Liquidity and Capital Resources

        Since inception, we have primarily funded our operations and capital expenditures through private equity financing, capital lease obligations and equipment financing arrangements. As of December 31, 2002, we have raised $177 million of private equity funding, obtained a credit facility which allows borrowings of up to $409.0 million, of which $250.3 million was outstanding at December 31, 2002, have capital lease obligations outstanding at December 31, 2002 of approximately $58.8 million, and have approximately $117.0 million outstanding on the Allied Riser convertible subordinated notes. The credit facility is available as long as we satisfy certain financial and operational covenants. At December 31, 2002, our current cash and cash equivalents position and short-term investments totaled $42.8 million.

        Going Concern, Covenant Violation and Managements Plans.     Our credit facility (the Facility) with Cisco Systems Capital Corporation requires compliance with certain financial and operational covenants. Our net revenues as reported herein are insufficient to meet the covenant related to minimum net revenues for the fourth quarter of 2002. As a result, we are in default under the Facility and payment of our outstanding borrowing of approximately $250.3 million at December 31, 2002, can be accelerated by Cisco Capital and made immediately due and payable. Accordingly, this obligation is recorded as a current liability on the accompanying consolidated balance sheet. Our fiscal 2003 business plan contemplated receiving an additional $25 million of working capital under the Facility that was to become available in $5.0 million monthly increments from May 2003 until September 2003. As a result of the default, we are no longer entitled to these funds. We do not anticipate that Cisco Capital will loan additional working capital to us. Our cash and short-term investments were approximately $42.8 million at December 31, 2002, which is substantially less than the amount outstanding under the Facility.

        We are currently in negotiations with Cisco Capital. Some settlement options that we are discussing with Cisco Capital will require us to raise additional capital, which may not be available on terms acceptable to us. We are in discussions with our current shareholders and other investors relating to a potential investment. The outcome of these discussions is dependent upon our ability to reach a settlement with Cisco Capital. There can be no assurance that our negotiations with Cisco Capital will result in a settlement on terms acceptable to us and our current and potential future investors or that we would be able to secure additional capital from our existing or new investors. Should these negotiations fail, we will be required to pursue alternative strategies likely to include, reductions in operating costs, a reduction in our expansion plans, and potentially filing for bankruptcy protection.

        We have entered into account control agreements with Cisco Capital on our cash and investment accounts. These agreements provide Cisco Capital with a security interest in these funds and the right to assume exclusive control over all of our cash and short-term investments. Cisco Capital has not acted

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on these agreements. However, should Cisco Capital enforce its rights under these arrangements, our ability to fund operations will become immediately dependent upon Cisco Capital's willingness to release these funds.

        Settlement with Allied Riser Note Holders.     In January 2003, we entered into settlement and exchange agreements with the holders of approximately $107 million of par value of Allied Riser's $117 million convertible subordinated notes. Pursuant to the exchange agreement, the note holders agreed to surrender their notes including accrued and unpaid interest in exchange for a cash payment of approximately $5.0 million and the issuance of 3,326,293 shares of Series D preferred stock and 3,326,293 shares of Series E preferred stock. Pursuant to the settlement agreement, the note holders agreed to dismiss with prejudice their litigation against Allied Riser, in exchange for a cash payment of approximately $4.9 million and a general release from us, Allied Riser, and certain former Allied Riser directors. These transactions closed in March 2003 when the approximately $9.9 million was paid and the preferred shares were issued. These settlement and exchange agreements eliminated approximately $107 million principal payment obligation due in June 2007, interest accrued at a 7.5 percent annual rate since the last interest payment made on December 15, 2002, the future semi-annual interest payment obligations on these notes, and the note holder litigation in exchange for cash payments of approximately $9.9 million and the issuance of preferred stock convertible into approximately 4.8% of the Company's fully diluted common stock. After the exchange, there remains approximately $10 million of Allied Riser notes outstanding.

        Net Cash Used in Operating Activities.     Net cash used in operating activities was $41.6 million for the year ended December 31, 2002 as compared to a use of $46.8 million for the year ended December 31, 2001. The net loss increased to $91.8 million for year ended December 31, 2002 from a net loss of $66.9 million for the year ended December 31, 2001. These net losses are offset by depreciation and amortization of $45.9 million for the year ended December 31, 2002, and $16.9 million for the year ended December 31, 2001. Changes in assets and liabilities were a positive $18.5 million for the year ended December 31, 2002 and a positive $3.3 million for the year ended December 31, 2001. Net cash used in operating activities includes an extraordinary gain of $8.4 million and a gain on the settlement of vendor litigation of $5.7 million for the year ended December 31, 2002.

        Net Cash Used in Investing Activities.     Net cash from investing activities was a negative $19.8 million for the year ended December 31, 2002 as compared to a negative $131.7 million for the year ended December 31, 2001. Purchases of property and equipment were $75.2 million for the year ended December 31, 2002 and $118.0 million for the year ended December 31, 2001. Investing activities for the year ended December 31, 2002 included purchases of short-term investments of $1.8 million, the payment of $9.6 million related to the April 2002 acquisition of certain assets of PSINet and other intangible assets, $70.4 million of cash and cash equivalents acquired in the February 4, 2002 Allied Riser merger and approximately $3.6 million paid in April 2002 to purchase the minority interests of Shared Technologies of Canada. Investing activities for the year ended December 31, 2001 included a payment of $11.7 million related to the December 2001 acquisition of certain assets of NetRail Inc and purchases of short-term investments of $1.7 million.

        Net Cash Provided by Financing Activities.     Financing activities provided net cash of $51.7 million for the year ended December 31, 2002 compared to $161.9 million for the year ended December 31, 2001. We received proceeds from borrowing under our credit facility of $54.4 million for the year ended December 31, 2002 and $107.6 million for the year ended December 31, 2001. The borrowings for the years ended December 31, 2002 and December 31, 2001 included $10.0 million and $29.0 million, respectively, of working capital loans. For the years ended December 31, 2002 and December 31, 2001, we also borrowed $14.8 million and $6.4 million, respectively, to fund interest and fees related to our credit facility. The liquidation preference at December 31, 2002, of all classes of our preferred stock, was $230.3 million. Principal repayments of capital lease obligations were $2.7 million

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and $12.8 million for the years ended December 31, 2002 and December 31, 2001, respectively. Financing activities for the year ended December 31, 2001 included $61.3 million from the issuance of preferred stock and $5.6 million from deferred vendor discount.

        Credit Facility.     In October 2001, we entered into an agreement with Cisco Capital under which Cisco Capital agreed to enter into the $409.0 million Facility with us. This credit facility replaced our previous $310.0 million credit facility with Cisco Capital. The Facility provided for the financing purchases of up to $270 million of Cisco network equipment, software and related services, the funding of up to $64 million of working capital, and funding up to $75 million of interest and fees related to the Facility. On November 6, 2002, the Facility was amended to modify certain provisions and covenants that are described below.

        As discussed above, we breached the Facility's covenant related to minimum net revenues for the fourth quarter of 2002. As a result, we are in default under the Facility and the outstanding balance of approximately $262.7 million at March 28, 2003, can be accelerated by Cisco Capital and made immediately due and payable.

