31, 1998 and 1997.

Prior to the execution of the agreements described above, and through March
31, 1998, the Company also provided long distance service to customers under an
informal non-exclusive arrangement with another long distance service provider.
The Company is not obligated to purchase any minimum level of usage on the
network, and there are no other performance obligations.

8. STOCKHOLDERS' EQUITY

Common Stock

On July 13, 1995, the Board of Directors declared a 3 for 2 stock split in
the form of a dividend payable to shareholders of record on July 25, 1995. A
total of 1,560,742 shares of common stock were issued and $839 in cash was paid
for fractional share amounts.

On October 10, 1995, the Board of Directors declared a 2 for 1 stock split
in the form of a dividend payable to shareholders of record on October 23,
1995. A total of 4,718,172 shares of common stock were issued.

Preferred Stock

The dividends, liquidation preference, voting rights and other rights of
each series of preferred stock, when issued, are to be designated by the Board
of Directors prior to issuance.

9. BENEFIT PLANS

Defined Contribution Plan

The Company maintains a defined contribution plan (401(k) plan) covering all
employees who meet certain eligibility requirements. Participants may make
contributions to the plan up to 15% of their compensation (as defined) up to
the maximum established by law. The Company may make a matching contribution of
an amount to be determined by the Board of Directors, but subject to a maximum
of 6% of compensation contributed by each participant. Company contributions
vest ratably over three years. Company contributions to the plan were $310,788,
$230,079 and $210,063 in 1998, 1997 and 1996, respectively. Administrative
costs paid by the Company were $5,960, $1,275 and $7,982 in 1998, 1997 and
1996, respectively.

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (the ESPP) which enables
participating employees to purchase Company shares at 85% of the lower of the
market prices prevailing on the valuation dates as defined in the ESPP.
Individuals can contribute up to 5% of their base salary. The Company made no
contributions to the ESPP during the three years in the period ended March 31,
1998. Indicated below is a summary of shares

F-12

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

of common stock purchased by the ESPP. All share and per share amounts
indicated below have been presented to reflect the stock dividend and stock
splits described above.

In July 1997 and February 1998, the ESPP purchased 5,438 shares at $6.48 per
share and 4,406 shares at $8.29 per share, respectively.

In July 1996 and February 1997, the ESPP purchased 2,998 shares at $11.05
per share and 5,716 shares at $6.48 per share, respectively.

In July 1995 and January 1996, the ESPP purchased 7,011 shares at $3.26 per
share and 2,345 shares at $11.05 per share, respectively.

Stock Option Plans

Under the terms of its 1993 Stock Option Plan and 1996 Stock Option Plan
(collectively, the Plans), the Company may grant stock options for the purchase
of Common Stock to all employees, directors and consultants. The Plans
generally provide that the exercise price for an incentive stock option (which
may only be granted to employees) will be fixed by a committee of the Board of
Directors but will not be less than 100% (110% for 10% stockholders) of the
fair market value per share on the date of grant. Nonqualified options may also
be granted under the Plans to directors, employees and consultants.
Nonqualified options under the 1993 Plan may be granted at an exercise price of
no less than 85% (110% for 10% stockholders) of the fair market value per share
on the date of grant and under the 1996 Plan may be granted with an exercise
price less than, equal to or greater than the fair market value per share on
the date of the grant. No options have a term of more than ten years and
options to 10% stockholders may not have a term of more than five years.

In the event of termination of employment, other than by reason of death,
disability or with the written consent of the Company, all options granted to
employees are terminated. Vesting is determined by the Board of Directors.

On March 20, 1998, the Board of Directors approved the repricing of
1,175,500 options with a new exercise price of $7.19 ($7.91 for 10%
stockholders).

Stock-Based Compensation

Pro forma information regarding net income (loss) and earnings (loss) per
common share is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options and shares issued pursuant
to the ESPP under the fair value method of that Statement. The fair value for
these options and shares issued pursuant to the ESPP were estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:

Options ESPP
------------------- -------------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ----- ----- -----

Expected life (years)............. 2.96 3.98 3.49 0.50 0.50 0.50
Interest rate..................... 5.93% 6.28% 6.12% 5.43% 5.4% 6.48%
Volatility........................ 85.14 87.88 87.88 64.67 93.03 80.93
Dividend yield.................... 0.00 0.00 0.00 0.00 0.00 0.00

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the

F-13

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income (loss) and earnings (loss) per common share are as
follows:

1998 1997 1996
----------- ---------- ----------

Pro forma net income (loss)............. $(4,973,000) $4,094,000 $3,550,000
Pro forma earnings (loss) per common
share.................................. $ (0.50) $ 0.39 $ 0.34

The effects on 1996, 1997 and 1998 pro forma net income (loss) and earnings
(loss) per common share of expensing the estimated fair value of stock options
and shares issued pursuant to the ESPP are not necessarily representative of
the effects on reporting the results of operations for future years as the
periods presented include only one, two and three years of option grants under
the Company's plans.

