EXCEL COMMUNICATIONS INC, 424B4, 1996-05-10

EXCEL COMMUNICATIONS INC
424B4, 1996-05-10
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

Filed pursuant to Rule 424(b)(4)
SEC File No. 333-1076

PROSPECTUS
MAY 9, 1996

10,000,000 SHARES

LOGO
[LOGO OF EXCEL COMMUNICATIONS, INC. APPEARS HERE]
COMMON STOCK

Of the 10,000,000 shares of Common Stock offered hereby, 8,300,000 shares
are being sold by EXCEL Communications, Inc. ("EXCEL" or the "Company") and
1,700,000 shares are being sold by the Selling Stockholders. Of the 10,000,000
shares being offered hereby, 8,000,000 shares are initially being offered for
sale in the United States and Canada by the U.S. Underwriters (the "U.S.
Offering") and 2,000,000 shares are initially being offered for sale outside
of the United States and Canada in a concurrent offering by the International
Managers (the "International Offering" and, together with the U.S. Offering,
the "Offering"), subject to transfers between the U.S. Underwriters and the
International Managers. The Company will not receive any of the proceeds from
the sale of shares of Common Stock by the Selling Stockholders. See "Principal
and Selling Stockholders."

Prior to the Offering, there has been no public market for the Common Stock.
See "Underwriting" for a discussion of the factors considered in determining
the initial public offering price. The initial public offering price and the
aggregate underwriting discount per share will be identical for the U.S. and
International Offerings.

The Common Stock has been approved for listing on the New York Stock
Exchange (the "NYSE") under the symbol "ECI," subject to notice of issuance.

SEE "RISK FACTORS," BEGINNING ON PAGE 8, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO THE DISCOUNTS AND TO THE TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $15.00 $1.00 $14.00 $14.00
Total(3)................ $150,000,000 $10,000,000 $116,200,000 $23,800,000
- --------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses estimated at $2,400,000, payable by the Company.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to 1,500,000 additional shares of Common Stock on the same terms as set
forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts
and Commissions, and Proceeds to the Company will be $172,500,000,
$11,500,000, and $137,200,000, respectively. See "Underwriting."

The shares offered hereby are being offered by the several U.S.
Underwriters, subject to prior sale, when, as, and if delivered to and
accepted by them and subject to various prior conditions, including their
right to reject any order in whole or in part. It is expected that delivery of
the shares will be made in New York, New York, on or about May 15, 1996.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

ADDITIONAL INFORMATION

The Company has not previously been subject to the reporting requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any
amendments thereto) on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
made to the Registration Statement, including the exhibits and schedules
thereto, copies of which may be examined without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and the
regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
14th Floor, Chicago, Illinois 60661-2511. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at its public reference
facilities in New York, New York, and Chicago, Illinois, at prescribed rates.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each statement being qualified in all respects by such
reference.

Immediately following the Offering, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act.
As long as the Company is subject to such periodic reporting and information
requirements, it will file with the Commission all reports, proxy statements,
and other information required thereby. The Company intends to furnish holders
of the Common Stock with annual reports containing financial statements
audited by an independent certified public accounting firm and quarterly
reports containing unaudited financial information for the first three
quarters of each fiscal year.

The Company owns the federally-registered service mark "EXCEL" for long
distance telecommunications. This Prospectus includes product names and other
trade names and trademarks of the Company and of other companies.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Consolidated Financial
Statements and related Notes appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information contained in this Prospectus (i) assumes
that the U.S. Underwriters' over-allotment option will not be exercised and
(ii) reflects the consummation of the Reorganization (as defined and described
in "Recent Developments and Certain Transactions") in January 1996 pursuant to
which, among other things, EXCEL Telecommunications, Inc. (which, prior to the
Reorganization, conducted all of the business and operations of the Company)
formed, and subsequently became an indirect wholly owned subsidiary of, EXCEL
Communications, Inc. and, in connection therewith, the former shareholders of
EXCEL Telecommunications, Inc. became stockholders of EXCEL Communications,
Inc., receiving 1,000 shares of Common Stock for each share of common stock
held by them in EXCEL Telecommunications, Inc. Currently, EXCEL Communications,
Inc. conducts all of its business and operations through its subsidiaries and,
unless the context indicates otherwise, all references to the Company or EXCEL
refer to EXCEL Communications, Inc. and include its direct and indirect
subsidiaries and predecessors, including its post-Reorganization second-tier
subsidiary, EXCEL Telecommunications, Inc.

THE COMPANY

EXCEL is one of the fastest growing providers of long distance
telecommunications services in the United States. At March 31, 1996, the
Company provided service to approximately 3.1 million residential and small
business subscribers and believes that, based upon domestic residential long
distance revenues, it ranks fourth after AT&T Corp. ("AT&T"), MCI
Communications Corporation ("MCI"), and Sprint Corporation ("Sprint"). The
Company markets its long distance service through a multi-level network
marketing system of independent representatives ("IRs"), which has contributed
to its significant growth since January 1, 1993. The Company also believes that
its network marketing approach provides it with lower net marketing expenses
than many of its competitors. The Company's revenues were $30.8 million for
1993, $152.2 million for 1994, $506.7 million for 1995, and $280.8 million for
the three months ended March 31, 1996, while net income was $2.4, $15.9, $44.4,
and $34.0 million, respectively, for the same periods. The Company's pricing
structure is regularly reviewed so that subscribers of the Company's long
distance service generally pay less than they would for AT&T, MCI, or Sprint
long distance service. In addition, the Company currently provides value-added
services to its subscribers, such as calling cards, 800 service, and
international telecommunications service. The Company intends to provide
nationwide paging services beginning in the third quarter of 1996.

According to a 1995 Federal Communications Commission ("FCC") report,
revenues of the U.S. long distance telecommunications industry were
approximately $67 billion in 1994. The industry is highly competitive and is
dominated by four carriers, AT&T, MCI, Sprint, and WorldCom, Inc. ("WorldCom"),
which together in 1994 accounted for approximately 88% of the overall market
according to such 1995 FCC report. Moreover, according to such 1995 FCC report,
while industry revenues grew at a compound annual rate of over 5% during the
period from 1989 through 1994, the revenues of all carriers other than AT&T,
MCI, Sprint, and WorldCom grew in the aggregate at an annual compound rate of
over 16% during the same period.

The Company's strategy has been to build a subscriber base without committing
capital or management resources to construct its own network and transmission
facilities. This strategy has allowed the Company to add subscribers without
being limited by the capacity, geographic coverage, or configuration of any
particular network that the Company might have developed. In 1990, the Company
contracted with Frontier Communications Services, Inc. ("Frontier") (successor
to Allnet Communication Services, Inc.) to provide switching services and
network transmission of its subscribers' traffic, which has allowed the Company
to pursue this strategy. As the volume of the Company's traffic has reached
sufficient levels in certain markets, the Company now intends to seek other
providers of long distance service and to develop its own long distance
network, which may include the acquisition or leasing of its own
telecommunications call switching equipment ("switches") and dedicated
transmission lines, in those markets to reduce its dependence upon Frontier,
provide additional services to its subscribers, and reduce expenses associated
with the transmission of long distance calls.

3
<PAGE>

The Company's services are marketed nationwide exclusively through a network
of IRs. The Company encourages IRs to enroll subscribers with whom the IRs have
an ongoing relationship as a result of being a family member, friend, business
associate, neighbor, or otherwise. This network marketing system has been
selected by the Company because the Company believes it reduces net marketing
costs, subscriber acquisition costs, and subscriber attrition. The Company
believes that subscribers will be more likely to remain with the Company
because they have been enrolled with the Company by someone with whom they have
an ongoing relationship. The Company also believes that its network marketing
system will continue to build a base of potential subscribers for additional
services and products. The Company does not require a person to be an IR in
order to be a subscriber, and less than 25% of the Company's subscribers are
IRs. The Company's network marketing system is particularly attractive to
potential IRs because of the potential for supplemental income and because the
IRs are not required to purchase any inventory, have no monthly sales quotas or
account collection issues, have minimal paperwork, and have a flexible work
schedule. While other long distance carriers such as MCI and LCI International,
Inc. ("LCI") market their long distance and paging services through network
marketing alliances as part of their marketing strategy, EXCEL utilizes this
marketing channel exclusively. The Company believes that because of its focus
on the structuring, management, and control of the network marketing program,
it has the information and the organizational structure to modify marketing and
training programs for the IRs to respond to market changes and maintain the
brand allegiance of the IRs. The Company believes that this focus has
contributed to the Company's growth and the Company's ability to obtain and
maintain IRs who are available and motivated to sell additional communications
products.

The Company offers its subscribers a variety of long distance services and
products, which include residential service, commercial service, 800 service,
international services, and calling cards. The Company intends to provide
nationwide paging services beginning in the third quarter of 1996. The Company
believes that controlling the subscriber base through the process of initiating
service, customer care, and billing, as well as the maintenance and improvement
of service, is key to achieving its long term goals. In that regard, the
Company (i) provisions its subscribers directly to the local exchange carriers
("LECs"), (ii) communicates and manages subscriber status with long distance
carriers and the LECs via electronic interface, (iii) collects call records
from long distance carriers on a daily basis and rates, processes, and bills
the calls within 24 hours of their occurrence, (iv) operates call centers where
advisors utilize automated systems to answer subscriber questions and provide
support services to the IRs, and (v) is in the process of migrating its
subscribers to the Company's own carrier identification code rather than that
of the underlying carrier. As of March 31, 1996, the Company employed
approximately 1,500 employees at its Dallas, Texas headquarters to, among other
things, support these long distance back office and corporate functions and to
provide customer care for its subscribers and support services for the IRs.

The Company offers its network of IRs a number of support services in order
to aid their success. These include accounting reports regarding their IR
organizations, which are currently provided in both a monthly printed format
and daily on an automated dial-in interactive voice response system and which
the Company intends to provide in the near future on an Internet home page. In
addition, the Company provides extensive training, information, and
motivational support to the IR network through (i) its nationwide training
organization, (ii) monthly newsletters, (iii) a satellite television broadcast
four times per week over its Excelevision(TM) network, and (iv) regional
rallies.

4
<PAGE>

The Company's goal is to be a provider of a wide range of communications
products and services. The Company intends to increase revenues from each
subscriber, increase the retention of subscribers, and provide additional
revenue opportunities for its IR network. The Company intends to achieve this
goal by pursuing the following strategy:

. Maintain and Expand its Subscriber Base by continuing to offer high
quality, competitively-priced products and superior customer care through
a highly motivated and growing network of IRs.