        The following describes the terms of the Facility without respect to the default:

        Borrowings may be prepaid at any time without penalty and are subject to mandatory prepayment based upon excess cash flow or upon the receipt of a specified amount from the sale of the our securities, each as defined. Principal payments begin in March 2005. Borrowings accrue interest at the three-month LIBOR rate, established at the beginning of each calendar quarter, plus a stated margin. The margin is dependent upon our leverage ratio, as defined, and may be reduced. Interest payments are deferred and begin in March 2006. The weighted-average interest rates on all borrowings for the years ended December 31, 2001 and December 31, 2002, were approximately 8.5 percent and 6.8 percent respectively. Borrowings are secured by a pledge of all of the assets and common stock of Cogent Communications, Inc. ("Cogent"). The Facility includes restrictions on Cogent's ability to transfer assets to its parent, Cogent Communications Group, Inc., except for certain operating liabilities. Cogent Communications Group, Inc. has guaranteed Cogent's obligations under the Facility.

        As of December 31, 2002, the availability under the Facility included $79 million for additional equipment loans, $50.5 million to fund additional interest and fees related to the Facility and an additional $25 million of working capital to become available in $5.0 million monthly increments from May 2003 until September 2003. The aggregate balance of working capital loans is limited to 35 percent of outstanding equipment loans. Borrowings under the Facility for the purchase of products and working capital are available until December 31, 2004. Borrowings under the Facility for the funding of interest and fees are available until December 31, 2005. The Facility matures on December 31, 2008. At December 31, 2002, there were $190.1 million of equipment loans, $39.0 million of working capital loans and $21.2 million of interest and fee loans outstanding. Cogent borrowed an additional $7.8 million of equipment loans in 2003.

        For loans outstanding prior to entering into the October 2001 facility, the applicable interest rate is 90 day LIBOR, or the London Interbank Offer Rate, plus 4.5% per annum. For loans issued after entering into the October 2001 facility, the applicable interest rate is 90 day LIBOR plus a margin ranging from 6.5% currently, down to 2.0%, depending upon our EBITDA—or earnings before interest, taxes, depreciation and amortization—and leverage ratio—or our ratio of consolidated funded debt to EBITDA.

        In connection with the Facility, we granted to Cisco Capital rights that, together with the warrants issued to Cisco Capital under the previous credit agreement, will permit Cisco Capital to acquire up to 5% of the fully diluted common stock of Cogent. These warrants for 710,216 common shares are exercisable for eight years from the grant date at exercise prices ranging from $12.47 to $30.44 per share, with the weighted-average exercise price of $18.10.

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        In connection with the merger with Allied Riser, the acquisition of certain assets of PSINet, and in November 2002, certain of the credit facility's covenants were renegotiated. The current covenants include the following:

•

Beginning on December 31, 2003, our ratio of consolidated funded debt to EBITDA must not exceed a maximum threshold. This maximum ratio begins at 11.6:1 on December 31, 2003 and declines by March 31, 2008 to 0.6:1.



•

We must meet minimum revenue thresholds. From March 31, 2002 to August 31, 2002, we were required to meet monthly consolidated revenue thresholds beginning at $1.2 million, and increasing to $5.2 million. There were additional monthly revenue thresholds excluding revenue from PSINet related assets that began at $1.5 million for April 30, 2002 and increased to $3.1 million for August 31, 2002. For the quarterly period ended December 31, 2002, we were required to meet a quarterly consolidated threshold of revenue of $15.5 million. Beginning with the quarterly period ending March 31, 2003, we must meet quarterly consolidated thresholds of annualized revenue. These targets begin at $109.3 million and gradually increase to $654.9 million by March 31, 2008, and $654.9 million thereafter.



•

Beginning March 31, 2002, we were required to meet monthly minimum EBITDA thresholds and in the quarter ended December 31, 2002 quarterly annualized minimum EBITDA thresholds. These thresholds began at $(4.1) million as of March 31, 2002, and peak at $251.7 million as of June 30, 2005, before decreasing to $176.0 million as of March 31, 2008 and thereafter.



•

Beginning September 30, 2003, our ratio of EBITDA to interest expense, measured as described in the agreement, must meet a minimum threshold for each quarter. This minimum ratio begins at 0.3:1 on September 30, 2003 and increases to 4.2:1 by December 31, 2004, before decreasing to 1.2:1 by June 30, 2006. After June 30, 2006, this threshold varies between 1.2:1 and 1.0:1.



•

Beginning September 30, 2002, our ratio of consolidated funded debt to capitalization was required to not exceed a maximum percentage, which started at 71% as of September 30, 2002, and which will decrease to 50% as of September 30, 2007 and thereafter.



•

We must meet minimum thresholds for customers, as defined in the agreement. This threshold was 392 as of March 31, 2002, increasing to 25,168 by March 31, 2008 and thereafter.



•

We must maintain a minimum amount of cash and short-term investments, which started at $68.2 million as of March 31, 2002. This minimum threshold varies each quarter until June 30, 2003, when it begins to increase from $17.9 million to $244.7 million by December 31, 2007 and $280.6 million thereafter.



•

We must meet minimum requirement for nodes connected to our network. This threshold was 207 as of March 31, 2002, and will increase to 2,356 by March 31, 2008, and thereafter.



•

We may not make capital expenditures on an annualized basis in excess of a maximum amount that varies for each year. This maximum amount was $82.0 million for the year ending December 31, 2002, and will increase to $115.2 million by the year ending December 31, 2005, before decreasing to $77.6 million for the year ended December 31, 2007 and thereafter.

        Product and Service Agreement with Cisco Systems.     We have entered into an agreement with Cisco Systems, Inc. ("Cisco") for the purchase of a total of $270.0 million of networking equipment for our network. Under this Cisco supply agreement, we are obligated to purchase all of our networking equipment from Cisco until September 2003 and specified amounts through December 2004 unless Cisco cannot offer a competitive product at a reasonable price and on reasonable terms. If another supplier offers such products with material functionality or features that are not available from Cisco at a comparable price, we may purchase those products from the other supplier, and such purchases will

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not be included in determining our compliance with Cisco minimum purchase obligations. The majority of our network equipment has been obtained from Cisco.

        The Cisco supply agreement provides for certain discounts against the list prices for Cisco equipment. The agreement also requires us to meet certain minimum purchase requirements each year during the four-year initial term of the agreement, provided that Cisco is not in default under the Facility. We have satisfied the minimum requirement through December 31, 2002. For 2003 and 2004, we must meet minimum purchase requirements of $42.4 million and $45.5 million, respectively. In addition, we purchase from Cisco technical support and assistance with respect to the Cisco hardware and software purchased under the supply agreement. As of December 31, 2002, we had purchased approximately $190.1 million towards this commitment.

        Our contractual cash obligations are as follows:

(a)

reflects the default on the Facility requiring the obligation to be classified as current, and the repurchase of approximately $107 million of the $117 million par value of the Allied riser subordinated convertible notes.