A summary of the Company's stock option activity, and related information
for the years ended March 31 follows:

1998 1997 1996
--------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- --------- --------- --------- --------- ---------

Outstanding at beginning
of year................ 1,953,112 $4.3651 1,995,878 $4.01 1,526,850 $1.45
Options granted....... 2,791,000 7.1249 280,539 9.67 1,000,250 8.06
Options terminated.... (1,402,718) 8.3647 (286,734) 7.54 (290,689) 2.37
Options exercised..... (376,387) .9326 (36,571) 1.20 (240,533) 0.51
---------- --------- ---------
Outstanding at end of
year................... 2,965,007 $5.5037 1,953,112 $4.36 1,995,878 $4.01
========== ========= =========
Exercisable at end of
year................... 698,250 772,282 613,824
========== ========= =========
Weighted-average fair
value of options
granted during the
year................... $ 4.01 $ 6.43 $ 5.09
========== ========= =========

F-14

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following table presents weighted-average price and life information
about significant option groups outstanding at March 31, 1998:

Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------

$0.25 187,500 0.1 years $0.25 187,500 $0.25
0.53 - 86,397 0.6 years 0.534 86,397 0.534
0.90 -
1.10 207,854 1.5 years 1.10 147,261 1.10
2.70 -
2.98 257,056 2.0 years 2.7444 189,792 2.7449
6.00 -
7.06 1,041,700 6.4 years 6.4411 10,500 6.1607
7.19 1,100,500 4.2 years 7.188 76,800 7.1880
7.91 75,000 4.1 years 7.9068 0 0
$8.69 9,000 2.7 years 8.688 0 0
--------- -------
2,965,007 698,250
========= =======

10. EARNINGS (LOSS) PER COMMON SHARE

The following sets forth the computations of basic and diluted earnings
(loss) per common share.

1998 1997 1996
----------- ----------- -----------

NUMERATOR:
Net income (loss) (numerator for
basic and diluted earnings (loss)
per common share)................ $(2,884,450) $ 4,682,931 $ 4,093,924
DENOMINATOR:
Denominator for basic earnings
(loss) per common share-weighted
average shares................... 9,886,000 9,600,000 9,446,000
Effect of employee stock options.. 1,173,000 1,266,000
----------- ----------- -----------
Denominator for diluted earnings
(loss) per common share.......... 9,886,000 10,773,000 10,712,000
=========== =========== ===========
Basic earnings (loss) per common
share.............................. $ (0.29) $ 0.49 $ 0.43
=========== =========== ===========
Diluted earnings (loss) per common
share.............................. $ (0.29) $ 0.43 $ 0.38
=========== =========== ===========

11. INCOME TAXES

The provision (benefit) for income taxes consisted of the following:

1998 1997 1996
----------- ----------- -----------

CURRENT:
Federal........................... $ (218,000) $ 2,660,000 $ 2,135,000
State............................. 906,000 725,000
----------- ----------- -----------
(218,000) 3,566,000 2,860,000
Deferred tax benefit................ (1,268,000) (289,000) (124,000)
----------- ----------- -----------
$(1,486,000) $ 3,277,000 $ 2,736,000
=========== =========== ===========

F-15

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Significant components of the Company's deferred tax liabilities and assets
as of March 31, are as follows:

1998 1997
---------- --------

DEFERRED TAX ASSETS:
Depreciation......................................... $ 64,000 $191,000
Accruals and allowances.............................. 1,751,000 445,000
Net operating state loss carryforward................ 96,000
---------- --------
Total deferred tax asset............................... 1,911,000 636,000
DEFERRED TAX LIABILITY:
Prepaid expenses..................................... (38,000) (31,000)
Cash surrender value of life insurance policy........ (39,000) (39,000)
---------- --------
Total deferred tax liability........................... (77,000) (70,000)
---------- --------
Net deferred tax asset................................. $1,834,000 $566,000
========== ========

The income tax expense is different from that which would be obtained by
applying the statutory federal income tax rate to income before income taxes.
The items causing this difference are as follows:

1998 1997 1996
----------- ---------- ----------

Tax at U.S. statutory rate............. $(1,486,000) $2,706,000 $2,322,000
State income taxes, net of federal ben-
efit.................................. 552,000 466,000
Other.................................. 19,000 (52,000)
----------- ---------- ----------
$(1,486,000) $3,277,000 $2,736,000
=========== ========== ==========

Income taxes paid in 1998, 1997 and 1996 amounted to $2,160,527, $3,319,000
and $3,163,000, respectively.

12. SUPPLEMENTAL CASH FLOW INFORMATION

In March 1996, the Company received shares of common stock with an
aggregate fair market value of $251,771 in lieu of cash for settlement of
amounts due from an officer. These shares and the related amount were
accounted for as treasury stock and were subsequently retired.

In September 1995, the Company received shares of common stock with an
aggregate fair market value of $25,039 in lieu of cash for settlement of
amount due from a non-employee of $24,000 plus accrued interest of $1,039.
These shares and the related amount were accounted for as treasury stock and
were subsequently retired.

During fiscal 1998 and 1996, and in connection with the exercise of
employee stock options, the Company received shares of common stock with an
aggregate fair market value of $271,072 and $52,315 in lieu of cash upon the
exercise of these options. These shares and the related amount were accounted
for as treasury stock and were subsequently retired.

These noncash transactions have been excluded from the statements of cash
flows for the years ended March 31, 1998 and 1996.

13. SUBSEQUENT EVENTS

In April 1998, the Company privately placed $12 million of Series A
Convertible Preferred Stock (Series A Preferred Stock) and warrants to
purchase Common Stock with Spectrum Equity Investors II, L.P. and other

F-16

CTC COMMUNICATIONS CORP.