. Improve and Expand its Core Product Line by continuing to evaluate and
negotiate with long distance carriers for products that offer the latest
technology, a high level of quality, and prices that reflect the
purchasing power of the Company's substantial subscriber base. The
Company also intends to develop its own long distance network, which may
include, among other things, acquiring or leasing switches and dedicated
transmission lines, and intends to provide enhanced, value-added long
distance products.

. Offer Additional Communications Products by entering into agreements for
the resale of additional communications products and services that meet
the expanding needs of its subscribers, which may include, among others,
paging, wireless cable, home security monitoring and communication,
cellular phone service, local phone service, and Internet access. In
March 1996, the Company entered into an agreement with PageMart, Inc.
("PageMart") to provide for the nationwide resale of paging products and
services to the Company's subscribers, including two-way paging services
(also known as narrowband personal communications services ("Narrowband
PCS")) when they become available to PageMart's customers. The Company
also intends to make strategic acquisitions to expand its product line.

. Grow and Develop its Network of Independent Representatives by enhancing
the recruiting and training services offered to IRs, continuing to
support the marketing efforts of IRs, and introducing new income
opportunities for IRs.

The Company was formed in December 1988 and commenced operations in 1989. The
Company's principal executive office is located at 9101 LBJ Freeway, Suite 800,
Dallas, Texas 75243, and its telephone number is (214) 705-5500.

THE OFFERING

Common Stock Offered
<TABLE>
<S> <C>
By the Company
U.S. Offering.................. 6,640,000 shares
International Offering......... 1,660,000 shares
------------------
Total........................ 8,300,000 shares
By the Selling Stockholders
U.S. Offering.................. 1,360,000 shares
International Offering......... 340,000 shares
------------------
Total........................ 1,700,000 shares
Common Stock to be outstanding af-
ter the Offering.................. 107,300,000 shares(1)
Use of proceeds.................... Development and/or acquisition of a long
distance network, corporate facilities, and
information systems; and for general
corporate purposes, including working
capital and possible acquisitions. See "Use
of Proceeds."
Proposed NYSE symbol............... "ECI"
</TABLE>
- --------------------
(1) Excludes 8,910,000 shares of Common Stock reserved for issuance pursuant to
the 1995 Stock Option Plan (as defined herein), of which 5,127,325 shares
will be issuable upon exercise of stock options previously granted (none of
which are vested or exercisable as of the date of this Prospectus). See
"Business -- Legal Matters" and "Management -- Benefit Plans."

RISK FACTORS

Prospective purchasers of the Common Stock should carefully consider the
matters set forth herein under "Risk Factors," as well as the other information
set forth in this Prospectus.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Communication services..... $17,857 $20,670 $ 24,198 $108,819 $ 363,301 $ 51,015 $205,274
Marketing services(1)...... 3,419 3,497 6,650 43,339 143,397 17,724 75,516
------- ------- -------- -------- ---------- -------- ---------
Total revenues............... 21,276 24,167 30,848 152,158 506,698 68,739 280,790
------- ------- -------- -------- ---------- -------- ---------
Operating expenses:
Communication.............. 12,964 13,264 13,761 58,925 209,995 29,366 113,514
Marketing services(2)...... 4,472 5,255 7,730 46,724 147,476 21,265 76,940
General and administrative. 4,232 5,866 5,811 19,779 71,514 9,310 36,941
------- ------- -------- -------- ---------- -------- ---------
Total operating expenses..... 21,668 24,385 27,302 125,428 428,985 59,941 227,395
------- ------- -------- -------- ---------- -------- ---------
Operating income............. (392) (218) 3,546 26,730 77,713 8,798 53,395
Other income (expense):
Interest expense........... -- (74) (75) (295) (593) (188) (52)
Income (losses) from joint
venture................... -- -- -- -- (6,248) (345) 1,041
Other...................... -- -- 24 83 467 55 503
------- ------- -------- -------- ---------- -------- ---------
Income (loss) before income
taxes....................... (392) (292) 3,495 26,518 71,339 8,320 54,887
Provision (benefit) for
income taxes................ (11) 17 1,126 10,648 26,893 3,136 20,901
------- ------- -------- -------- ---------- -------- ---------
Net income (loss)............ $ (381) $ (309) $ 2,369 $ 15,870 $ 44,446 $ 5,184 $ 33,986
======= ======= ======== ======== ========== ======== =========
Net income per share(3)...... $ -- $ -- $ 0.03 $ 0.18 $ 0.46 $ 0.05 $ 0.34
======= ======= ======== ======== ========== ======== =========
SUPPLEMENTAL OPERATING DATA:
Long distance minutes of
usage (in 000's)(4)......... N/A(5) 99,592 118,357 544,552 2,101,240 269,882 1,227,713
Weighted average long
distance revenue per minute
of usage(6)................. N/A(5) $ 0.208 $ 0.204 $ 0.200 $ 0.173 $ 0.189 $ 0.167
Weighted average
communication charges per
minute of usage(7).......... N/A(5) $ 0.133 $ 0.116 $ 0.108 $ 0.100 $ 0.109 $ 0.092
Number of applications from
new independent
representatives (IRs)....... N/A(5) N/A(5) 28,067 156,275 461,158 53,534 245,965
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31, 1996
---------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(8)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ (328) $ (648) $ (186) $ 7,134 $ 1,071 $ 20,926 $134,720
Property and equipment, net.. 707 597 662 2,476 8,560 18,179 18,179
Total assets................. 3,536 2,604 9,058 59,412 203,581 301,859 415,653
Long-term obligations, net of
current maturities.......... 494 420 313 3,369 345 286 286
Stockholders' equity
(deficit)................... (27) (336) 1,995 13,635 37,708 73,128 186,922
</TABLE>

6
<PAGE>

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(1) Revenues from marketing services include the effect of deferring a portion
of the cash received during each period and amortizing the deferred
revenues over 12 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 to the
Consolidated Financial Statements.
(2) Marketing services cost includes the effect of capitalizing the portion of
commissions paid for acquisition of new subscribers and amortizing the
capitalized costs over 12 months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 to
the Consolidated Financial Statements.
(3) See Note 2 to the Consolidated Financial Statements for an explanation of
the number of shares used in computing net income per share.
(4) Long distance minutes of usage represent minutes billable to subscribers
during the period.
(5) Information is not available.
(6) Weighted average long distance revenue per minute of usage equals revenues
for calls billed to subscribers for domestic interstate and intrastate
service, 800 service, calling cards, service charges, and international
calls divided by the aggregate minutes of usage.
(7) Weighted average communication charges per minute of usage equal the cost
to purchase all long distance services sold to the Company's subscribers
divided by the aggregate minutes of usage.
(8) The pro forma balance sheet information reflects the sale of the shares
offered hereby at the initial public offering price of $15.00 per share
and the application of the estimated net proceeds therefrom as if the
Offering had occurred at March 31, 1996. See "Capitalization."

7
<PAGE>

RISK FACTORS

Before purchasing any shares of Common Stock offered by this Prospectus,
prospective investors should carefully consider the following factors relating
to the Company and the Offering, together with the other information and
financial data appearing elsewhere in this Prospectus.

ABILITY TO MANAGE GROWTH

The Company's officers have had limited experience in managing companies as
large and as rapidly growing as the Company. The Company's strategy of
continuing its growth and expansion will place additional demands upon the
Company's current management and other resources and will require additional
long distance capacity, as well as additional working capital, information
systems, and management, operational, and other financial resources. The
continued growth of the Company will depend on various factors, including,
among others, federal and state regulation of the telecommunications industry,
competition, the capacity of the Company's long distance carriers, and the
feasibility of the Company developing its own long distance network. Not all
of the foregoing factors are within the control of the Company. The Company's
ability to manage growth successfully will require the Company to continue to
enhance its operational, management, financial, and information systems and
controls. No assurance can be given that the Company will be able to manage
its expanding operations and, if the Company's management is unable to manage
growth effectively, the Company's business, operating results, and financial
condition could be materially adversely affected. Furthermore, there can be no
assurance that the growth experienced by the Company in the past will
continue. See "Business--Company Strategy," "--Marketing," "--Information
Systems," "--Suppliers," and "--Employees" and "Management."

DEPENDENCE ON INDEPENDENT REPRESENTATIVES AND LEGAL ACTION BY CERTAIN IRS

The Company's success depends in significant part upon its ability to
attract, maintain, and motivate a large base of IRs, who, in turn, recruit
subscribers for the Company's products and services. Significant turnover
among IRs from year to year, which the Company believes is typical of direct
selling, requires the sponsoring of new IRs by existing IRs in order to
maintain or increase the overall IR force. For the year ended December 31,
1995, the Company experienced an attrition rate of approximately 22% for IRs
(which, using the method of measuring attrition used by the Direct Selling
Association, is calculated by dividing the number of IRs who leave the IR
network during the year by the sum of the IRs at the beginning of the year
plus the new IRs who sign up during the year). During the year ended December
31, 1995, 86% of the IRs who had a subscription for the Company's management
services program, and whose annual renewals were due in 1995, elected not to
renew. Activities of the IRs in obtaining new subscribers are particularly
impacted by changes in the level of IR motivation, which in turn can be
positively or negatively affected by general economic conditions,
modifications in the commission and training fees and in the Company's
marketing plan, and a number of intangible factors. The Company's ability to
attract IRs could be negatively affected by adverse publicity relating to the
Company or its services or its operations, including its network marketing
system. The Company has been the subject of various newspaper articles from
time to time criticizing the Company's business practices or the sales
activities of certain IRs who have made statements about the earnings
potential of being an IR in violation of the Company's policies and
procedures. Because of the number of factors that impact the recruiting of
IRs, the Company cannot predict when or to what extent such increases or
decreases in the level of IR retention will occur. In addition, the number of
IRs as a percentage of the population may reach levels that become difficult
to exceed due to the finite number of persons inclined to pursue an
independent direct selling business opportunity. There can be no assurance
that the number or productivity of IRs will be sustained at current levels or
will increase in the future.

A group of IRs, including one IR who has been one of the Company's top ten
highest earning representatives for the last six months, recently sued the
Company and others, claiming defamation, unfair competition, and interference
with contractual relationships for which they seek actual and punitive damages
of $405 million. The Company denies the allegations, is vigorously defending
the litigation, and believes the ultimate outcome thereof will not have a
material adverse effect upon the Company's results of operations or financial
position. However, an unfavorable outcome in this matter could have a material
adverse effect upon the Company's results of operations or financial position.