        Future Capital Requirements.     Our future capital requirements will depend on a number of factors, including our success in increasing the number of customers using our services and the number of buildings we serve, regulatory changes, competition, technological developments, potential merger and acquisition activity and the economy's ability to recover from the recent downturn. In order to be in a position to fund our operations through 2003, we will need to come to a satisfactory settlement with Cisco Systems Capital Corporation with respect to our default under the credit agreement. We anticipate that in connection with any such settlement, we will need to raise additional capital. We are currently in negotiations with Cisco Capital regarding such a settlement and with certain of our preferred stockholders regarding raising additional capital. Additionally, even if we settle with Cisco Capital, until we can generate sufficient levels of cash from our operations, we will continue to rely on equity financing to satisfy our cash needs. We cannot assure you that this financing will be available on terms favorable to us or our stockholders, or at all. Insufficient funds may require us to delay or scale back the number of buildings that we serve or require us to restructure our business. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result.

        As described elsewhere in this report, we have violated the debt covenant related to minimum net revenues for the fourth quarter of 2002. Accordingly, we are in default under the Facility and the outstanding balance of approximately $262.7 million at March 28, 2003, may be accelerated by Cisco Capital and made immediately due and payable. Unless Cisco Capital agrees to waive the default, we are not entitled to additional borrowings.

        We may elect to purchase or otherwise retire the remaining $10.2 million par value of Allied Riser notes with cash, stock or assets from time to time in open market or privately negotiated transactions, either directly or through intermediaries where we believe that market conditions are favorable to do

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so. Such purchases may have a material effect on our liquidity, financial condition and results of operations.

        We are subject to claims and lawsuits arising in the ordinary course of business. Management believes that the outcome of any such proceedings to which we are a party will not have a material adverse effect on us.

Recent Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. The statement provides accounting and reporting standards for recognizing obligations related to asset retirement costs associated with the retirement of tangible long-lived assets. Under this statement, legal obligations associated with the retirement of long-lived assets are to be recognized at their fair value in the period in which they are incurred if a reasonable estimate of fair value can be made. The fair value of the asset retirement costs is capitalized as part of the carrying amount of the long-lived asset and expensed using a systematic and rational method over the assets' useful life. Any subsequent changes to the fair value of the liability will be expensed. The Company is in the process of evaluating the impact of adopting this standard.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes FASB No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," but retains that statement's fundamental provisions for recognition and measurement of impairment of long-lived assets to be held and used and measurement of long-lived assets to be disposed of by sale. SFAS No. 144 also supersedes the accounting/reporting provisions of APB Opinion No. 30 for segments of a business to be disposed of, but retains APB 30's requirement to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. The adoption of this statement on January 1, 2002 did not have a material impact on our operations or financial position.

        In May 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections." The statement provides reporting standards for debt extinguishments and provides accounting standards for certain lease modifications that have economic effects similar to sale-leaseback transactions. The statement is effective for certain lease transactions occurring after May 15, 2002 and all other provisions of the statement shall be effective for financial statements issued on or after May 15, 2002. Adoption of this standard did not have any impact on our financial position or the presentation of any transactions.

        On July 29, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 replaces Issue 94-3. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," or SFAS No. 148. SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the

24

disclosure provisions of SFAS No. 123 and APB No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for that compensation using the fair value method of SFAS No. 123 or the intrinsic value method of APB No. 28. The provisions of SFAS No. 148 are effective for fiscal years beginning after December 15, 2002 with respect to the amendments of SFAS No. 123 and effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002 with respect to the amendments of APB No. 28. We have adopted SFAS No. 128 by including the required additional disclosures.

Critical Accounting Policies and Significant Estimates

        The preparation of consolidated financial statements requires management to make judgments based upon estimates and assumptions that are inherently uncertain. Such judgments affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management continuously evaluates its estimates and assumptions, including those related to allowances for doubtful accounts, revenue allowances, long-lived assets, contingencies and litigation, and the carrying values of assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

        The following is a summary of our most critical accounting policies used in the preparation of our consolidated financial statements.

•

We recognize service revenue when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable and collectibility is probable. Service discounts and incentives related to telecommunications services are recorded as a reduction of revenue when granted. Fees billed in connection with customer installations and other upfront charges are deferred and recognized ratably over the estimated customer life. Direct costs incurred for provisioning and installing a customer and sales and commission costs associated with acquiring the new customer are expensed as incurred. When we feel that collection is not probable, we recognize an allowance against and equal to the revenue amount. We reverse this allowance and record revenue once these amounts are paid in cash.



•

We establish a valuation allowance for collection of doubtful accounts and other sales credit adjustments. Valuation allowances for sales credits are established through a charge to revenue, while valuation allowances for doubtful accounts are established through a charge to selling, general and administrative expenses. We assess the adequacy of these reserves monthly by evaluating general factors, such as the length of time individual receivables are past due, historical collection experience, the economic and competitive environment, and changes in the credit worthiness of our customers. As considered necessary, we also assess the ability of specific customers to meet their financial obligations to us and establish specific valuation allowances based on the amount we expect to collect from these customers. We believe that our established valuation allowances were adequate as of December 31, 2002 and 2001. If circumstances relating to specific customers change or economic conditions worsen such that our past collection experience and assessment of the economic environment are no longer valid, our estimate of the recoverability of our trade receivables could be changed. If this occurs, we adjust our valuation allowance in the period the new information is known.

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•

We record assets and liabilities under capital leases at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease.



•

We capitalize the direct costs incurred prior to an asset being ready for service as construction-in-progress. Construction in progress includes costs incurred under the construction contract, interest, and the salaries and benefits of employees directly involved with construction activities.



•

We capitalize interest during the construction period based upon rates applicable to borrowings outstanding during the period.



•

We record deferred compensation for options issued with exercise prices less than the estimated fair market value of our common stock at grant date. Prior to becoming a public company, we estimated the fair market value of our common stock based upon our most recent equity transaction.



•

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax valuation allowance would increase income in the period such determination is made.



•

We review our long-lived assets, including property and equipment, and intangible assets with definite useful lives to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount should be addressed pursuant to SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("SFAS No. 121"). In accordance with implementation requirements, we implemented the provisions of SFAS No. 144 in 2002. Pursuant to SFAS No. 144, impairment is determined by comparing the carrying value of these long-lived assets to our best estimate of future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. We believe that no impairment existed under SFAS No. 144 as of December 31, 2002 and 2001. In the event that there are changes in the planned use of our long-lived assets or our expected future undiscounted cash flows are reduced significantly, our assessment of our ability to recover the carrying value of these assets under SFAS No. 144 could change.

Because managements best estimate of undiscounted cash flows generated from these assets exceeds their carrying value for each of the periods presented, no impairment pursuant to SFAS No. 144 exists. However, because of the significant difficulties confronting the telecommunications industry, management believes that currently the fair value of our long-lived assets including our network assets and IRU's are significantly below the amounts the Company originally paid for them.