NOTES TO FINANCIAL STATEMENTS--(Continued)

private investors. The Series A Preferred Stock may be redeemed at the option
of the holders of a majority of the Series A Preferred Stock at any time on or
after the earlier of (i) April 9, 2010 and (ii) the date 180 days after the
maturity date of any debt financing consummated on or before October 9, 1998
yielding proceeds of at least $75 million. The Series A Preferred Stock is
convertible into shares of Common Stock. On the date of issuance, the shares of
Series A Preferred Stock were convertible into 1,333,333 shares of the
Company's Common Stock, which conversion ratio is subject to certain
adjustments. The warrants entitle the holder thereof to purchase one share of
Common Stock at an exercise price of $9.00 per share. The warrants expire on
April 10, 2003. See also Note 1.

14. QUARTERLY INFORMATION (Unaudited)

A summary of operating results for the quarterly periods in the two years
ended March 31, 1998 is set forth below:

Quarter Ended
-------------------------------------------------------------
June 30 September 30 December 31 March 31 Total
----------- ------------ ----------- ----------- -----------

Year ended March 31,
1998
Total revenues........ $11,658,954 $11,845,097 $11,155,646 $ 6,287,439 $40,947,136
Gross profit.......... 9,216,118 9,132,848 8,215,645 343,960 26,908,571
Earnings (loss)....... 1,374,000 1,244,000 506,000 (6,008,450) (2,884,450)
Earnings (loss) per
common share--basic.. $ 0.14 $ 0.13 $ 0.05 $ (0.60) $ (0.29)
Earnings (loss) per
common share--
diluted.............. $ 0.13 $ 0.12 $ 0.05 $ (0.60) $ (0.29)

Year ended March 31,
1997
Total revenues........ $ 9,007,461 $ 9,617,068 $10,193,787 $11,471,783 $40,290,099
Gross profit.......... 7,325,606 7,463,843 7,932,162 8,859,366 31,580,977
Earnings.............. 1,194,186 1,048,828 1,159,000 1,280,917 4,682,931
Earnings per common
share--basic......... $ 0.12 $ 0.11 $ 0.12 $ 0.13 $ 0.49
Earnings per common
share--diluted....... $ 0.11 $ 0.10 $ 0.11 $ 0.12 $ 0.43

Fiscal year 1997 and the first two quarters of fiscal year 1998 earnings per
common share amounts have been restated to comply with Statement of Financial
Accounting Standards No. 128, Earnings per Share.

F-17

CTC COMMUNICATIONS CORP.

CONDENSED BALANCE SHEETS
Unaudited

December 31, March 31,
1998 1998
------------ -----------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 2,597,116 $ 2,167,930
Accounts receivable, net......................... 26,462,861 17,288,183
Prepaid expenses and other current assets........ 8,839,184 3,029,069
------------ -----------
Total Current Assets........................... 37,899,161 22,485,182
Furniture, Fixtures and Equipment.................. 35,638,801 13,376,970
Less accumulated depreciation...................... (10,197,683) (6,837,683)
------------ -----------
Total Equipment................................ 25,441,118 6,539,287
Deferred income taxes.............................. 0 1,834,000
Other assets, principally at December 31, 1998..... 4,188,531 108,885
------------ -----------
Total Assets................................... $ 67,528,810 $30,967,354
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses............ $ 29,088,014 $ 8,958,476
Accrued salaries and related taxes............... 2,342,299 756,159
Current portion of obligations under capital
leases.......................................... 1,312,621 231,796
Current portion of note payable to bank.......... 0 1,196,400
------------ -----------
Total Current Liabilities...................... 32,742,934 11,142,831
Obligations under capital leases, net of current
portion........................................... 4,671,226 1,114,277
Notes payable, net of current portion.............. 35,958,287 7,130,671
Series A redeemable convertible preferred stock.... 12,561,573 0
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock..................................... 102,911 99,806
Additional paid in capital....................... 6,960,212 5,245,704
Deferred Compensation............................ (238,910) (318,410)
Retained-earnings (deficit)...................... (25,063,598) 6,688,300
------------ -----------
(18,239,385) 11,715,400
Amounts due from stockholders...................... (165,825) (135,825)
------------ -----------
Total Stockholders' Equity (Deficit)............. (18,405,210) 11,579,575
------------ -----------
Total Liabilities and Stockholders' Equity
(Deficit)....................................... $ 67,528,810 $30,967,354
============ ===========

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

F-18

CTC COMMUNICATIONS CORP.