8
<PAGE>

The Company is subject to competition in the recruiting of IRs from other
network marketing organizations, including those that market long distance
services, health products, cosmetics, and food and dietary supplements, such
as American Communications Network ("ACN"), Amway Corporation ("Amway"), TDG
Communications ("TDG"), BeautiControl Cosmetics, Inc., Herbalife
International, Inc., and Mary Kay, Inc. ACN representatives sell long distance
service for LCI and other long-distance carriers, Amway distributors sell "1-
plus" long distance service for MCI, and TDG sells MCI Paging Services and the
MCI VNet Calling Card. See "Business--Company Strategy," "--Marketing," "--
Regulation," and "--Legal Matters."

REGULATION AND MANAGEMENT OF INDEPENDENT REPRESENTATIVES

Because the IRs are classified as independent contractors, and not as
employees of the Company, the Company is unable to provide them the same level
of direction and oversight as Company employees. While the Company has
policies and rules in place governing the conduct of the IRs and periodically
reviews the sales tactics of the IRs, it is difficult to enforce such policies
and rules for the IRs. Violations of these policies and rules reflect
negatively on the Company and have led to informal complaints by various
federal and state regulatory authorities. The Company, like other long
distance carriers, has been subject to complaints before the FCC and state
public utility commissions regarding the unauthorized switching of
subscribers' long distance carriers (also known in the industry as
"slamming"). In addition, informal complaints regarding IR misrepresentations
and subscriber billing issues have been filed from time to time with state
attorney general offices, state public utility commissions, and the FCC. These
offices from time to time contact the Company and meet with representatives of
the Company to review the activities of the Company and the IRs in their
respective states, although such agencies never approve or endorse any
company's business practices. These reviews have been combined in at least one
state with the Company's application for approval of the Reorganization.
Additional informal complaints by federal and state regulatory authorities may
occur again in the future and could have a material adverse effect on the
Company's results of operations.

The Company's network marketing system is or may be subject to or affected
by extensive government regulation, including, without limitation, federal and
state regulation of the offer and sale of business franchises, business
opportunities, and securities. Various governmental agencies monitor direct
selling activities, and the Company has occasionally been requested to supply
information regarding its marketing plan to certain of such agencies. Although
the Company believes that its network marketing system is in substantial
compliance with the laws and regulations relating to direct selling
activities, there is no assurance that legislation and regulations adopted in
particular jurisdictions in the future will not adversely affect the Company's
operations. The Company also could be found to be in non-compliance with
existing statutes or regulations as a result of, among other things,
misconduct by IRs, who are independent contractors over whom the Company has
limited control, the ambiguous nature of certain of the regulations, and the
considerable interpretive and enforcement discretion given to regulators. Any
assertion or determination that the Company or the IRs are not in compliance
with existing statutes or regulations could have a material adverse effect on
the Company. Furthermore, an adverse determination by any one state could
influence the decisions of regulatory authorities in other jurisdictions. See
"Business--Marketing" and "--Regulation."

COMPETITION

The U.S. long distance telecommunications industry is highly competitive and
significantly influenced by the marketing and pricing practices of the major
industry participants. AT&T, MCI, Sprint, and WorldCom are the dominant
competitors in the domestic long distance telecommunications industry. AT&T,
MCI, Sprint, and WorldCom are significantly larger than the Company and have
substantially greater resources. According to a 1995 FCC report, AT&T, MCI,
Sprint, and WorldCom accounted for approximately 56%, 17%, 10%, and 5%,
respectively, of total domestic long distance revenue for calendar year 1994.
The Company competes with other national and regional long distance carriers
in addition to AT&T, MCI, Sprint, and WorldCom. These competitors employ
various means to attract new subscribers, including television and other
advertising campaigns, telemarketing programs, network marketing, and cash
payments and other incentives to new subscribers. The Company's ability to
compete effectively with other carriers depends upon, among other factors, its
continued ability to provide high quality services at competitive prices, and
there can be no assurance that the Company will be able to compete
successfully in the future in these markets.

9
<PAGE>

The evolving regulatory environment of the U.S. long distance
telecommunications industry significantly influences the Company's ability to
compete. LECs are currently responsible for call origination (carrying the
subscriber's call on the local network from the subscriber's location to the
long distance network of the long distance carrier, such as AT&T, selected by
the subscriber to carry the call) and call termination (carrying the call off
the long distance carrier's network onto a local network to the call's
destination). On February 1, 1996, the U.S. House of Representatives and the
U.S. Senate passed the Telecommunications Act of 1996 (the "1996
Telecommunications Act"), which is intended to introduce additional
competition to the U.S. telecommunications market. The legislation was signed
into law on February 8, 1996 by President Clinton. Among other things, the
legislation contains special provisions that eliminate the AT&T Decree (as
defined herein) and the GTE Decree (as defined herein), which previously
restricted the Bell Operating Companies ("BOCs") and the GTE Operating
Companies ("GTOCs"), respectively, from providing long distance services and
engaging in telecommunications equipment manufacturing.

As of February 8, 1996, the date of enactment of the 1996 Telecommunications
Act, the previous prohibitions on BOC provision of inter-LATA (a LATA is also
known as a Local Access and Transport Area) long distance service outside of
those markets in which they provide local exchange service (referred to as
"out-of-region" long distance service) have been eliminated. The BOCs will be
permitted to provide out-of-region long distance service upon receipt of any
necessary state and/or federal regulatory approvals that are otherwise
applicable to the provision of intrastate and/or interstate long distance
service. The BOCs also will be able to provide long distance service within
the regions in which they also provide local exchange service (referred to as
"in-region" service) upon specific FCC approval and upon satisfying other
conditions, including a checklist of interconnection and other requirements on
LECs. The GTOCs are permitted to enter the long distance market as of the date
of enactment without regard to limitations by region, although the necessary
state and/or federal regulatory approvals that are otherwise applicable to the
provision of intrastate and/or interstate long distance service will need to
be obtained, and the GTOCs are subject to the provisions of the 1996
Telecommunications Act that impose interconnection and other requirements on
LECs.

It is unknown at this time what impact the 1996 Telecommunications Act will
have on the Company. Depending on the exact nature and timing of GTOC and BOC
out-of-region and in-region entry into the long distance market, such entry
could have a material adverse effect upon the Company's results of operations.
Certain of the BOCs have already taken steps to provide out-of-region long
distance services, and it is expected by the Company that most or all of the
other BOCs will file applications for out-of-region long distance service. See
"Business--Statutory and Regulatory Changes."

In November 1995, the FCC terminated AT&T's status as a "dominant" carrier
for certain domestic services, including residential and small business long
distance services, which may make it easier for AT&T to compete directly with
the Company for long distance subscribers. However, the new legislation limits
AT&T and other long distance carriers serving more than five percent of the
nation's presubscribed access lines from packaging their long distance
services with local services provided over BOC facilities. In addition, AT&T
has recently announced a restructuring of its business and a downsizing of its
labor force. Because these events have only recently occurred, the impact, if
any, on the Company has not been determined.

Telecommunication companies compete for subscribers based on price, among
other things, with major long distance carriers conducting extensive
advertising campaigns to capture market share. There can be no assurance that
a decrease in the rates charged for communications services by the major long
distance carriers or other competitors, whether caused by general competitive
pressures or the entry of the BOCs, GTOCs, and other LECs into the long
distance market, would not have a material adverse effect on the Company's
business, operating results, and financial condition. See "Business--Industry
Overview and Competition" and "--Regulation."

RELATIONSHIP WITH CARRIERS

The Company does not currently own a long distance network. As a result, the
Company depends primarily on Frontier and Switched Services Communications,
L.L.C. ("SSC") for the transmission of subscriber phone calls and is currently
seeking agreements with other carriers in selected markets, including MCI and
WorldCom,

10
<PAGE>

although no assurance can be given as to whether such agreements will be
entered into or the terms that they would contain. Although the Company
believes that its relations with its carriers are strong, the termination of
any of the Company's contracts with its carriers or a reduction in the quality
of their services could have a material adverse effect on the Company's
results of operations. In addition, the accurate and prompt billing of the
Company's subscribers is dependent upon the timeliness and accuracy of call
detail records provided by the carriers upon which the Company bases its
subscriber billings. There can be no assurance that the current carriers will
continue to provide or that new carriers will provide accurate information on
a timely basis, the failure of which could have a material adverse effect on
the Company's results of operations. Although SSC is currently providing
quality service, SSC does not have experience handling large volumes of
switched long distance traffic, and there can be no assurance as to the
quality of the service that the Company will receive from SSC. In the event
that either Frontier or SSC (but not both) are unable to handle the growth in
subscriber long distance usage, the Company could transfer such traffic to the
carrier that had sufficient capacity. In the event that both carriers reach
their maximum capacity, then the Company would be required to use another
carrier, which could be the Company's own network. In such event or in the
event the Company otherwise elects to use other carriers, the cost paid for
such long distance services may exceed that paid under the SSC or Frontier
contracts, which could have a material adverse effect on the Company's results
of operations.

The Frontier contract, which expires on April 30, 1998, provides that the
Company will maintain a monthly minimum of 100 million minutes of usage on the
Frontier network, subject to certain reductions. The Company also has a
monthly minimum commitment of 70 million minutes of usage to SSC for a term of
five years, subject to early expiration if certain conditions are not met. For
the month of March 1996, the Company used approximately 435 million minutes.
The requirement of the Company to purchase these monthly minimums could, in
the event the Company has a substantial reduction in the current subscriber
usage level, have a material adverse effect on the Company's results of
operations. Such minimum minutes of usage may be more difficult to maintain if
new carriers are utilized by the Company and the Company could be subject to
additional minimum commitments with such new carriers.

The Frontier contract provides that Frontier may increase the rates that it
charges the Company on a LATA-by-LATA basis upon a showing that access charges
have increased in such LATA or that Frontier's price to the Company is below
its cost. Frontier must provide the Company with 120 days notice of any such
price increase, and no price increase may be effective prior to September 1,
1996. In the event the Company receives notice of a price increase from
Frontier, the Company has the ability upon 90 days notice to Frontier to route
its long distance traffic in such LATA to another carrier; however, there is
no assurance that any other carrier will provide rates as favorable as those
previously provided by Frontier. On May 2, 1996, the Company received a notice
of a price increase to be effective on September 1, 1996 from Frontier for
approximately 30% of its LATAs and may receive additional notices in the
future for other LATAs. The Company is seeking agreements to route its long
distance traffic in the LATAs covered by the notice and in other LATAs to
other carriers and believes that it will be able to obtain rates as favorable
as those rates previously charged by Frontier for such areas, although no
assurance can be given that such agreements will be entered into or regarding
the terms that such agreements will contain. The Frontier contract provides
that if such affected long distance traffic is moved to another carrier as a
result of such price increase, the monthly minimum commitment of 100 million
minutes to Frontier will be reduced proportionately. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Suppliers."