•

We account for our business combinations pursuant to SFAS No. 141, "Business Combinations" ("SFAS No. 141"). Under SFAS No. 141 we allocate the cost of an acquired entity to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. Intangible assets are recognized when they arise from contractual or other legal rights or if they are separable as defined by SFAS No. 141. We determine estimated fair values using quoted market prices, when available, or the using present values determined at appropriate current interest rates. Consideration not in the form of cash is measured based upon the fair value of the consideration given.



•

We account for our intangible assets pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). Under SFAS No. 142 we determine the useful lives of our intangible

26

assets based upon the expected use of the intangible asset, contractual provisions, obsolescence and other factors. We amortized our intangible assets on a straight-line basis. We presently have no intangible assets that are not subject to amortization.

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RISK FACTORS

         Investing in our common stock involves risk. You should carefully consider the risks and uncertainties described below in conjunction with the other information included or incorporated by reference in this prospectus before making an investment decision.

We are in default under our credit facility with Cisco Systems Capital Corporation.

        Our credit facility with Cisco Systems Capital Corporation requires compliance with certain financial and operational covenants. Our net revenues as reported herein are insufficient to meet the covenant related to minimum net revenues for the fourth quarter of 2002. Accordingly, we are in default under the credit facility and the outstanding balance of approximately $262.7 million at March 28, 2003, can be accelerated by Cisco Capital and made immediately due and payable. Our cash, cash equivalents and short-term instruments were approximately $42.8 million at December 31, 2002, which is substantially less than the amount due under the credit facility. Should Cisco Capital accelerate our debt, and seek to exercise its rights as a secured creditor, we may be forced to seek bankruptcy protection.

        Additionally, our business plan for the 2003 fiscal year contemplated receiving an additional $25 million of working capital under the credit facility that was to become available in $5.0 million monthly increments from May 2003 until September 2003. As a result of the default, we are no longer entitled to these funds. We do not anticipate that Cisco Capital will loan additional working capital to us. Moreover, we have entered into account control agreements with Cisco Capital on our cash and investment accounts. These agreements provide Cisco Capital with a security interest in these funds and the right to assume exclusive control over all of our cash and short-term investments. Cisco Capital has not acted on these agreements. However, should Cisco Capital enforce its rights under these arrangements, our ability to fund operations will become immediately dependent upon Cisco Capital's willingness to release these funds.

        We are currently in negotiations with Cisco Capital regarding the default and related matters. Should these negotiations fail, we will be required to pursue additional strategies likely to include, reductions in operating costs, a reduction in our expansion plans, and potentially, the filing for bankruptcy protection.

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

        We have a short operating history and therefore the information available to evaluate our prospects is limited. We initiated operations in 2000. Moreover, the market for our high-speed Internet service itself has only existed for a short period of time and is unproven. Accordingly, our prospects must be evaluated in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of development, particularly in a new, unproven market.

        Because the communications industry is capital intensive, rapidly evolving, and subject to significant economies of scale, as a relatively small organization we are at a competitive disadvantage. The growth we must achieve to reduce that disadvantage will put a significant strain on all of our resources. If we fail to grow rapidly, we may not be able to compete with larger, well-established companies.

        Our future capital requirements to sustain our current operations and to achieve the economies of scale necessary for success will depend on a number of factors, including our success in increasing the number of customers and the number of buildings we serve, the expenses associated with the build-out and maintenance of our network, regulatory changes, competition, technological developments,

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potential merger and acquisition activity, and the economy's ability to recover from the recent downturn.

        Additionally, our future capital requirements likely will increase if we acquire or invest in additional businesses, assets, products, and technologies. Until we can generate sufficient levels of cash from our operations, we will continue to rely on equity financing and long-term debt to meet our cash needs. Given the current condition of the financial markets, it has become very difficult to raise capital, especially for telecommunications companies like us. There is no assurance that access to additional capital will become any easier in the future, nor can we assure you that any such financing will be available on terms favorable to us or our stockholders. Additionally, our amended and restated charter contains provisions that require our preferred stockholders to approve most equity issuances by us and that give our preferred stockholders adjusted conversion ratios if we issue equity at a lower price per share than those holders paid. Insufficient funds may require us to delay or scale back the number of on-net buildings. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. In addition, if our operations do not produce positive cash flow in sufficient amounts to pay our financing obligations, our future financial results and our ability to implement our business plan will be materially and adversely affected.

We have historically incurred operating losses and we expect our losses to continue for the foreseeable future.

        Since our formation, we have generated increasing losses and we anticipate that we will continue to incur increasing losses for the foreseeable future. In 2000, we had a net loss of $11.8 million on no revenues, in 2001, we had a net loss of $66.9 million on revenues of $3.0 million, and in 2002, we had a net loss of $91.8 million on revenue of $51.9 million. As of December 31, 2002, we had an accumulated deficit of $194.8 million. Continued losses significantly greater than we anticipate may prevent us from pursuing our strategies for growth or require us to seek unplanned additional capital, and could cause us to be unable to meet our debt service obligations, capital expenditure requirements, or working capital needs.

The issuance of common stock to holders of Allied Riser's 7.5% convertible subordinated notes due 2007 as payment-in-kind in lieu of cash interest may result in immediate and substantial dilution of our common stock.

        The indenture governing Allied Riser's notes provides that we may, at our option, issue common stock to the holders of the notes as payment-in-kind in lieu of cash interest. Any such issuance will result in immediate dilution of our then-issued and outstanding common stock, and would likely create downward pressure on the market price of our common stock.

We are leveraged and we may not be able to repay our indebtedness.

        As of March 28, 2003, we had $262.7 million of outstanding indebtedness under our credit facility with Cisco Systems Capital and $10.2 million under the 7.5% convertible subordinated notes due 2007. As discussed more fully in the Liquidity and Capital Resources section of this document, we are in default under a covenant of the Cisco credit facility and Cisco Systems Capital could require us to repay the full amount of the outstanding indebtedness immediately. We could not currently make such a repayment.

        Our high level of indebtedness will have consequences on our operations. Among other things, our indebtedness will:

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limit our ability to obtain additional financing;



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limit our flexibility in planning for, or reacting to, changes in our market or business plan; and



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render us more vulnerable to general adverse economic and industry conditions.

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Anti-dilution and conversion-price adjustment provisions could make it more difficult to raise new equity capital in the future.

        Provisions of our amended and restated certificate of incorporation could make it more difficult for us to attract new investment in the future, even if doing so would be beneficial to our stockholders. Under the terms of our certificate of incorporation with respect to our Series C preferred stock, for example, if we issue additional shares of capital stock at a price per share that is less than the price of the Series C preferred stock, the holders of the Series C preferred stock will have the right to convert their stock to common stock at the same, reduced price per share. The issuance of the shares of common stock as payment-in-kind of interest on the notes will not trigger these rights. Our other series of preferred stock and our warrants issued to Cisco Capital have similar provisions. In addition, the holders of the preferred stock have liquidation preferences in the event of the sale or liquidation of Cogent. Such provisions may have the effect of inhibiting our ability to raise needed capital.

        Similarly, future sales or issuances of our common stock, warrants or other convertible securities, may depress our stock price. Such issuances may be done in connection with future financings or as part of payment-in-kind interest payments under the Notes. Such issuances will have a dilutive effect on existing shareholders and may adversely affect our stock price.