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

Nine Months Ended
--------------------------
December 31, December 31,
1998 1997
------------ ------------

Telecommunications revenues......................... $ 46,376,407 $10,078,325
Commission revenues................................. 0 24,581,370
------------ -----------
Total revenues...................................... 46,376,407 34,659,695
Costs and expenses:
Cost of telecommunications revenues............... 40,425,994 8,095,086
Selling, general and administrative expenses...... 36,799,882 21,370,033
------------ -----------
77,225,876 29,465,119
------------ -----------
Income (loss) from operations....................... (30,849,469) 5,194,576
Other:
Interest income................................... 183,237 126,212
Interest expense.................................. (2,608,890) (22,135)
Other............................................. 36,473 14,348
------------ -----------
(2,389,180) 118,425
------------ -----------
Income (loss) before income taxes................... (33,238,649) 5,313,001
Provision (benefit) for income taxes................ (2,327,000) 2,189,000
------------ -----------
Net income (loss)................................... $(30,911,649) $ 3,124,001
============ ===========
Net income (loss) per common share:
Basic............................................. $ (3.15) $ 0.32
============ ===========
Diluted........................................... $ (3.15) $ 0.29
============ ===========
Weighted average number of common shares:
Basic............................................. 10,080,465 9,856,079
============ ===========
Diluted........................................... 10,080,465 10,824,001
============ ===========

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

F-19

CTC COMMUNICATIONS CORP.

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended
--------------------------
December 31, December 31,
1998 1997
------------ ------------

OPERATING ACTIVITIES
Net income (loss)............................... $(30,911,649) $3,124,001
Adjustments to reconcile net income to net cash
(used) by operating activities:
Depreciation and amortization................. 3,699,173 750,000
Stock compensation expense.................... 79,500 0
Interest expense related to warrants.......... 210,926 0
Changes in noncash working capital items:
Accounts receivable........................... (9,174,678) (6,475,864)
Other current assets.......................... (3,976,115) (352,378)
Other assets.................................. (3,198,072) 3,600
Accounts payable.............................. 20,129,538 1,008,833
Accrued liabilities........................... 1,586,140 (527,093)
Accrued taxes................................. 0 (224,518)
Deferred revenue.............................. 0 (6,588)
------------ ----------
Net cash (used) by operating activities......... (21,555,237) (2,700,007)
INVESTING ACTIVITIES
Additions to equipment.......................... (17,436,552) (4,556,428)
------------ ----------
Net cash used in investing activities........... (17,436,552) (4,556,428)
FINANCING ACTIVITIES
Proceeds from notes payable..................... 27,631,216 1,846,073
Proceeds from the issuance of redeemable
preferred stock................................ 11,861,321 0
Repayments under capital leases................. (187,505) 0
Proceeds from the issuance of common stock...... 115,943 106,170
------------ ----------
Net cash provided by financing activities....... 39,420,975 1,952,243
Increase (decrease) in cash..................... 429,186 (5,304,192)
Cash at beginning of year....................... 2,167,930 6,405,670
------------ ----------
Cash and cash equivalents at end of period...... $ 2,597,116 $1,101,478
============ ==========
NON CASH INVESTING ACTIVITIES
Equipment acquired under capital leases......... $ 4,825,279 0
============ ==========

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

F-20

CTC COMMUNICATIONS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The accompanying condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all the
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation have been included. Operating results for the nine months ended
December 31, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 1999. These statements should be
read in conjunction with the financial statements and related notes included in
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1998.

NOTE 2: COMMITMENTS AND CONTINGENCIES

Lawsuit Against Bell Atlantic. In December 1997, the Company terminated its
agency contract and filed suit against Bell Atlantic in Federal District Court
for breach of contract, including the failure of Bell Atlantic to pay
approximately $11.5 million of agency commissions owed to the Company. The
Company also asserted violations by Bell Atlantic of the antitrust laws and
Telecommunications Act. On February 24, 1999, the Company settled the lawsuit.
Under the terms of the settlement, the Company will receive cash and other
consideration. Both parties have agreed to keep the specific terms of the
settlement confidential. Although the Company believes that the settlement will
now permit the Company to actively expand its customer base and increase its
revenues from the sale of communications products and services, there is no
assurance that it will do so. During the quarter ended March 31, 1999, the
Company expects to recognize approximately $5,300,000 in legal fees and other
costs incurred in connection with the final resolution of the matter. The
Company does not expect to incur any additional costs related to this matter
subsequent to March 31, 1999.

The Company is otherwise party to suits arising in the normal course of
business which management believes are not material individually or in the
aggregate.

NOTE 3. PREFERRED STOCK

On April 10, 1998, the Company issued for investment to Spectrum Equity
Investors II, L.P. ("Spectrum") and certain other private investors (together
with Spectrum, the "Investors") an aggregate of 666,666 shares of Series A
Convertible Preferred Stock (the "Preferred Shares") for $12 million, pursuant
to the terms and conditions of a Securities Purchase Agreement among the
Company and the Investors. The Company also issued for investment to the
Investors five-year warrants to purchase an aggregate of 133,333 shares of its
Common Stock at an exercise price of $9.00 per share. Spectrum purchased 98.63%
of the Preferred Shares and warrants in the private placement. On the date of
issuance, the Preferred Shares were convertible into 1,333,333 shares of the
Company's Common Stock at $9.00 per share, which conversion ratio is subject to
certain adjustments. Reference is made to the Company's Report on Form 8-K and
exhibits thereto dated and filed on May 15, 1998 for a complete description of
the transaction.

NOTE 4. CISCO VENDOR FINANCING FACILITY

On October 14, the Company obtained three-year vendor financing facility for
up to $25 million with Cisco Capital Corp. Under the terms of the agreement,
the Company has agreed to a three year, $25 million volume purchase commitment
of Cisco Systems equipment and services and Cisco Capital Corp has agreed to
advance funds as these purchases occur. In addition, a portion of the Cisco
facility can be utilized for working capital costs associated with the
integration and operation of Cisco Systems solutions and related peripherals.