DEPENDENCE ON KEY PERSONNEL

The Company believes that its continued success will depend to a significant
extent upon the abilities and continued efforts of its senior management,
particularly Kenny A. Troutt, its Chairman, Chief Executive Officer, and
President. The Company does not have employment agreements with any of its
employees, other than Mr. Troutt, and does not maintain key man life insurance
on Mr. Troutt or any of its other employees. Many of the Company's executive
officers and other key employees have only recently joined the Company. The
loss of the services of any of such individuals could have a material adverse
effect on the Company's results of

11
<PAGE>

operations. The success of the Company will also depend, in part, upon the
Company's ability to find, hire, and retain additional key management
personnel who are also being sought by other businesses. The inability to
find, hire, and retain such personnel could have a material adverse effect
upon the Company's results of operations. See "Management--Executive Officers
and Directors."

SUBSCRIBER ATTRITION

The Company believes that a high level of subscriber attrition is a
characteristic of the domestic residential long distance industry. Attrition
is attributable to a variety of factors, including the termination of
subscribers by the Company for non-payment and the initiatives of existing and
new competitors as they engage in, among other things, national advertising
campaigns, telemarketing programs, and the issuance of cash or other forms of
incentives. The Company's average monthly subscriber attrition rate (which is
the number of subscribers from whom revenue for long distance service has
terminated during a month expressed as a percentage of the total number of
subscribers at the beginning of the month) was approximately 4% per month for
the year ended December 31, 1995. Such attrition rate could have a material
adverse effect upon the Company's results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

REGULATION OF LONG DISTANCE TELEPHONE SERVICES

The Company is currently subject to federal and state government regulation
of its long distance telephone services. The Company is regulated at the
federal level by the FCC and is required to maintain both domestic and
international tariffs for its services containing the currently effective
rates, terms, and conditions of service. The FCC has proposed, however, to
eliminate the tariffing requirement for domestic interstate non-dominant
carriers. In addition, the Company is required to maintain a certificate,
issued by the FCC, in connection with its international services. The
intrastate long distance telecommunications operations of the Company are also
subject to various state laws and regulations, including prior certification,
notification, or registration requirements. The Company generally must obtain
and maintain certificates of public convenience and necessity from regulatory
authorities in most states in which it offers service. In most of these
jurisdictions, the Company must file and obtain prior regulatory approval of
tariffs for intrastate services. In addition, the Company must update or amend
the tariffs and, in some cases, the certificates of public convenience and
necessity when rates are adjusted or new products are added to the long
distance services offered by the Company. The FCC and numerous state agencies
also impose prior approval requirements on transfers of control, including pro
forma transfers of control and corporate reorganizations, and assignments of
regulatory authorizations. As a result, the Company has filed notices and/or
applications for approval of the Reorganization. In certain state
jurisdictions, the Company has sought approval retroactively for certain
transactions involving the Reorganization. While the Company expects to
receive all such approvals that have been requested and believes that it is
otherwise in compliance with the applicable state and federal regulations
governing telecommunications service, there can be no assurance that the FCC
or the regulatory authorities in one or more states will not raise material
issues with regard to the Company's compliance with applicable regulations,
including transfer, stock issuance, and similar regulations, or that
regulatory activities will not have a material adverse effect on the Company's
results of operations. See "Business--Regulation."

The Company has been the subject of complaints before both the FCC and state
public utilities commissions regarding the unauthorized switching of
subscribers' long distance carriers, also known in the industry as "slamming,"
and regarding subscriber liability for billed calls for which the subscriber
denies responsibility and other billing issues. The FCC has made a preliminary
finding that the Company engaged in two alleged slamming incidents, which
occured in August 1994, and for which the FCC assessed proposed fines against
the Company in the aggregate amount of $80,000. This finding is not a final
order, and the Company has filed a timely response with the FCC in which facts
were presented that, in the Company's view, justify rescinding in its entirety
or reducing the proposed penalty. The Company's response is still pending, and
the FCC has not issued a final decision. Additional complaints regarding
unauthorized switching, subscriber liability for billed calls for which the
subscriber denies responsibility, and other billing issues have been filed at
multiple state commissions, including the Florida Public Service Commission,
which in 1995 initiated a show cause proceeding concerning the Company on
slamming matters. On March 5, 1996, the Florida Public Service Commission
voted to resolve

12
<PAGE>

this matter without a finding of liability against the Company. An order has
been approved by the Florida Public Service Commission that terminates the
proceeding without an admission of wrongdoing by the Company; provided the
Company makes a $10,000 payment to the Florida treasury, which is less than
the $35,000 payment initially sought by the Florida Public Service Commission.
The $10,000 payment has been made by the Company, and this matter has become
final. If the FCC or any of the state commissions determines that the Company
engaged in unauthorized switching or other unauthorized conduct, the Company
could be subject to financial penalties and revocation of authority, as well
as other possible restrictions. Such agency determinations and the imposition
of any or all of such sanctions could have a material adverse effect on the
Company's results of operations. See "Business--Regulation."

If the federal and state regulations requiring the LECs to provide equal
access for the origination and termination of calls by long distance
subscribers (such as the Company's subscribers) change or if the regulations
governing the fees to be charged for such access services change, particularly
if such regulations are changed to allow variable pricing of such access fees
based upon volume, such changes could have a material adverse effect upon the
Company's results of operations. See "Business--Industry Overview and
Competition" and "-- Regulation."

RISKS RELATING TO DEVELOPMENT OF A LONG DISTANCE NETWORK

The Company's business strategy includes the development of a long distance
network, which may include, among other things, acquiring or leasing switches
and dedicated transmission lines, to provide an alternative to the facilities-
based long distance service provided by Frontier and SSC. There can be no
assurance that development of a long distance network will be completed or, if
completed, will be beneficial to the Company. In acquiring or leasing the
switches and dedicated transmission lines needed to develop a long distance
network, the Company may incur indebtedness and fixed operating costs, which
would be a departure from the Company's historical operations. The Company
currently does not own or operate its own long distance network, and the
Company has limited experience operating as a switch-based carrier. In
addition, various regulatory approvals must be obtained in order for the
Company to operate a long distance network. There can be no assurance that the
Company will be successful in obtaining such regulatory approvals or operating
as a switch-based carrier once it develops its own long distance network. The
Company's success will depend, in part, on its ability to manage and integrate
the operations of a long distance network into the Company's operations,
including the development of the Company's management information systems. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Company Strategy," and "--
Development of a Long Distance Network."

OFFERING ADDITIONAL PRODUCTS AND SERVICES

The Company's strategy includes offering additional communications products
and services, which may include, among others, paging, wireless cable, home
security monitoring and communication, cellular phone service, local phone
service, and Internet access. The Company has entered into an agreement with
PageMart to allow the Company to provide pagers and paging services to be sold
by the IRs. Entry into new markets entails risks associated with the state of
development of the market, intense competition from companies already
operating in those markets, potential competition from companies that may have
greater financial resources and experience than the Company, and increased
selling and marketing expenses. The Company has not provided any paging
products or services for its IRs to sell but expects to do so in the near
future. There can be no assurance that the Company's products or services will
receive market acceptance in a timely manner, or at all, or that prices and
demand in new markets will be at a level sufficient to provide profitable
operations. See "Business--Industry Overview and Competition," "--Company
Strategy," and "--Products and Services."

POSSIBLE CLAIMS RELATING TO OWNERSHIP OF PROPRIETARY RIGHTS

13
<PAGE>

property. There can be no assurance that the Company's measures to protect its
intellectual property will deter or prevent the unauthorized use of the
Company's intellectual property. If the Company is unable to protect its
intellectual property rights, including existing trademarks and service marks,
it could have a material adverse effect upon the Company's results of
operations. From time to time, companies may assert other trademark and
service mark rights relevant to the Company's business, and future products of
the Company may need to be marketed under different names if the mark "EXCEL"
is being used by other companies. In the event a third party were to sustain a
valid claim against the Company, and in the event any required license were
not available on commercially reasonable terms, the Company's results of
operations could be materially adversely affected. See "Business--Proprietary
Rights."

ABSENCE OF PUBLIC MARKET; OFFERING PRICE DETERMINED BY AGREEMENT; VOLATILITY
OF MARKET PRICE

Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop
subsequent to the Offering or, if developed, that it will be sustained. The
initial public offering price of the Common Stock will be determined by
negotiations between the Company, the Selling Stockholders, and the
representative of the Underwriters and may not be indicative of the market
price of the Common Stock after the Offering. The market price of the Common
Stock could be subject to significant fluctuations in response to variations
in quarterly and yearly operating results, general trends in the long distance
industry, the impact of the 1996 Telecommunications Act and any other new
telecommunications legislation, and changes in federal regulations affecting
the Company or the long distance industry, and other factors. In addition, the
stock market in recent years has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to the
operating performance of affected companies. Broad market fluctuations may
adversely affect the market price of the Common Stock. See "Underwriting."

CONCENTRATION OF OWNERSHIP

Following the Offering, Kenny A. Troutt, the Company's Chairman, Chief
Executive Officer, President, and a director, will own approximately 60% of
the outstanding Common Stock and the current officers and directors of the
Company will own, in the aggregate, approximately 73% of the outstanding
Common Stock. Accordingly, Mr. Troutt, acting alone, and the current officers
and directors of the Company, acting as a group, each will have the ability to
elect all of the directors of the Company and control the Company's
management, operations, and affairs. See "Principal and Selling Stockholders."