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

        Our future largely depends on our ability to implement our business strategy and proposed expansion in order to create new business and revenue opportunities. Our results of operations will be adversely affected if we cannot fully implement our business strategy. Future expansion will place significant strains on our personnel, financial, and other resources. The failure to efficiently manage our growth could adversely affect the quality of our services, our business, and our financial condition. Our ability to manage our growth will be particularly dependent on our ability to develop and retain an effective sales force and qualified technical and managerial personnel. We may not be able to hire and retain sufficiently qualified personnel, particularly given our current financial condition and stock price. We may not be able to maintain the quality of our operations, to control our costs, to maintain compliance with all applicable regulations, and to expand our internal management, technical, information, and accounting systems in order to support our desired growth.

        In addition, we must perform these tasks in a timely manner, at reasonable costs, and on satisfactory terms and conditions. Failure to effectively manage our planned expansion could have a material adverse effect on our business, growth, financial condition, results of operations, and on our ability to make payments on our obligations. Our expansion may involve acquiring other companies or assets. These acquisitions could divert resources and management attention and require integration with our existing operations. We cannot assure you that these acquisitions will be successful. In addition, we cannot assure you that we will be successful or timely in developing and marketing service enhancements or new services that respond to technological change, changes in customer requirements, and emerging industry standards.

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

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

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the diversion of management attention;



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difficulties in assimilating the acquired business;



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

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difficulties in transitioning key customer relationships;



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difficulties in transitioning key supplier relationships;



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



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other unanticipated costs.

        These acquisitions or investments may result in dilutive issuances of equity securities; the incurrence of debt and assumption of liabilities; large integration and acquisition expenses; and the creation of intangible assets that may result in significant amortization expense. Any of these factors could materially harm our business or our operating results.

We will face challenges in integrating assets we may acquire and, as a result, may not realize the expected benefits of the merger and acquisition.

        Integrating Allied Riser, the assets of PSINet and other acquisitions into our operations has been and continues to be a costly and complex process. We may make similar acquisitions in the future that will also have a costly and complex integration process. The diversion of the attention of management and any difficulties encountered in the process of integrating operations could cause the disruption of our business activities. Further, the process of integrating any new businesses or assets acquired and related uncertainties associated with the acquisition could negatively affect employee performance, satisfaction, and retention.

Our business has changed with the acquisition of the PSINet and Fiber Network Solutions, Inc.

        PSINet's business involves a method of operating that differs from our prior methods of operating. Since the PSINet acquisition we have had to acquire and maintain connections (typically T1 lines) provided by local telephone companies from our network to the customer. The customers we acquired through the Fiber Network Solutions transaction also require, for the most part, such connections from local telephone companies. We do not know if we will be able to obtain and maintain these connections in a timely and cost effective manner. We expect that the integration and related costs will continue to be significant.

We may be unable to successfully complete or expand our network.

        The construction, operation, and any upgrading of our network are significant undertakings. Administrative, technical, operational, and other problems that could arise may be more difficult to address and solve due to the significant size and complexity of the planned network. In order for our business plan to succeed, it will be necessary to build out our network and related facilities in a manner that is timely and cost efficient. Our ability to do so, however, will be affected by a variety of factors, many of which are difficult or impossible to control, including:

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cost increases related to completion of route segments and metropolitan rings;



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timely performance by our suppliers;



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our ability to attract and retain qualified personnel; and



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shortages of materials or skilled labor, unforeseen engineering, environmental, or geological problems, work stoppages, weather interference, and floods.

        The construction of our network also requires that both we and our fiber providers obtain many local rights-of-way and other permits. In some cases, we and our fiber providers must also obtain rights to use underground conduit and other rights-of-way and fiber capacity. The process of obtaining these permits and rights is time consuming and burdensome. If we or our fiber providers are unable to obtain and maintain the permits and rights-of-way needed to build out our network and related

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facilities on acceptable terms and on a timely basis, or if permits or rights-of-way we or our fiber providers do obtain are cancelled or not renewed, the build-out of our network could be delayed.

        For these reasons, we cannot assure you that the budgeted costs of our current and future projects will not be exceeded or that these projects will commence operations within the contemplated schedules, if at all. Any significant variance from the contemplated schedules or increases in the budgeted cost of our network will materially adversely affect our business and results of operations.

Our business could suffer from a delay, reduction or interruption of deliveries from our equipment suppliers or the termination of relationships with them.

        Our business could suffer from a delay, reduction or interruption of deliveries from our equipment suppliers or the termination of relationships with them. We obtain most of our optical-electronic equipment from Cisco Systems. We depend on WilTel Communications for most of our long-haul fiber network. Metromedia Fiber Networks, Level 3, Qwest, Looking Glass Networks and others provide us with metropolitan dark fiber linking our national network to individual buildings. Dark fiber is the term for optical fiber that has been installed, but does not include the optical-electronic terminal equipment needed to transmit or receive data, which we install, and which is provided to us by third-party suppliers. Such third-party suppliers are responsible for additional amounts of conduit, computers, software, switches/routers, and related components that we assemble and integrate into our network. Any reduction in or interruption of deliveries from our equipment suppliers, especially Cisco Systems, Metromedia Fiber Networks, Level 3, or WilTel Communications could delay our plans to complete our network and install in-building networks, impair our ability to acquire or retain customers, and harm our business generally. Historically, the metropolitan dark fiber industry has encountered delays in delivering its products. Our suppliers have encountered this and, as a result, we have experienced increasing delays in obtaining metropolitan dark fiber from them. This has resulted in, and could continue to result in, a delay in extending our network to end user locations and our ability to service customers. We may construct certain portions ourselves in order to complete our business plan on a timely basis. In addition, the price of the equipment and other supplies we purchase may substantially increase over time, increasing the costs we pay in the future. It could take a significant period of time to establish relationships with alternative suppliers for each of our technologies and substitute their technologies into our networks. If any of these relationships are terminated or a supplier fails to provide reliable services or equipment and we are unable to reach suitable alternative arrangements quickly, we may experience significant delays and additional costs. If that happens, our business could be materially adversely affected.

Our business could suffer delays and problems due to the actions of network providers on whom we are partially dependent.

        With the acquisition of PSINet assets we began to provide services over networks provided and controlled by others, such as local telephone companies. In the past we have acquired dark fiber from providers and installed our own equipment to operate our network. Many former PSINet and Fiber Network Solutions customers, who are now our customers, as well as new customers our sales force generates, are connected to our network by means of communications lines (typically T-1 lines) that are provided as services by local telephone companies and others, and we plan to add new customers to our network using such services. We may experience problems with the installation, maintenance, and pricing of these T-1 lines and other communications links that are beyond our ability to control or to remedy directly.

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Our rights to the use of the dark fiber that make up our network may be affected by the financial health of our fiber providers.