Pursuant to the terms of the Cisco Vendor Financing Agreement dated as of
October 14, 1998, the Company has agreed to give the Lender a senior security
interest in all products provided to the Company by

F-21

CTC COMMUNICATIONS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)

Cisco and other products purchased with the proceeds advanced under the
facility and a subordinate security interest in all other assets of the
Company. Under the terms of the facility, the Company is required to pay
interest on funds advanced under the facility at an annual rate of 12.5%. In
addition, the Company is required to pay a commitment fee of .50% per annum on
any unused amounts under the facility and certain other fees. As of February
16, 1999, the Company had borrowed $11.5 million under the facility. Reference
is made to the Company's Current Report on Form 8-K and the agreement filed as
an exhibit thereto filed on October 14, 1998 for a complete description of the
transaction.

NOTE 5. GOLDMAN SACHS/FLEET FINANCING AND TORONTO DOMINION FINANCING

As of September 1, 1998, the Company as Borrower, entered into a Loan and
Security Agreement with Goldman Sachs Credit Partners L.P. and Fleet National
Bank as Lenders. Under the terms of the Loan and Security Agreement, the
Lenders have provided a three-year senior secured credit facility to the
Company consisting of revolving loans in the aggregate amount of up to $75
million (the "Credit Facility"). Advances under the facility bear interest at
1.75% over the prime rate and are secured by a first priority perfected
security interest on all of the Company's assets, provided, however, that the
Company has the ability to exclude assets acquired through purchase money
financing. In addition, the Company is required to pay a commitment fee of 0.5%
per annum on any unused amounts under the facility as well as a monthly line
fee of $150,000 per month. The Company may borrow $15 million unconditionally
and $60 million based on trailing 120 days accounts receivable collections
(reducing to the trailing 90 days accounts receivable collections by March 31,
2000). The Company paid a one-time up front fee of $2,531,250, representing 3
3/8% of the facility. In the event that the Company wishes to prepay the loan,
the agreement provides for a prepayment penalty of 2% during the first 18
months of the term of the loan. Warrants to purchase an aggregate of 974,412
shares of the Company's common stock at an purchase price of $6.75 per share
were issued to the Lenders in connection with the transaction. The Company has
valued the Warrants at $1.3 million which is being amortized and included in
interest expense over the three-year term of the Loan and Security Agreement.
As of March 19, 1999, the Company had availability under the Credit Facility of
$44.6 million and had borrowed approximately $38 million as of that date.

The Company entered into a Loan Agreement dated as of March 15, 1999 with
Toronto Dominion (Texas), Inc. ("TD") to provide an unsecured standby credit
facility for up to $30 million for capital expenditures and other general
corporate purposes (the "TD Facility"). Under the terms of the TD Facility, $10
million is immediately available and the remaining $20 million would become
available if the Company raises an additional $5 million in proceeds from the
issuance of common or preferred equity (which could be satisfied by calling the
Spectrum Commitment). The Company is required to pay a commitment fee of
$450,000 with additional commitment fees payable if the TD Facility is still
outstanding on the dates six months, nine months and one year after the
closing. In addition, the Company is required to pay a quarterly availability
fee on unfunded amounts as well as a funding fee for any draws. Draws under the
TD Facility will initially bear interest at 7.00% over the three-month US
Dollar deposit LIBOR rate and would increase quarterly thereafter. Warrants to
purchase 69,216 shares of the Company's Common Stock at $11.8125 per share were
issued to TD as part of the transaction and contingent warrants to purchase up
to 573,913 shares of Common Stock at $11.8125 per share may be issued to TD if
advances under the TD Facility are outstanding six months after the closing.
The TD Facility matures 15 months after the closing. The TD Facility matures 15
months after the closing. The Company is required to repay draws with the
proceeds from subsequent issuances of equity or debt securities or from
subsequent bank financings. To date, the Company has not utilized the TD
Facility.

F-22

CTC COMMUNICATIONS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)

NOTE 6. NET INCOME PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.

The following table sets forth the computation of basic and diluted net
income per share:

Nine Months Ended
December 31,
-----------------------
1998 1997
----------- ----------

NUMERATOR:
Net income (loss).................................. (30,911,649) 3,124,001
Accretion to redemption value on redeemable
preferred stock................................... (840,252) 0
----------- ----------
Numerator for basic net income (loss) per share and
diluted net income (loss) per share............... (31,751,901) 3,124,001
=========== ==========
DENOMINATOR:
Denominator for basic net income (loss) per share-
weighted average shares........................... 10,080,465 9,856,079
EFFECT OF DILUTIVE SECURITIES:
Employee stock options............................. 0 967,922
----------- ----------
Denominator for diluted net income (loss) per
share-weighted-average shares..................... 10,080,465 10,824,001
=========== ==========
Basic net income (loss) per share.................. (3.15) 0.32
=========== ==========
Diluted net income (loss) per share................ (3.15) 0.29
=========== ==========

NOTE 7. INCOME TAXES

The provision (benefit) for income taxes is less than the statutory rate
based upon management's assessment of the realizability of net operating
losses. The benefit is recognized ratably during the year based on the
relationship of amounts recoverable and management's estimate of the total loss
for the fiscal year ending March 31, 1999. The effective rate of the benefit
may vary with changes in management's estimates.