CERTAIN ANTI-TAKEOVER MATTERS

The Company's Board of Directors can, without obtaining stockholder
approval, issue shares of Preferred Stock, $0.001 par value ("Preferred
Stock"), having rights that could adversely affect the voting power of holders
of the Common Stock. Also, Section 203 ("Section 203") of the Delaware General
Corporation Law (the "DGCL") restricts certain business combinations with any
"interested stockholder," as defined by such statute. In addition, the vesting
of options granted under the 1995 Stock Option Plan may be accelerated upon
the occurrence of certain specified "change in control" transactions. The
Company is also subject to prior regulatory approval by the FCC and various
state regulatory agencies for a transfer of control of the Company or for the
assignment of the Company's intrastate certification authority and its
international authority. Any of the foregoing factors could have the effect of
delaying, deferring, or preventing a change of control of the Company. See
"Business--Regulation," "Management--Benefit Plans," "Description of Capital
Stock--Preferred Stock," and "--Certain Anti-Takeover Matters."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price for the
Company's Common Stock. Upon completion of the Offering, the Company will have
outstanding 107,300,000 shares of Common Stock (or 108,800,000 shares if the
U.S. Underwriters' over-allotment option is exercised in full), assuming no
exercise of options after the date of this

14
<PAGE>

Prospectus. Of these shares, the 10,000,000 shares offered hereby (11,500,000
shares if the U.S. Underwriters' over-allotment option is exercised in full)
will be freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act ("Rule 144") described below.
However, to the extent that any of the shares of Common Stock offered hereby
are acquired by certain IRs from the 750,000 shares reserved for them by
Donaldson, Lufkin & Jenrette Securities Corporation, such IRs will be
prohibited from offering, selling, pledging, contracting to sell, granting any
option to purchase, or otherwise disposing of any such shares for a period of
120 days following the effective date of the Registration Statement. See
"Underwriting." The remaining 97,300,000 shares of Common Stock outstanding
upon completion of the Offering are "restricted securities," as that term is
defined in Rule 144, and upon expiration of certain Lock-Up Agreements (as
defined herein) 180 days after the effective date of the Registration
Statement, all of such restricted shares will be eligible for sale in the open
market under and subject to the restrictions contained in Rule 144. Donaldson,
Lufkin & Jenrette Securities Corporation in its sole discretion, and at any
time without notice, can release all or any portion of the securities subject
to the Lock-Up Agreements. Under the 1995 Stock Option Plan, as of the date of
this Prospectus options to purchase 5,127,325 shares of Common Stock are
outstanding, none of which are exercisable as of the date of this Prospectus.
Once vested, any shares of Common Stock acquired upon exercise of such options
will be eligible for resale pursuant to Rule 701 under the Securities Act
("Rule 701") and Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act. See "Business--Legal
Matters," "Management--Benefit Plans," "Shares Eligible for Future Sale," and
"Underwriting."

DILUTION TO NEW INVESTORS

Investors purchasing shares of Common Stock in the Offering will experience
immediate and substantial dilution in net tangible book value. To the extent
outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. See "Dilution."

LACK OF DIVIDENDS

15
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 8,300,000 shares of
Common Stock being offered by the Company in the Offering (at the initial
public offering price of $15.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses, all of which are
payable by the Company) are estimated to be approximately $113.8 million
(approximately $134.8 million if the U.S. Underwriters' over-allotment option
is exercised in full). Of the net proceeds received by the Company, the
Company intends to use (i) approximately $24.0 million for the development of
a long distance network, (ii) approximately $18.0 million for the acquisition
and development of corporate facilities, (iii) approximately $31.0 million for
the enhancement and development of information systems, and (iv) approximately
$40.8 million for working capital and general corporate purposes, including
possible future acquisitions. The Company is not currently involved in
negotiations, and currently has no agreements or understandings, with respect
to any such acquisitions. Pending application of the net proceeds as described
above, the Company will invest such proceeds in short-term, interest-bearing
instruments and investment grade securities.

The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.

DIVIDEND POLICY

The Company has in the past declared dividends, including a dividend in the
amount of $20 million declared by the Company's predecessor on December 31,
1995 to its then existing shareholders, which the Company expects to pay prior
to the completion of the Offering. However, the Company does not intend to pay
any other cash dividends with respect to its Common Stock in the foreseeable
future. Additionally, the Company's loan agreement with Marine Midland
Business Loans, Inc. prohibits the payment of dividends except to the extent
of the Company's net income (as calculated under the loan agreement). See
"Recent Developments and Certain Transactions." The Company's Board of
Directors will determine the Company's dividend policy in the future based
upon, among other things, the Company's results of operations, financial
condition, business opportunities, capital requirements, contractual
restrictions, and other factors deemed relevant at the time.

16
<PAGE>

DILUTION

The net tangible book value of the Company as of March 31, 1996, was $73.1
million, or $0.74 per share of Common Stock. Net tangible book value per share
represents the amount of the Company's total assets less total liabilities,
divided by the total number of outstanding shares of Common Stock. After
giving effect to the sale of the shares of Common Stock offered hereby by the
Company and the receipt and application of the estimated proceeds therefrom
(at the initial public offering price of $15.00 per share and after deducting
underwriting discounts and commissions and estimated expenses of the
Offering), the net tangible book value of the Company at March 31, 1996, would
have been $186.9 million, or $1.74 per share of Common Stock. This represents
an immediate increase in the net tangible book value of $1.00 per share to
existing stockholders and an immediate dilution to new investors purchasing
Common Stock in the Offering of $13.26 per share. The following table
illustrates the per share dilution to new investors at March 31, 1996,
assuming the Offering was made at that time:

<TABLE>
<S> <C> <C>
Initial public offering price per share......................... $15.00
Net tangible book value per share as of March 31, 1996........ $0.74
Increase per share attributable to new investors.............. 1.00
-----
Pro forma net tangible book value per share after the Offering.. 1.74
------
Dilution per share to new investors............................. $13.26
======
</TABLE>

The following table sets forth as of March 31, 1996, after giving effect to
the Offering, the number of shares of Common Stock purchased from the Company,
the total consideration paid therefor, and the average price per share paid by
existing stockholders and by new investors on an as adjusted basis:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)..... 99,000,000 92.3% $ 432,000 0.3% $0.004
New investors................ 8,300,000 7.7 124,500,000 99.7 15.00
----------- ---- ------------ ----
Total...................... 107,300,000 100% $124,932,000 100%
=========== ==== ============ ====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in the Offering will reduce the number
of shares held by existing stockholders to 97,300,000, or 90.7% of the
total number of shares outstanding after the Offering, and will increase
the number of shares being purchased by new investors to 10,000,000, or
9.3% of the total number of shares of Common Stock outstanding after the
Offering. See "Principal and Selling Stockholders."

The above computations reflect that there has been no exercise of
outstanding stock options as of the date of this Prospectus. As of the date of
this Prospectus, under the 1995 Stock Option Plan there are options
outstanding to purchase 4,853,475 shares of Common Stock at an exercise price
of $4.55 per share and options outstanding to purchase 273,850 shares of
Common Stock at an exercise price per share equal to the initial public
offering price, none of which are vested or exercisable as of the date of this
Prospectus. To the extent that any shares of Common Stock are issued upon
exercise of any of these options or any additional options that are granted
under the 1995 Stock Option Plan or otherwise, there will be further dilution
to new investors. See "Business--Legal Matters" and "Management--Benefit
Plans."

17
<PAGE>

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of the
Company (i) as of March 31, 1996, and (ii) as adjusted to give effect to the
sale by the Company of the 8,300,000 shares of Common Stock being offered by
the Company hereby at the initial public offering price of $15.00 per share
and the anticipated receipt and application of the estimated net proceeds
therefrom. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Recent Developments and
Certain Transactions."

<TABLE>
<CAPTION>
AS OF MARCH
31, 1996
--------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED
<S> <C> <C>
Short-term debt, including current maturities of long-term
debt and capital lease obligations....................... $ 424 $ 424
======= ========
Total long-term debt and capital lease obligations, less
current portion.......................................... $ 286 $ 286
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares
authorized; no shares outstanding...................... -- --
------- --------
Common stock, $0.001 par value; 500,000,000 shares
authorized (actual and as adjusted); 99,000,000 shares
issued and outstanding (actual); 107,300,000 shares
issued and outstanding (as adjusted)................... 99 107
Additional paid-in capital.............................. 2,796 116,582
Unearned compensation................................... (1,618) (1,618)
Retained earnings....................................... 71,851 71,851
------- --------
Total stockholders' equity............................ 73,128 186,922
------- --------
Total capitalization...................................... $73,414 $187,208
======= ========
</TABLE>

18
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data for the
Company as of the dates and for the periods indicated. The financial data for
each of the years ended December 31, 1992, 1993, 1994, and 1995 are derived
from audited financial statements of the Company. The financial data for the
year ended December 31, 1991 and the three months ended March 31, 1995 and
1996 were derived from unaudited financial statements of the Company, which in
the opinion of management of the Company contain all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation
thereof. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for the full
year. The data set forth below in this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements of the Company.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Communication services. $17,857 $20,670 $24,198 $108,819 $363,301 $51,015 $205,274
Marketing services(1).. 3,419 3,497 6,650 43,339 143,397 17,724 75,516
------- ------- ------- -------- -------- ------- --------
Total revenues.......... 21,276 24,167 30,848 152,158 506,698 68,739 280,790
------- ------- ------- -------- -------- ------- --------
Operating expenses:
Communication.......... 12,964 13,264 13,761 58,925 209,995 29,366 113,514
Marketing services(2).. 4,472 5,255 7,730 46,724 147,476 21,265 76,940
General and administra-
tive.................. 4,232 5,866 5,811 19,779 71,514 9,310 36,941
------- ------- ------- -------- -------- ------- --------
Total operating ex-
penses................. 21,668 24,385 27,302 125,428 428,985 59,941 227,395
------- ------- ------- -------- -------- ------- --------
Operating income........ (392) (218) 3,546 26,730 77,713 8,798 53,395
------- ------- ------- -------- -------- ------- --------
Other income (expense):
Interest expense....... -- (74) (75) (295) (593) (188) (52)
Income (losses) from
joint venture......... -- -- -- -- (6,248) (345) 1,041
Other.................. -- -- 24 83 467 55 503
------- ------- ------- -------- -------- ------- --------
Income (loss) before in-
come taxes............. (392) (292) 3,495 26,518 71,339 8,320 54,887
Provision (benefit) for
income taxes........... (11) 17 1,126 10,648 26,893 3,136 20,901
------- ------- ------- -------- -------- ------- --------
Net income (loss)....... $ (381) $ (309) $ 2,369 $ 15,870 $ 44,446 $ 5,184 $ 33,986
======= ======= ======= ======== ======== ======= ========
Net income per share(3). $ -- $ -- $ 0.03 $ 0.18 $ 0.46 $ 0.05 $ 0.34
Cash dividends declared
per share.............. $ -- $ -- $ -- $ 0.046 $ 0.202 $ -- $ --
======= ======= ======= ======== ======== ======= ========
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
--------------------------------------------- -----------------
1991 1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ (328) $ (648) $ (186) $ 7,134 $ 1,071 $ 20,926
Property and equipment,
net.................... 707 597 662 2,476 8,560 18,179
Total assets............ 3,536 2,604 9,058 59,412 203,581 301,859
Long-term obligations,
net of current maturi-
ties................... 494 420 313 3,369 345 286
Stockholders' equity
(deficit).............. (27) (336) 1,995 13,635 37,708 73,128
</TABLE>
- ---------------------
(1) Revenues from marketing services include the effect of deferring a portion
of the cash received during each period and amortizing the deferred
revenues over 12 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 to the
Consolidated Financial Statements.
(2) Marketing services cost includes the effect of capitalizing the portion of
commissions paid for acquisition of new subscribers and amortizing the
capitalized costs over 12 months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 to
the Consolidated Financial Statements.
(3) See Note 2 to the Consolidated Financial Statements for an explanation of
the number of shares used in computing net income per share.