        Except for some last-mile lateral connections that we have constructed, we do not have title to the dark fiber that makes up the foundation of our network. Our interests in the dark fiber that makes up our network take the form of long-term leases or indefeasible right of use agreements, known as IRUs. A bankruptcy or financial collapse of one of our fiber providers could result in a loss of our rights under our long-term lease agreements or IRUs with such provider, which in turn could have a negative impact on the integrity of our network and on our results of operations. If we lose rights under our IRU agreements, we may be required to expend additional funds for maintenance of the fiber, directly fund right of way obligations, or even purchase replacement fiber from another provider if it exists. There may be geographic regions in which alternate providers do not exist. This could require us to suspend operations to some customers or construct our own fiber connections to those customers. There has been increasing financial pressure on some of our fiber providers as part of the overall weakening of the telecommunications market over the past 18 to 24 months. Our largest supplier of our metropolitan fiber networks, Metromedia Fiber Networks, filed for bankruptcy and has yet to emerge. The parent of the provider of our national backbone fiber rings filed for bankruptcy and emerged in October 2002. This will impact our operations chiefly by decreasing our ability to add new metropolitan fiber rings and our ability to add new buildings to existing rings. Another supplier of metropolitan fiber, ACSI Network Technologies, Inc., also filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. In these or other cases of bankruptcy or financial collapse, our rights under our dark fiber agreements remain unclear, although to date there has been no interruption of service. In particular, to our knowledge, the rights of the holder of an IRU in strands of dark fiber have never been addressed by the judiciary at the state or federal level in bankruptcy.

We often are limited in choices for metropolitan fiber suppliers.

        In some of our target markets there is only one established carrier available to provide the necessary connection. This increases our costs and makes it difficult to obtain sufficient dark fiber. Sufficient dark fiber may not be readily available from third parties at commercially reasonable rates, if at all. Our failure to obtain sufficient dark fiber could result in an inability to provide service in certain buildings and service interruptions, which could in time lead to loss of customers and damage to our reputation.

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

        Our business depends upon our ability to install in-building networks. This requires us to enter into access agreements with building owners or managers allowing us to install our in-building networks and provide our services in the buildings. These agreements typically have terms of five to ten years, with limited renewal rights. We expect to need to enter into additional access agreements for the foreseeable future, and may need to amend some of the current agreements to allow us to offer all of the services contemplated by our current business plan. The failure of building owners or managers to grant, amend, or renew access rights on acceptable terms, or any deterioration in our existing relationships with building owners or managers, could harm our marketing efforts and could substantially reduce our potential customer base. Current federal and state regulations do not require building owners to make space available to us, or to do so on terms that are reasonable or nondiscriminatory. While the FCC has adopted regulations that prohibit carriers under its jurisdiction from entering into exclusive arrangements with owners of multi-tenant commercial office buildings, these regulations do not require building owners to offer us access to their buildings. Building owners or managers may decide not to permit us to install our networks in their buildings or may elect not to

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renew or amend our access agreements. The failure to obtain or maintain these agreements would reduce our revenues and we might not recover our infrastructure costs.

We will need to obtain or construct additional building laterals to connect buildings to our network.

        In order to connect a building to our high-speed Cogent network, we must obtain or construct lateral fiber extensions from our metropolitan ring to the building to which we intend to provide our on-net Internet service. To date, we have relied largely on third parties for lateral connections. While we intend to continue using third parties for lateral connections in the future, we also have constructed or funded laterals on our own or in ventures with third parties. The availability of such lateral connections from third parties is dependent on many factors, including but not limited to the:

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financial health of those lateral providers, including Metromedia Fiber Networks, and their willingness to offer laterals to us on acceptable terms and conditions;



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ability of those lateral providers to construct, deliver, and connect such laterals, which depends, in part, on their ability to obtain and maintain the necessary franchise rights and permits to supply laterals, construct such laterals in a timely and correct manner, and splice such laterals into our network rings to enable optical connections; and



•

willingness of the various municipalities in which such laterals are located to allow the construction of fiber laterals.

        Our ability to construct or fund some laterals on our own is also dependent on these factors. If any of these factors are not fulfilled, we may not be able to obtain some of the desired lateral connections to buildings, which could substantially reduce our customer base and our ability to fulfill our business plan.

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

        Prior to generating revenues, we must incur significant initial capital expenditures. Our expenditures will vary depending on, among other things, whether we encounter any construction-related difficulties or difficulties in acquiring rights-of-way or other permits. After the initial installation of our network, our capital expenditures (for, among other things, equipment and wiring within buildings and fiber optic connections to buildings) continue to grow based on the extent to which we add customers within a building. We may not be able to recoup all of our expenditures.

Our success depends on growth in the use of the Internet, and on the willingness of customers to buy our Internet service.

        Our future success depends in large part on growth in the number of people who use the Internet as well as growth in the number of ways people use the Internet. Specifically, we are dependent on the growth of the demand for high-speed Internet service, which is unproven and may grow less than the demand for communications services generally, or not at all. Furthermore, our own growth rate may not match the growth rate of the high-speed Internet service market as a whole.

        Our success also depends on rapid growth in sales of our particular Internet services offerings. This growth depends, in part, on customers trusting us to deliver the services in a timely and efficient manner, and that we will continue to operate for at least as long as the life of any contract between the two of us. This trust may be difficult to establish because there has been a substantial downturn in the telecommunications industry, leading to many bankruptcies and closures of other Internet service providers. Some of these closures required the customers of the closing Internet service provider to find alternative providers on very short notice. In light of these developments, there may be an increasing desire on the part of Internet service customers to only do business with telecommunications

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providers who have a long operating history and are amongst the biggest providers in the industry. Our short operating history and small size could put us at a disadvantage in competing with such established providers.

Impairment of our intellectual property rights and our alleged infringement on other companies' intellectual property rights could harm our business.

        We are aware of several other companies in our and other industries that use the word "Cogent" in their corporate names. One company has informed us that it believes our use of the name "Cogent" infringes on their intellectual property rights in that name. If such a challenge is successful, we could be required to change our name and lose the goodwill associated with the Cogent name in our markets.

The sector in which we operate is highly competitive, and we may not be able to compete effectively.

        We face competition from many communications providers with significantly greater financial resources, well-established brand names, larger customer bases, and diverse strategic plans and technologies. Many of these competitors have longer operating histories and more established relationships in the industry than we do. Intense competition has led to declining prices and margins for many communications services. We expect this trend to continue as competition intensifies in the future. We expect significant competition from traditional and new communications companies, including local, long distance, cable modem, Internet, digital subscriber line, fixed and mobile wireless, and satellite data service providers, some of which are described in more detail below.

        If these potential competitors successfully focus on our market, we may face intense competition harmful to our business. In addition, we may also face severe price competition for building access rights, which could result in higher sales and marketing expenses and lower profit margins.

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Incumbent Carriers. In each market we serve, we face, and expect to continue to face, significant competition from the incumbent carriers, which currently dominate the local telecommunications markets. We compete with the incumbent local exchange carriers on the basis of product offerings, quality, capacity and reliability of network facilities, state-of-the-art technology, price, route diversity, ease of ordering and customer service. However, the incumbent carriers have long-standing relationships with their customers and provide those customers with various transmission and switching services that we do not currently offer. Because our fiber optic networks have been recently installed compared to those of the incumbent carriers, our state-of-the-art technology may provide us with cost, capacity, and service quality advantages over some existing incumbent carrier networks, however, our network may not support the breadth of products supported by these legacy networks.