F-23

[CTC LOGO APPEARS HERE]

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission registration fee and the National
Association of Securities Dealers, Inc. filing fee.

Item Amount
---- --------

SEC Registration Fee............................................ $ 15,236
NASD Filing Fee................................................. 5,981
Nasdaq National Market Listing Fee.............................. *
Transfer Agent and Registrar Fees............................... *
Accounting Fees and Expenses.................................... *
Legal Fees and Expenses......................................... *
Printing Expenses............................................... *
Miscellaneous................................................... *
--------
Total......................................................... $600,000
========

The Registrant will bear all expenses shown above.
- --------
* To be filed by amendment.

Item 14. Indemnification of Directors and Officers

Section 67, Chapter 156B of the General Laws of the Commonwealth of
Massachusetts, as amended (the "Massachusetts Business Corporation Law"), and
Article IV of the Registrant's Bylaws, to which reference is hereby made,
contain provisions authorizing indemnification by the Registrant of directors
and officers, against certain liabilities and expenses, which they may incur as
directors and officers of the Registrant or of certain other entities. Section
67, Chapter 156B of the Massachusetts Business Corporation Law provides that
the indemnification of directors, officers, employees and agents of a
corporation and persons who serve at the corporation's request as directors,
officers, employees and other agents of another organization may be provided to
whatever extent as shall be specified by (i) the articles of organization of
the corporation or (ii) a bylaw adopted by the stockholder or (iii) a vote
adopted by the holders of a majority of the shares of stock entitled to vote on
the election of directors.

Article IV of the Registrant's Bylaws provide that the Registrant shall, to
the fullest extent legally permissible, indemnify each of its directors and
officers (including persons who were acting at its request as directors,
trustees or officer of another organization), against all expenses and
liabilities (including attorneys' fees, judgments, court costs, and the costs
of reasonable settlement) reasonably incurred by such person in connection
therewith; provided, however, no such indemnification shall be made in relation
to matters as to which such director or officer shall be finally adjusted in
any such action, suit or proceeding not to have acted in good faith in the
reasonable belief that this action was in the best interests of the Registrant.
In the event that a settlement or compromise of such action, suit or proceeding
is effected, indemnification may be had but only if the Board of Directors
shall have been furnished with an opinion of counsel for the Registrant to the
effect that such settlement or compromise is in the best interest of the
Registrant and that such director or officer does not appear not to have acted
in good faith in the reasonable belief that his action was in the best
interests of the Registrant, and if the Board of Directors shall have adopted a
resolution approving such settlement or compromise.

Section 13, Chapter 156B of the Massachusetts Business Corporation Law
provides that the articles of organization of a corporation may contain a
provision eliminating or limiting the personal liability of a director

II-1

to the corporation or its stockholders for monetary damages for breach of a
fiduciary duty as a director notwithstanding any provision of law imposing such
liability; provided, however, that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Sections 61 or 62, Chapter 156B of the Massachusetts Business
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Article Six of the Restated Articles of Organization
of the Registrant contains a provision consistent with Section 13, Chapter 156B
of the Massachusetts Business Corporation Law and provides that a director of
the Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.

Item 15. Recent Sales of Unregistered Securities

The following information is furnished with regard to all Securities sold by
the Registrant within the past three years which were not registered under the
Securities Act.

(a) From April 1, 1996 to April 30, 1999, the Registrant issued a total of
776,607 shares of common stock for an aggregate consideration of $619,746
pursuant to the exercise of employee incentive stock options by employees of
the registrant.

(b) On April 10, 1998, the Registrant issued to Spectrum Equity Investors
II, L.P. and certain other private investors for $12 million, 666,666 shares of
Series A preferred stock and five-year warrants to purchase an aggregate of
133,333 shares of its Common Stock at an exercise price of $9.00 per share.

(c) On July 16, 1998, the Registrant issued to Spectrum five-year warrants
to purchase up to 55,555 shares of common stock at a purchase price of $9.00
per share in consideration for the commitment by Spectrum that, at any time
prior to June 30, 1999, Spectrum will, upon the Registrant's request, purchase
an additional $5 million of preferred stock containing the same terms and
conditions as the Series A preferred stock.

(d) On September 1, 1998, the Registrant issued to Goldman, Sachs Credit
Partners, L.P. and Fleet National Bank, in consideration of the lenders
providing a three-year senior secured credit facility to the Registrant, five-
year warrants to purchase an aggregate of 974,412 shares of Common Stock at a
purchase price of $6.75 per share.

(e) On January 15, 1999, the Registrant issued to Relational Funding
Corporation, in consideration for the provision of a master equipment lease
agreement, warrants to purchase 55,555 shares of common stock at a purchase
price of $9.00 per share.

(f) On March 24, 1999 the Registrant issued to Toronto Dominion (Texas),
Inc. in consideration for the provision of a standby credit facility in the
aggregate amount of up to $30 million, warrants to purchase an aggregate of
69,216 shares of common stock at a purchase price of $11.1825 per share.

All of the above shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended, as transactions by an issuer not involving a public offering.

II-2

Item 16. Exhibits and Financial Statement Schedules

The following is a list of exhibits filed as a part of this registration
statement.