19
<PAGE>

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 Consolidated Financial Data and the Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.

GENERAL

EXCEL, which was formed in December 1988 and commenced operations in 1989,
operates as a provider of long distance service to residential and small
business subscribers. The Company believes that, based upon domestic
residential long distance revenues, it ranks fourth after AT&T, MCI, and
Sprint. As of March 31, 1996, the Company served approximately 3.1 million
subscribers, who were all obtained through a direct sales approach by a
nationwide network of IRs.

The Company introduced its network marketing system in 1989. In 1993, the
network marketing system was refined whereby subscriber acquisition
commissions were increased. Also in 1993, the Company reduced its long
distance rates to be slightly less than those of certain competitors. These
two operational developments contributed to subsequent significant growth in
the Company's subscriber base and its IR network beginning in the fourth
quarter of 1993. Communication services revenues increased to $363.3 million
in 1995 from $24.2 million in 1993. In addition, marketing services revenues
from IRs and the area coodinators who train the IRs ("ACs") increased to
$143.4 million in 1995 from $6.7 million in 1993.

The Company's strategy has been to build a subscriber base without
committing capital or management resources to construct its own network and
transmission facilities. This strategy has allowed the Company to add
subscribers without being limited by the capacity, geographic coverage, or
configuration of any particular network that the Company might have developed.
In 1990, the Company contracted with Frontier to provide switching services
and network transmission of its subscribers' traffic, which has allowed the
Company to pursue this strategy. As the volume of the Company's traffic has
reached sufficient levels in certain markets, the Company now intends to seek
other providers of long distance service and to develop its own long distance
network in those markets to reduce its dependence upon Frontier, provide
additional services to its subscribers, and reduce expenses associated with
the transmission of long distance calls. There can be no assurance, however,
that development of a long distance network will be completed or, if
completed, will be beneficial to the Company.

The Company's revenues consist of sales revenues for communication services
and marketing services. Revenues for communication services, as reflected in
the Company's Consolidated Financial Statements, are net of the effect of
certain adjustments, including unbillable call records. The Company's long
distance subscribers are located throughout the United States, and the Company
completes subscriber calls to all directly dialable locations worldwide. The
Company bills its subscribers for long distance usage based on the type of
calls, time of calls, duration of calls, the terminating phone numbers, and
each subscriber's rate plan in effect at the time of the call.

Marketing services revenues are comprised of receipts from IRs and ACs.
Except in certain states, IRs are required to make an initial refundable
application deposit with EXCEL as an expression of commitment. There is no
additional cost to participate. IRs have an option to purchase a start-up
package, which includes training,

20
<PAGE>

business forms, promotional and presentation materials, ongoing technical and
administrative support services, and monthly reports. If the start-up package
is purchased, the application deposit requirement is waived. In addition,
EXCEL offers training positions whereby ACs, certified by the Company, provide
training to new IRs. The fee to become an AC is generally $395 (with an annual
renewal fee of $100). The portions of the marketing services revenues received
that relate to ongoing technical and administrative support services are
deferred. The Company has adopted an accounting convention of amortizing
deferred management services fees over a period of 12 months in order to match
those revenues with the costs of providing the related support services.
Marketing services revenues include the effect of the deferral of a portion of
the cash received for management services during a period, as well as the
effect of the current period amortization of amounts deferred in the current
and prior periods. The net effect of deferring and amortizing a portion of
management services fees was a reduction in revenues reflected in the
Company's Consolidated Financial Statements of $637,000, $4.6 million, $15.8
million, and $8.3 million for the years ended December 31, 1993, 1994, and
1995, and for the three months ended March 31, 1996, respectively. These
deferred revenues are reflected as deferred management services fees in the
consolidated balance sheets included in the Company's Consolidated Financial
Statements.

Operating expenses include communication charges, marketing services costs,
and general and administrative expenses. Communication charges are paid by the
Company based on the Company's subscribers' long distance usage. The Company
pays its carriers based on the type of calls, time of certain calls, duration
of calls, the terminating phone numbers, and the terms of the Company's
contract in effect at the time of the calls.

Marketing services costs are directly related to the Company's marketing
activities. Marketing services costs include commissions and the costs of
providing training, business forms, promotional and presentation materials,
technical and administrative support services, and monthly reports. When the
Company's marketing services costs are offset by its marketing services
revenues, the net expense represents the Company's net cost of marketing its
communication products. This net cost was $1.1 million, $3.4 million, and $4.1
million for the years ended December 31, 1993, 1994, and 1995, and $1.4
million for the three months ended March 31, 1996. Commissions are paid to IRs
based upon the acquisition of new long distance subscribers and for long
distance telephone usage by subscribers. The Company also pays commissions for
the training of IRs and ACs. The portions of commissions paid that directly
relate to the acquisition of long distance subscribers are capitalized. The
Company has adopted an accounting convention of amortizing capitalized
subscriber acquisition costs to expense over a period of 12 months in order to
better match those costs with the revenues from subscribers' long distance
usage during the first 12 months of service to such subscribers. Marketing
services costs, as reflected in the Company's Consolidated Financial
Statements, include the effect of the capitalization of the portion of
commissions paid for the acquisition of new subscribers during a period, as
well as the effect of the current period amortization of amounts capitalized
in the current and prior periods. The net effect of capitalizing and
amortizing a portion of commissions expense was a reduction in marketing
services costs reflected in the Company's Consolidated Financial Statements of
$3.6 million, $13.1 million, $51.4 million, and $27.6 million for the years
ended December 31, 1993, 1994, and 1995, and for the three months ended March
31, 1996, respectively. These deferred costs solely comprise deferred
subscriber acquisition costs included in the consolidated balance sheets in
the Company's Consolidated Financial Statements.

General and administrative expenses consist of the costs of providing
teleservices and other support services for subscribers, billing and
collecting long distance revenues, and the costs of the information systems
and personnel required to support the Company's operations and growth.

As a result of the Company's significant growth in operations, the Company
has also experienced significant growth in related assets and liabilities,
including working capital, deferred subscriber acquisition costs, deferred
management services fees, and deferred income taxes payable.

21
<PAGE>

incentives. The Company's average monthly subscriber attrition rate (which is
the number of subscribers from whom revenues for long distance services has
terminated during a month expressed as a percentage of the total number of
subscribers at the beginning of the month) was approximately 4% per month for
the year ended December 31, 1995. Such attrition rate could have a material
adverse effect upon the Company's results of operations.

The Company has experienced significant growth in the past and, depending on
the extent of its future growth, may experience significant strain on its
management, personnel, and information systems. The Company will be required
to implement and improve operational, financial, and management information
systems. In an effort to support its growth, the Company added seven senior
management positions and approximately 800 employees in 1995. Also, the
Company is implementing new information systems that will provide better
recordkeeping, subscriber and IR service, identification and management of
uncollectible accounts, and fraud control. There can be no assurance that the
Company's management resources or information systems will be sufficient to
manage any future growth in the Company's business, and the failure to do so
could have a material adverse effect on the Company's results of operations.

Various governmental agencies monitor direct selling activities, and the
Company has occasionally been requested to supply information regarding its
marketing plan to certain of such agencies. Although the Company believes that
its network marketing system is in substantial compliance with laws and
regulations relating to direct selling activities, there is no assurance that
legislation and regulations adopted in particular jurisdictions in the future
will not adversely affect the Company's operations.

22
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth selected information concerning the Company's
results of operations for the years ended December 31, 1993, 1994, and 1995
and the three months ended March 31, 1995 and 1996.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT FOR OPERATING AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Communication services..... $ 24,198 $ 108,819 $ 363,301 $ 51,015 $ 205,274
Marketing services(1)...... 6,650 43,339 143,397 17,724 75,516
----------- ----------- ------------- ---------- ------------
Total revenues............... 30,848 152,158 506,698 68,739 280,790
----------- ----------- ------------- ---------- ------------
Operating expenses:
Communication.............. 13,761 58,925 209,995 29,366 113,514
Marketing services(2)...... 7,730 46,724 147,476 21,265 76,940
General and administrative. 5,811 19,779 71,514 9,310 36,941
----------- ----------- ------------- ---------- ------------
Total operating expenses..... 27,302 125,428 428,985 59,941 227,395
----------- ----------- ------------- ---------- ------------
Operating income............. 3,546 26,730 77,713 8,798 53,395
----------- ----------- ------------- ---------- ------------
Other income (expense)....... (51) (212) (6,374) (478) 1,492
Provision for income taxes... 1,126 10,648 26,893 3,136 20,901
----------- ----------- ------------- ---------- ------------
Net income................... $ 2,369 $ 15,870 $ 44,446 $ 5,184 $ 33,986
=========== =========== ============= ========== ============
OPERATING AND STATISTICAL
DATA:
Communication charges as a %
of long distance revenues... 56.87% 54.15% 57.80% 57.56% 55.30%
General and administrative
expenses as a % of long
distance revenues........... 24.01% 18.18% 19.68% 18.25% 18.00%
Operating income as a % of
long distance revenues...... 14.65% 24.56% 21.39% 17.25% 26.01%
Long distance minutes of
usage (in 000's)(3)......... 118,357 544,552 2,101,240 269,882 1,227,713
Weighted average long
distance revenue per minute
of usage(4)................. $ 0.204 $ 0.200 $ 0.173 $ 0.189 $ 0.167
Weighted average
communication charges per
minute of usage(5).......... $ 0.116 $ 0.108 $ 0.100 $ 0.109 $ 0.092
Number of applications from
new independent
representatives (IRs)....... 28,067 156,275 461,158 53,534 245,965
Number of applications from
new area coordinators (ACs). 4,740 28,220 100,538 11,546 53,566
</TABLE>
- ---------------------
(1) Revenues from marketing services include the effect of deferring a portion
of the cash received during each period and amortizing the deferred
revenues over 12 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 to the
Consolidated Financial Statements.
(2) Marketing services cost includes the effect of capitalizing the portion of
commissions paid for acquisition of new subscribers and amortizing the
capitalized costs over 12 months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 to
the Consolidated Financial Statements.
(3) Long distance minutes of usage represent minutes billable to subscribers
during the period.
(4) Weighted average long distance revenue per minute of usage equals revenues
for calls billed to subscribers for domestic interstate and intrastate
service, 800 service, calling cards, service charges, and international
calls divided by the aggregate minutes of usage.
(5) Weighted average communication charges per minute of usage equal the cost
to purchase all long distance services sold to the Company's subscribers
divided by the aggregate minutes of usage.