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In-Building Competitors. Some competitors, such as Cypress Communications, XO Communications, Yipes, Intellispace, and Eureka Networks, are attempting to gain access to office buildings in our target markets. Some of these competitors are seeking to develop preferential relationships with building owners. To the extent these competitors are successful, we may face difficulties in building our networks and marketing our services within some of our target buildings. Our agreements to use utility shaft space (riser facilities) within buildings are generally not exclusive. An owner of any of the buildings in which we have rights to install a network could also give similar rights to one of our competitors. Certain competitors already have rights to install networks in some of the buildings in which we have rights to install our networks. It will take a substantial amount of time to build networks in all the buildings in which we intend to exercise our rights under our license agreements and master license agreements. Each building in which we do not build a network is particularly vulnerable to competitors. It is not clear whether it will be profitable for two or more different companies to operate networks within the same building. Therefore, it is critical that we build our networks in additional

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buildings quickly. Once we have done so, if a competitor installs a network in the same building, there will likely be substantial price competition.

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Local Telephone Companies. Incumbent local telephone companies, including regional Bell operating companies such as Verizon, SBC, Qwest and BellSouth, have several competitive strengths which may place us at a competitive disadvantage. These competitive strengths include an established brand name and reputation and significant capital to rapidly deploy or leverage existing communications equipment and broadband networks. Competitive local telephone companies often market their services to tenants of buildings within our target markets and selectively construct in-building facilities. Historically incumbent local telephone companies have not been required to compensate building owners for access and distribution rights within a targeted building.



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Long Distance Companies. Many of the leading long distance companies, such as AT&T, MCI WorldCom and Sprint, could begin to build their own in-building voice and data networks. The newer national long distance carriers, such as Qwest, are building and managing high speed fiber-based national voice and data networks, partnering with Internet service providers, and may extend their networks by installing in-building facilities and equipment.



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Competitive Local Telephone Companies. Competitive local telephone companies often have broadband inter-building connections, market their services to tenants of large and medium-sized buildings, and selectively build in-building facilities.



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Fixed Wireless Service Providers. Fixed wireless service providers, such as MCI WorldCom, XO Communications, First Avenue Networks, AT&T, Sprint, Terabeam, Teligent and Winstar Communications, provide high-speed communications services to customers using microwave or other facilities or satellite earth stations on building rooftops.



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Internet Service Providers. Internet service providers, such as AT&T WorldNet, EarthLink, Prodigy, the UUNET subsidiary of MCI WorldCom, Level 3, Sprint and Verio, provide traditional and high speed Internet access to residential and business customers, generally using the existing communications infrastructure. Digital subscriber line companies and/or their Internet service provider customers, such as AT&T and Covad, typically provide broadband Internet access using digital subscriber line technology, which enables data traffic to be transmitted over standard copper telephone lines at much higher speeds than these lines would normally allow. Providers, such as America Online, Microsoft Network, Prodigy, United OnLine and Earthlink, generally target the residential market and provide Internet connectivity, ease-of-use and a stable environment for modem connections.



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Cable-Based Service Providers. Cable-based service providers, such as Roadrunner, RCN Communications, Comcast, Cox, AOL Time Warner and Charter Communications use cable television distribution systems to provide high capacity Internet access.



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Other High-Speed Internet Service Providers. We may also lose potential customers to other high-speed Internet service. These providers, such as Yipes and OnFiber, and are often characterized as Ethernet metropolitan access networks. They have targeted a similar customer base and have business strategies that have elements that parallel ours.



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Some of our competitors are in bankruptcy or may soon emerge from bankruptcy. Because the bankruptcy process allows for the discharge of debts and rejection of certain obligations the competitors may have pricing flexibility and a lower cost structure with which we will find it difficult to compete.

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Our failure to acquire, integrate, and operate new technologies could harm our competitive position.

        The telecommunications industry is characterized by rapid and significant technological advancement and the introduction of new products and services. We do not possess significant intellectual property rights with respect to the technologies we use, and we are dependent on third parties for the development of and access to new technology. In addition, we own the equipment we use to provide our services and we will have long-term leases or indefeasible rights of use attached to the fiber optic networks that will constitute our network. Therefore, technological changes that render our equipment out of date, less efficient, or more expensive to operate than newer equipment could cause us to incur substantial increases in capital expenditures to upgrade or replace such equipment.

        Additionally, there currently are other technologies that provide more capacity and speed than dial-up connections and can be used instead of our high-speed data services, including digital subscriber line technology, cable modems, wireless technology, and integrated services digital networks. Furthermore, these technologies may be improved and other new technologies may develop that provide more capacity and speed than the broadband data technology we typically employ.

Our connection to the Internet requires us to obtain and maintain relationships with other providers.

        The Internet is composed of various public and private network providers who operate their own networks and interconnect them at public and private interconnection points. Our network is one such network. In order to obtain Internet connectivity for our network, we must obtain and maintain relationships with other such providers and incur the necessary capital costs to locate our equipment and connect our network at these various interconnection points. Some of these connections are made through the purchasing of transit capacity at negotiated rates, which gives us access to a provider and other networks to which that provider is connected. In addition, in some instances we have minimum and maximum volume commitments to receive the negotiated rates. If we fail to meet the minimum, or exceed the maximum, volume commitments, our rates and costs may rise.

        Another source of connection to the Internet is peering arrangements. By entering into what are known as settlement-free peering arrangements, providers agree to exchange traffic between their respective networks without charging each other. Our establishment and maintenance of peering relationships is necessary to avoid the higher costs of transit capacity and in order to maintain high network performance capacity. Our business plan depends on our ability to avoid transit costs in the future as our network expands. In that regard, we are attempting a number of initiatives to lower our transit costs. We are seeking more settlement-free peering arrangements. We expect that these initiatives will enable us to reduce our transit costs but there is no guarantee that such efforts will be successful. Peering relationships are not subject to regulation, and may change in terms and conditions.

        Some Internet service providers have outbound versus inbound ratio requirements in order to establish or maintain peering relationships. At the current time our customer base has more content providers (web hosting, internet radio, etc), than retail users which may lead to more outbound traffic than inbound and thus unacceptable ratios to these providers. If that happens we may be forced to send more traffic either over transit or via paid settlements.

        If we are not able to maintain and increase our peering relationships, we may not be able to provide our customers with high performance and affordable services which would have a material adverse effect on our business.

Network failure or delays and errors in transmissions expose us to potential liability.

        Our network uses a collection of communications equipment, software, operating protocols, and proprietary applications for the high-speed transportation of large quantities of data among multiple locations. Given the complexity of our network, it may be possible that data will be lost or distorted.