(a) Exhibits

Exhibit No. Exhibit
----------- -------

1.1 Form of Underwriting Agreement(11)
2.1 Agreement and Plan of Reorganization dated as of November 16, 1998
among the Registrant, CTC Communications Group, Inc. and CTC-
Newco, Inc.(11)
3.1 Restated Articles of Organization, as amended(6)
3.2 Amended and Restated By-Laws(6)
4.1 Form of Common Stock Certificate(5)
5.1 Opinion of Ropes & Gray(11)
9.1 Voting Agreement dated April 10, 1998 among Robert Fabbricatore
and certain of his affiliates and Spectrum(7)
10.1 1996 Stock Option Plan, as amended (3)
10.2 1993 Stock Option Plan(5)
10.3 Employee Stock Purchase Plan(4)
10.4 Lease for premises at 360 Second Ave., Waltham MA(5)
10.5 Sublease for premises at 360 Second Ave., Waltham MA(5)
10.6 Lease for premises at 110 Hartwell Ave., Lexington MA(5)
10.7 Lease for premises at 120 Broadway, New York, NY(5)
10.8 Agreement dated February 1, 1996 between NYNEX and the Company(5)
10.9 Agreement dated May 1, 1997 between Pacific Bell and the Company
(5)
10.10 Agreement dated January 1, 1996 between SNET America, Inc. and the
Company(5)
10.11 Agreement dated June 23, 1995 between IXC Long Distance Inc. and
the Company, as amended(5)
10.12 Agreement dated August 19, 1996 between Innovative Telecom Corp.
and the Company(5)
10.13 Agreement dated October 20, 1994 between Frontier Communications
International, Inc. and the Company, as amended(5)
10.14 Agreement dated January 21, 1997 between Intermedia Communications
Inc. and the Company(5)
10.15 Employment Agreement between the Company and Steven Jones dated
February 27, 1998(7)
10.16 Securities Purchase Agreement dated April 10, 1998 among the
Company and Spectrum and its affiliates named therein(6)
10.17 Registration Rights Agreement dated April 10, 1998 among the
Company and Spectrum and its affiliates named therein(6)
10.18 Form of Warrant dated April 10, 1998(6)
10.19 Loan and Security Agreement dated as of September 1, 1998 by and
between the Company, Goldman Sachs Credit Partners L.P. and Fleet
National Bank(8)
10.20 Agreement with Cisco Systems Capital Corp. dated as of October 14,
1998(9)
10.21 Warrant dated July 15, 1998 issued to Spectrum(10)
10.22 Lease for premises at 220 Bear Hill Road, Waltham MA(10)
10.23 Warrant dated September 1, 1998 issued to Goldman Sachs & Co.(10)
10.24 Warrant dated September 1, 1998 issued to Fleet National Bank(10)
10.25 1998 Incentive Plan(3)
10.26 Loan Agreement dated as of March 15, 1999 by and between the
Company, TD Dominion (Texas), Inc., and TD Securities (USA),
Inc.(12)
10.27 Warrant dated March 24, 1999 issued to Toronto Dominion (Texas),
Inc.(12)

II-3

Exhibit No. Exhibit
----------- -------

23.1 Consent of Ropes & Gray (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP(12)
24.1 Power of Attorney (contained on page II-8)

- --------
(1) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
(2) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Registration Statement on Form S-18 (Reg. No. 2-96419-B)
(3) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Registration Statement on Form S-8 (File No. 333-68767).
(4) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Registration Statement on Form S-8 (File No. 33-44337).
(5) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Annual Report on Form 10-K for the Fiscal Year Ended March
31, 1997.
(6) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Current Report on Form 8-K dated May 15, 1998.
(7) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Annual Report on Form 10-K for the Fiscal Year Ended March
31, 1998.
(8) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Current Report on Form 8-K dated October 2, 1998.
(9) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Current Report on Form 8-K dated November 6, 1998.
(10) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
(11) To be filed by amendment.
(12) Filed herewith.

(b) Financial Statement Schedules

II-4

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

CTC COMMUNICATIONS CORP.

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

COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------
Additions
----------
(2)
(1) Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions End of
Description of Period Expenses Describe Describe Period
- ----------- ---------- ---------- ---------- ---------- ----------

Year ended March 31,
1998:
Allowance for doubtful
accounts............. $377,000 $1,421,109 $1,306,109(a) $492,000
Year ended March 31,
1997:
Allowance for doubtful
accounts............. $190,215 $ 316,669 $ 129,884(a) $377,000
Year ended March 31,
1996:
Allowance for doubtful
accounts............. $128,452 $ 61,763 $ 0 $190,215

- --------
(a) Bad debts written off net of collections.

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

II-5

Item 17. Undertakings

(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14--Indemnification
of Directors and Officers" above, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

(b) The undersigned Registrant hereby undertakes that:

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

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

II-6

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of
Massachusetts, on this fourth day of May, 1999.

CTC Communications Corp.