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1995

Revenues. Total revenues increased 309% to $280.8 million for the three
months ended March 31, 1996 from $68.7 million for the three months ended
March 31, 1995. The increase in revenues was primarily due to increases in
long distance minutes of usage by subscribers and in the number of
applications from new IRs and ACs. Communication services revenues increased
303% to $205.3 million for the three months ended March 31, 1996 from $51.0
million for the three months ended March 31, 1995. Long distance minutes of
usage increased 355% to 1,227,713,000 minutes for the three months ended March
31, 1996 from 269,882,000 minutes

23
<PAGE>

for the three months ended March 31, 1995. Since IRs are frequently
subscribers, a portion of the increase in minutes of usage relates to
subscribers that are new IRs. Partially offsetting these increases was a
reduction in long distance revenues per minute of usage, which decreased 11.6%
to 16.7 cents per minute for the three months ended March 31, 1996 from 18.9
cents per minute for the three months ended March 31, 1995. The decrease in
revenues per minute was due to a rate reduction that took effect in April
1995. As a result of this rate reduction, average rates for domestic
interstate calls were reduced to approximately 13.1 cents per minute in the
fourth quarter of 1995 from approximately 15.3 cents per minute in the first
quarter of 1995.

Marketing services revenues increased 327% to $75.5 million for the three
months ended March 31, 1996 from $17.7 million for the three months ended
March 31, 1995. Revenues recognized from IRs for training, business forms,
promotional and presentation materials, ongoing technical and administrative
support services, and monthly reports increased 314% to $55.9 million for the
three months ended March 31, 1996 from $13.5 million for the three months
ended March 31, 1995. These revenues from IRs increased primarily due to the
growth in applications from new IRs to 245,965 applications received during
the three months ended March 31, 1996 from 53,534 applications received during
the three months ended March 31, 1995. Revenues recognized from ACs for
training fees increased 367% to $19.6 million for the three months ended
March 31, 1996 from $4.2 million for the three months ended March 31, 1995.
Training fee revenues from ACs increased primarily due to the growth in
applications from new ACs to 53,566 applications received for the three months
ended March 31, 1996 from 11,546 applications received during the three months
ended March 31, 1995.

Operating Expenses. Communication charges increased 286% to $113.5 million
for the three months ended March 31, 1996 from $29.4 million for the three
months ended March 31, 1995. Communication charges decreased to 9.2 cents per
minute for the three months ended March 31, 1996 from 10.9 cents per minute
for the three months ended March 31, 1995. The decrease in communication
charges per minute is primarily due to rate reductions from the Company's long
distance carrier beginning in April 1995. As a result of this rate reduction,
rates for domestic interstate calls were reduced approximately 17%. As a
percentage of long distance revenues, communication charges were 55.3% for the
three months ended March 31, 1996 compared to 57.6% for the three months ended
March 31, 1995. This decrease in communication charges as a percentage of long
distance revenues reflects the reduction in rates from the Company's long
distance carrier that were implemented from April 1995 through February 1996,
which were partially offset by the effect of the April 1995 reduction in rates
charged to the Company's long distance subscribers.

Total marketing services costs, which directly relate to the Company's
marketing activities and which include commissions and the costs of providing
training, business forms, promotional and presentation materials, technical
and administrative support services, and monthly reports, increased 261% to
$76.9 million for the three months ended March 31, 1996 from $21.3 million for
the three months ended March 31, 1995. Total commissions expense increased
294% to $57.9 million for the three months ended March 31, 1996 from
$14.7 million for the three months ended March 31, 1995. Commissions expense
for the acquisition of new long distance subscribers increased to $29.4
million for the three months ended March 31, 1996 from $8.3 million for the
three months ended March 31, 1995. The average subscriber acquisition
commissions the Company paid per new subscriber increased to $48.44 for the
three months ended March 31, 1996 from $47.56 for the three months ended March
31, 1995. This increase reflects the net effect of several changes made to the
Company's commission structure during the first quarter of 1995. These changes
increased certain commissions paid by the Company for the acquisition of
subscribers and also increased the number of subscribers that must be acquired
by IRs to earn certain subscriber acquisition commissions. Commissions expense
on the usage of long distance increased to $13.8 million for the three months
ended March 31, 1996 from $3.5 million for the three months ended March 31,
1995. Commissions expense related to training new IRs increased to $12.7
million for the three months ended March 31, 1996 from $2.5 million for the
three months ended March 31, 1995. Marketing costs of providing training,
business forms, promotional and presentation materials, technical and
administrative support services, and monthly reports increased 188% to $19.0
million for the three months ended March 31, 1996 from $6.6 million for the
three months ended March 31, 1995. This increase is primarily due to growth in
new IRs and ACs.

24
<PAGE>

General and administrative expenses increased 297% to $36.9 million for the
three months ended March 31, 1996 from $9.3 million for the three months ended
March 31, 1995. As a percentage of long distance revenues, general and
administrative expenses were 18.0% for the three months ended March 31, 1996
compared to 18.3% for the three months ended March 31, 1995. Despite the
overall increase in expense, the March 31, 1996 decrease as a percent of
revenues is attributed to the gaining of economies of scale relative to growth
in the business. The Company had approximately 1,500 employees at March 31,
1996 compared to approximately 500 at March 31, 1995.

Total operating income increased 507% to $53.4 million for the three months
ended March 31, 1996 from $8.8 million for the three months ended March 31,
1995. As a percentage of long distance revenues, operating income was 26.0%
for the three months ended March 31, 1996 compared to 17.3% for the three
months ended March 31, 1995. The increase in operating income as a percentage
of long distance revenues was primarily due to a decrease in communication
charges per minutes of usage and the reduction in net losses from marketing
operations from $3.5 million for the three months ended March 31, 1995 to $1.4
million for the three months ended March 31, 1996.

Included in other income (expense) for the three months ended March 31, 1996
is approximately $1 million of income related to the sale of the Company's 49%
investment in a joint venture.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994

Revenues. Total revenues increased 233% to $506.7 million for the year ended
December 31, 1995 from $152.2 million for the year ended December 31, 1994.
The increase in revenues was primarily due to increases in long distance
minutes of usage by subscribers and in the number of applications from new IRs
and ACs. Communication services revenues increased 234% to $363.3 million for
the year ended December 31, 1995 from $108.8 million for the year ended
December 31, 1994. Long distance minutes of usage increased 286% to
2,101,240,000 minutes for the year ended December 31, 1995 from 544,552,000
minutes for the year ended December 31, 1994. Since IRs are frequently
subscribers, a portion of the increase in minutes of usage relates to
subscribers that are new IRs. Partially offsetting these increases was a
reduction in long distance revenues per minute of usage, which decreased 13.5%
to 17.3 cents per minute for the year ended December 31, 1995 from 20.0 cents
per minute for the year ended December 31, 1994. The decrease in revenues per
minute was due to a rate reduction that took effect in April 1995. As a result
of this rate reduction, average rates for domestic interstate calls were
reduced to approximately 13.1 cents per minute in the fourth quarter of 1995
from approximately 15.3 cents per minute in the first quarter of 1995.

Marketing services revenues increased 231% to $143.4 million for the year
ended December 31, 1995 from $43.3 million for the year ended December 31,
1994. Revenues recognized from IRs for training, business forms, promotional
and presentation materials, ongoing technical and administrative support
services, and monthly reports increased 222% to $106.2 million for the year
ended December 31, 1995 from $33.0 million for the year ended December 31,
1994. These revenues from IRs increased primarily due to the growth in
applications from new IRs to 461,158 applications received during the year
ended December 31, 1995 from 156,275 applications received during the year
ended December 31, 1994. Revenues recognized from ACs for training fees
increased 261% to $37.2 million for the year ended December 31, 1995 from
$10.3 million for the year ended December 31, 1994. Training fee revenues from
ACs increased primarily due to the growth in applications from new ACs to
100,538 applications received for the year ended December 31, 1995 from 28,220
applications received during the year ended December 31, 1994.

Operating Expenses. Communication charges increased 257% to $210.0 million
for the year ended December 31, 1995 from $58.9 million for the year ended
December 31, 1994. Communication charges decreased to 10.0 cents per minute
for the year ended December 31, 1995 from 10.8 cents per minute for the year
ended December 31, 1994. The decrease in communication charges per minute is
primarily due to rate reductions from the Company's long distance carrier
beginning in April 1995. As a result of this rate reduction,

25
<PAGE>

rates for domestic interstate calls were reduced approximately 17%. As a
percentage of long distance revenues, communication charges were 57.8% for the
year ended December 31, 1995 compared to 54.2% for the year ended December 31,
1994. This increase in communication charges as a percentage of long distance
revenues reflects the effect of the April 1995 reduction in rates charged to
the Company's long distance subscribers, which was partially offset by
reductions in rates from the Company's long distance carrier that were
implemented from April 1995 through December 1995. Communication charges as a
percentage of long distance revenues was 55.6% for the month of December 1995.