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Delays in data delivery may cause significant losses to a customer using our network. Our network may also contain undetected design faults and software bugs that, despite our testing, may not be discovered in time to prevent harm to our network. The failure of any equipment or facility on the network could result in the interruption of customer service until we effect necessary repairs or install replacement equipment. Network failures, delays, and errors could also result from natural disasters, power losses, security breaches, and computer viruses. In addition, some of our customers are, at least initially, only served by partial fiber rings, increasing the risk of service interruption. With the acquisition of PSINet assets we have become partially dependent on the networks of other providers such as local telephone companies. Network failures, faults, or errors could cause delays or service interruptions, expose us to customer liability, or require expensive modifications that could have a material adverse effect on our business.

As an Internet access provider, we may be vulnerable to unauthorized access or we may incur liability for information disseminated through our network.

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

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

Legislation and government regulation could adversely affect us.

        We believe the enhanced services we provide today are not subject to substantial regulation by the FCC or the state public utilities commissions. Federal and state commissions exercise jurisdiction over providers of basic telecommunications services. However, enhanced service providers are currently exempt from federal and state regulations governing providers of basic telecommunications services, including the obligation to pay access charges and contribute to the universal service fund. Changes in regulation or new legislation may increase the regulation of our current enhanced services. Such changes in the regulatory environment are difficult for us to predict and could affect our operating results by increasing competition, decreasing revenue, increasing costs, or impairing our ability to offer services.

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If we decide to provide voice and other basic telecommunications services in the United States we may be unable to successfully respond to regulatory changes. We will become subject to regulation by the FCC and state agencies in the event we decide to offer non-enhanced voice and other basic telecommunications services and may become subject to regulation if we offer voice services over the Internet. Complying with these regulatory requirements may be costly.



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Regulation of access to office buildings could negatively affect our business. FCC rules prohibit common carriers from entering into contracts that restrict the right of commercial multi-unit property owners to permit any other common carrier to access and serve the property's commercial tenants. While we believe that this rule does not apply to us, we compete against common carriers in providing some of our services and this rule could make it easier for an increased number of such common carrier competitors to gain access to buildings where we

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provide service. The FCC declined to adopt rules mandating that commercial multi-unit property owners permit access to all carriers on a nondiscriminatory basis, but it is continuing to consider this and other issues in future phases of this proceeding. Bills have also been introduced in Congress regarding the same topic but Congress has yet to act. Some of the issues being considered in these developments include requiring real estate owners to provide utility shafts access to telecommunications carriers, and requiring some telecommunications providers to provide access to other telecommunications providers. We do not know whether or in what form these proposals will be adopted.

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Deregulation of the provision of high speed Internet access by incumbent local exchange carriers could result in increased competition and negatively affect our business. The FCC is currently considering whether to reduce its regulation of the delivery of high speed Internet access by incumbent local exchange carriers including the regional Bell operating companies held by Verizon, SBC, Qwest and BellSouth. While we do not know if or to what extent such a reduction will occur, such reduced regulation could negatively affect our business by enhancing the competitive position of the incumbent local exchange carriers. In February 2003, the FCC announced that it was eliminating some of its rules that made it easier for competitive entrants to gain access to the incumbent local exchange carrier's network for the purpose of providing high-speed access to the Internet. We do not expect these rule changes to have a material impact on our ability to provide service to our customers, but the rule changes could result in increased competition from the incumbent local exchange carriers against the services we provide.



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One of our subsidiaries, Shared Technologies of Canada, operates in Toronto, Canada. In addition to Internet service, it offers voice services. Generally, the regulation of Internet access services and competitive voice services has been similar in Canada to that in the U.S. in that providers of such services fewer regulatory requirements than the incumbent local telephone company. This may change. Also, the Canadian government has requirements limiting foreign ownership of certain telecommunications facilities in Canada. We will have to comply with these to the extent we have facilities that are subject to these regulations.

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

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

Our affiliates own more than two thirds of the outstanding voting stock, and thus will control all matters requiring a stockholder vote and, as a result, could prevent or delay any strategic transaction.

        Our existing directors, executive officers, and greater-than-five-percent stockholders and their affiliates, in the aggregate, beneficially own more than two thirds of the outstanding shares of voting stock. If all of these stockholders were to vote together as a group, they would have the ability to exert significant influence over our board of directors and its policies. For instance, these stockholders would be able to control the outcome of all stockholders' votes, including votes concerning director elections, charter and bylaw amendments, and possible mergers, corporate control contests, and other significant corporate transactions including any going private transaction. The concentration of our stock ownership could have the effect of preventing or delaying a change of control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could harm the market price

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of our common stock or prevent our stockholders from realizing a takeover premium over the market price for their shares of common stock.

Anti-takeover provisions could prevent or delay a change of control.

        Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include the "staggered" nature of our board of directors which results in directors being elected for terms of three years and the ability of the preferred stockholders to designate four of our seven directors. These provisions may have the effect of delaying, deferring, or preventing a change in our control, impeding a merger, consolidation, takeover, or other business combination, which in turn could preclude our stockholders from recognizing a premium over the prevailing market price of the common stock.

Our former principal independent public accountant, Arthur Andersen LLP, has been found guilty of federal obstruction of justice charges and you are unlikely to be able to exercise effective remedies against them in any legal action.

        On June 15, 2002, a jury in Houston, Texas found our former independent public accountant, Arthur Andersen LLP, guilty of federal obstruction of justice charges arising from the federal government's investigation of Enron Corp. As a result, Arthur Andersen has ceased practicing before the SEC. All of Arthur Andersen's personnel have left the firm, including the individuals responsible for auditing the Cogent and Allied Riser audited financial statements. Because Arthur Andersen no longer exists, you are unlikely to be able to exercise effective remedies or collect judgments against them.

        Moreover, as a public company, we are required to file with the SEC financial statements audited or reviewed by an independent public accountant. On June 15, 2002 the SEC issued a statement that it will continue to accept financial statements audited by Arthur Andersen on an interim basis if Arthur Andersen is able to make certain representations to its clients concerning audit quality controls. Arthur Andersen has made such representations to us. However, for the reasons noted above, Arthur Andersen may be unable to make these representations in the future or to provide other information or documents that would customarily be received by us in connection with an offering, including consents and "comfort letters." In addition, Arthur Andersen may be unable to perform procedures to assure the continued accuracy of its report on the Cogent and Allied Riser audited financial statements. Arthur Andersen will be unable to provide such information and documents and perform such procedures in future financings and other transactions. As a result, we may encounter delays, additional expense and other difficulties in this offering, future financings or other transactions.

We may become involved in a securities class action lawsuit filed against Goldman Sachs & Co.

        According to a press release dated October 25, 2002, a complaint was filed in the U.S. District Court for the Southern District of New York charging Goldman Sachs & Co. and certain of its officers and directors with issuing analyst reports regarding Allied Riser Communications that recommended the purchase of Allied Riser common stock and which set price targets for Allied Riser common stock, without any reasonable factual basis. The complaint further alleges that Goldman had a conflict of interest and maintained a "BUY' recommendation on Allied Riser in order to obtain and support lucrative financial deals with Allied Riser. Allied Riser became our subsidiary after the events giving rise to the complaint. Neither Cogent, Allied Riser, nor any of our officers and directors is a defendant in the lawsuit. However, it is possible that one of the parties in the lawsuit will seek to assert a claim against Allied Riser (now our subsidiary).

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