By: /s/ Robert J. Fabbricatore
---------------------------------
Name: Robert J. Fabbricatore
Title: Chairman of the Board and
Chief Executive Officer

II-7

POWER OF ATTORNEY

Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Robert J. Fabbricatore and John D. Pittenger,
jointly and severally, his attorneys-in-fact, each with full power of
substitution, and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement on Form S-1, any
subsequent registration statement for the same offering which may be filed
under Rule 462(b) under the Securities Act of 1933 (a "462(b) Registration
Statement") and any and all amendments (including post-effective amendments) to
any such 462(b) Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof. This Power of Attorney may be signed in several counterparts.

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

Signature Title Date
--------- ----- ----

/s/ Robert J. Fabbricatore Chairman of the Board and May 4, 1999
______________________________________ Chief Executive Officer,
Robert J. Fabbricatore Director

/s/ John D. Pittenger Chief Financial Officer May 4, 1999
______________________________________
John D. Pittenger

/s/ Richard J. Santagati Director May 4, 1999
______________________________________
Richard J. Santagati

/s/ J. Richard Murphy Director May 4, 1999
______________________________________
J. Richard Murphy

/s/ Henry Hermann Director May 4, 1999
______________________________________
Henry Hermann

/s/ Ralph C. Sillari Director May 4, 1999
______________________________________
Ralph C. Sillari

/s/ Kevin J. Maroni Director May 4, 1999
______________________________________
Kevin J. Maroni

/s/ Robert A. Nicholson Director May 4, 1999
______________________________________
Robert A. Nicholson

/s/ Carl Redfield Director May 4, 1999
______________________________________
Carl Redfield

/s/ Katherine D. Courage Director May 4, 1999
______________________________________
Katherine D. Courage

II-8

Exhibit No. Exhibit
----------- -------

1.1 Form of Underwriting Agreement(11)
2.1 Agreement and Plan of Reorganization dated as of November 16, 1998
among the Registrant, CTC Communications Group, Inc. and CTC-
Newco, Inc.(11)
3.1 Restated Articles of Organization, as amended(6)
3.2 Amended and Restated By-Laws(6)
4.1 Form of Common Stock Certificate(5)
5.1 Opinion of Ropes & Gray(11)
9.1 Voting Agreement dated April 10, 1998 among Robert Fabbricatore
and certain of his affiliates and Spectrum(7)
10.1 1996 Stock Option Plan, as amended (3)
10.2 1993 Stock Option Plan(5)
10.3 Employee Stock Purchase Plan(4)
10.4 Lease for premises at 360 Second Ave., Waltham MA(5)
10.5 Sublease for premises at 360 Second Ave., Waltham MA(5)
10.6 Lease for premises at 110 Hartwell Ave., Lexington MA(5)
10.7 Lease for premises at 120 Broadway, New York, NY(5)
10.8 Agreement dated February 1, 1996 between NYNEX and the Company(5)
10.9 Agreement dated May 1, 1997 between Pacific Bell and the Company
(5)
10.10 Agreement dated January 1, 1996 between SNET America, Inc. and the
Company(5)
10.11 Agreement dated June 23, 1995 between IXC Long Distance Inc. and
the Company, as amended(5)
10.12 Agreement dated August 19, 1996 between Innovative Telecom Corp.
and the Company(5)
10.13 Agreement dated October 20, 1994 between Frontier Communications
International, Inc. and the Company, as amended(5)
10.14 Agreement dated January 21, 1997 between Intermedia Communications
Inc. and the Company(5)
10.15 Employment Agreement between the Company and Steven Jones dated
February 27, 1998(7)
10.16 Securities Purchase Agreement dated April 10, 1998 among the
Company and the Purchasers named therein(6)
10.17 Registration Rights Agreement dated April 10, 1998 among the
Company and the Holders named therein(6)
10.18 Form of Warrant dated April 10, 1998(6)
10.19 Loan and Security Agreement dated as of September 1, 1998 by and
between the Company, Goldman Sachs Credit Partners L.P. and Fleet
National Bank(8)
10.20 Agreement with Cisco Systems Capital Corp. dated as of October 14,
1998(9)
10.21 Warrant dated July 15, 1998 issued to Spectrum(10)
10.22 Lease for premises at 220 Bear Hill Road, Waltham MA(10)
10.23 Warrant dated September 1, 1998 issued to Goldman Sachs & Co.(10)
10.24 Warrant dated September 1, 1998 issued to Fleet National Bank(10)
10.25 1998 Incentive Plan(3)
10.26 Loan Agreement dated as of March 15, 1999 by and between the
Company, TD Dominion (Texas), Inc., and TD Securities (USA),
Inc.(12)
10.27 Warrant dated March 24, 1999 issued to Toronto Dominion (Texas),
Inc.(12)
23.1 Consent of Ropes & Gray (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP(12)
24.1 Power of Attorney (contained on page II-8)

(3) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Registration Statement on Form S-8 (File No. 333-68767).
(4) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Registration Statement on Form S-8 (File No. 33-44337).
(5) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Annual Report on Form 10-K for the Fiscal Year Ended March
31, 1997.
(6) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Current Report on Form 8-K dated May 15, 1998.
(7) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Annual Report on Form 10-K for the Fiscal Year Ended March
31, 1998.
(8) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Current Report on Form 8-K dated October 2, 1998.
(9) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Current Report on Form 8-K dated November 6, 1998.
(10) Incorporated by reference to an Exhibit filed as part of CTC
Communications' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
(11) To be filed by amendment.
(12) Filed herewith.

(b) Financial Statement Schedules