Total marketing services costs, which directly relate to the Company's
marketing activities and which include commissions and the costs of providing
training, business forms, promotional and presentation materials, technical
and administrative support services, and monthly reports, increased 216% to
$147.5 million for the year ended December 31, 1995 from $46.7 million for the
year ended December 31, 1994. Total commissions expense increased 213% to
$103.4 million for the year ended December 31, 1995 from $33.0 million for the
year ended December 31, 1994. Commissions expense for the acquisition of new
long distance subscribers increased to $52.0 million for the year ended
December 31, 1995 from $17.5 million for the year ended December 31, 1994. The
average subscriber acquisition commissions the Company paid per new subscriber
decreased to $46.08 for the year ended December 31, 1995 from $48.83 for the
year ended December 31, 1994. Commissions expense on the usage of long
distance increased to $24.4 million for the year ended December 31, 1995 from
$7.5 million for the year ended December 31, 1994. Commissions expense related
to training new IRs increased to $23.3 million for the year ended December 31,
1995 from $6.7 million for the year ended December 31, 1994. Marketing costs
of providing training, business forms, promotional and presentation materials,
technical and administrative support services, and monthly reports increased
222% to $44.1 million for the year ended December 31, 1995 from $13.7 million
for the year ended December 31, 1994. This increase is primarily due to growth
in new IRs and ACs.

General and administrative expenses increased 261% to $71.5 million for the
year ended December 31, 1995 from $19.8 million for the year ended December
31, 1994. As a percentage of long distance revenues, general and
administrative expenses were 19.7% for the year ended December 31, 1995
compared to 18.2% for the year ended December 31, 1994. The increase was
primarily driven by growth in the Company's communication operations and was
due in part to the cost of building the Company's management team and
information systems necessary to support the growth in the business and
enhance service to long distance subscribers. The Company had approximately
1,200 employees at December 31, 1995 compared to approximately 400 at December
31, 1994.

Total operating income increased 191% to $77.7 million for the year ended
December 31, 1995 from $26.7 million for the year ended December 31, 1994. As
a percentage of long distance revenues, operating income was 21.4% for the
year ended December 31, 1995 compared to 24.6% for the year ended December 31,
1994. The decrease in operating income as a percentage of long distance
revenues was primarily due to a decrease in long distance revenues per minute
of usage and the increase in general and administrative costs noted above.
Included in total operating income are the effects of net losses from
marketing operations of $4.1 million and $3.4 million for the years ended
December 31, 1995 and 1994, respectively.

Included in other income (expense) for the year ended December 31, 1995 is a
$6.2 million loss related to the Company's 49% investment in a joint venture
to develop a long distance network. The loss represents start-up costs
incurred by the joint venture, which is accounted for under the equity method.
Subsequent to December 31, 1995, the Company sold its entire 49% interest in
the joint venture for a sales price of $6.2 million.

Income Taxes. The provision for income taxes as a percentage of income
before income taxes decreased from 40.2% in 1994 to 37.7% in 1995. The
decrease is primarily attributable to lower overall state income tax rates
applicable to 1995 consolidated earnings.

26
<PAGE>

YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993

Revenues. Total revenues increased 394% to $152.2 million for the year ended
December 31, 1994 from $30.8 million for the year ended December 31, 1993. The
increase in revenues was due primarily to increases in long distance minutes
of usage by subscribers and in the number of applications from new IRs and
ACs. Communication services revenues increased 350% to $108.8 million for the
year ended December 31, 1994 from $24.2 million for the year ended December
31, 1993. Long distance minutes of usage increased 360% to 544,552,000 minutes
for the year ended December 31, 1994 from 118,357,000 minutes for the year
ended December 31, 1993. Since IRs are frequently subscribers, a portion of
the increase in minutes of usage relates to subscribers that are new IRs.
Partially offsetting these increases was a reduction in long distance revenues
per minute of usage, which decreased 2.0% to 20.0 cents per minute for the
year ended December 31, 1994 from 20.4 cents per minute for the year ended
December 31, 1993.

Marketing services revenues increased 546% to $43.3 million for the year
ended December 31, 1994 from $6.7 million for the year ended December 31,
1993. Revenues recognized from IRs for training, business forms, promotional
and presentation materials, ongoing technical and administrative support
services, and monthly reports increased 560% to $33.0 million for the year
ended December 31, 1994 from $5.0 million for the year ended December 31,
1993. These revenues from IRs increased primarily due to the growth in
applications from new IRs to 156,275 applications received during the year
ended December 31, 1994 compared to 28,067 applications received during fiscal
1993. Revenues recognized from ACs for training fees increased 506% to $10.3
million for the year ended December 31, 1994 from $1.7 million for the year
ended December 31, 1993. Training fee revenues from ACs increased primarily
due to the growth in applications from new ACs to 28,220 applications received
from ACs during the year ended December 31, 1994 compared to 4,740
applications received during fiscal 1993.

Operating Expenses. Communication charges increased 327% to $58.9 million
for the year ended December 31, 1994 from $13.8 million for the year ended
December 31, 1993. Communication charges were 10.8 cents per minute for the
year ended December 31, 1994 compared to 11.6 cents per minute for fiscal
1993. The decrease in communication charges is primarily due to rate
reductions from the Company's long distance carrier in November 1994. As a
percentage of long distance revenues, communication charges were 54.2% for the
year ended December 31, 1994 compared to 56.9% for the year ended December 31,
1993.

Total marketing services costs, which directly relate to the Company's
marketing activities and which include commissions and the costs of providing
training, business forms, promotional and presentation materials, technical
and administrative support services, and monthly reports, increased 506% to
$46.7 million for the year ended December 31, 1994 from $7.7 million for the
year ended December 31, 1993. Total commissions expense increased 617% to
$33.0 million for the year ended December 31, 1994 from $4.6 million for
fiscal 1993. During the second quarter of 1993, the Company revised its
commission structure to increase subscriber acquisition commissions to IRs,
which, along with growth in subscribers, increased the total amount of
commissions expense for subscriber acquisitions to $17.5 million for the year
ended December 31, 1994 from $1.5 million for the year ended December 31,
1993. Commissions expense on the usage of long distance increased to $7.5
million for the year ended December 31, 1994 from $1.6 million for the year
ended December 31, 1993. Commissions expense related to training new IRs
increased to $6.7 million for the year ended December 31, 1994 from $1.2
million for the year ended December 31, 1993. Marketing costs of providing
training, business forms, promotional and presentation materials, technical
and administrative support services, and monthly reports increased 342% to
$13.7 million for the year ended December 31, 1994 from $3.1 million for the
year ended December 31, 1993. This increase is primarily due to growth in new
IRs and ACs.

General and administrative expenses increased 241% to $19.8 million for the
year ended December 31, 1994 from $5.8 million for the year ended December 31,
1993. The increase was primarily driven by the growth in the Company's
communication operations and was due in part to the cost of building the
Company's management team and information systems necessary to support the
growth in the business and enhance service to long distance subscribers. The
Company had approximately 400 employees at December 31, 1994 compared

27
<PAGE>

to approximately 100 at December 31, 1993. As a percentage of long distance
revenues, general and administrative expenses were 18.2% for the year ended
December 31, 1994 compared to 24.0% for fiscal 1993. Despite the overall
increase in expense, the 1994 decrease as a percent of revenue is attributed
to gaining economies of scale relative to growth in the business.

Operating income increased 663% to $26.7 million for the year ended December
31, 1994 from $3.5 million for the year ended December 31, 1993. As a
percentage of long distance revenues, operating income was 24.6% for the year
ended December 31, 1994 compared to 14.7% for the year ended December 31,
1993. Included in total operating income are the effects of net losses from
marketing operations of $3.4 million and $1.1 million for the years ended
December 31, 1994 and 1993, respectively.

Income Taxes. The provision for income taxes as a percentage of income
before income taxes increased from 32.2% in 1993 to 40.2% in 1994. The lower
rate in 1993 was primarily attributable to the benefit from net operating loss
carryforwards that were fully utilized in 1993.

INFLATION

Management believes that inflation has not had a material effect on the
Company's results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Since May 1994, the Company has funded its operations primarily through cash
flows from operations. However, during that period the Company has experienced
temporary liquidity shortages related to differences between the timing of
payments for communication charges and the receipt of communication services
revenues. The effect of the timing differences was compounded by the Company's
rapid growth. Since May 1994, periodic working capital needs were funded
through advances on the Company's line of credit. Prior to April 1994, the
Company's cash requirements were funded primarily through an accounts
receivable advanced payment arrangement.

As of March 31, 1996, the Company had cash and cash equivalents of $29.0
million, working capital of $20.9 million, and a revolving credit line
agreement with a bank. The amount available under the agreement is limited to
the lesser of $10 million or the borrowing base minus any letters of credit
outstanding. The Company had available borrowing capacity of $10 million at
March 31, 1996. Interest is payable monthly at an annual rate of prime plus
one-half percent, which was 8.75% at March 31, 1996. The facility will mature
on May 26, 1997, with a one-year renewal option, and is secured by accounts
receivable, inventories, property, and equipment. The agreement contains
limitations on incurring additional indebtedness and payment of dividends and
requires the maintenance of certain financial ratios and covenants.

The Company's operating activities provided cash of approximately $9.0
million for the three months ended March 31, 1996, $47.0 million for the year
ended December 31, 1995, $8.9 million for the year ended December 31, 1994,
and $655,000 for the year ended December 31, 1993.

The Company's investing activities have consisted primarily of property and
equipment purchases of $10.2 million, $7.3 million, $811,000, and $255,000 for
the three months ended March 31, 1996, and for the years ended December 31,
1995, 1994, and 1993, respectively. In addition, during 1994 and 1995, the
Company made capital contributions of $245,000 and $6.0 million, respectively,
to obtain a 49% interest in a joint venture. The joint venture was formed for
the purpose of obtaining and operating a long distance network to provide
telecommunications services to the Company and other long distance providers.
Subsequent to December 31, 1995, the Company sold its entire 49% interest in
the joint venture for a sales price of $6.2 million.

The Company's financing activities have consisted primarily of advances on
and payments of debt, capital lease obligations, advances to an employee stock
ownership plan, and payments of dividends. The Company made payments of debt
and capital lease obligations of $3.1 million and payments of dividends of
approximately

28
<PAGE>

$3.0 million for the year ended 1995. The Company received advances on debt
obligations of $2.0 million and made payments of dividends of approximately
$1.5 million during the year ended December 31, 1994. The Company advanced
$6.0 million to an employee stock ownership plan during 1995. In December
1995, the Company's predecessor declared a $20.0 million dividend payable to
its then existing shareholders, which the Company expects will be paid prior
to the completion of the Offering.

The Company has budgeted approximately $114 million for capital expenditures
for fiscal 1996. The 1996 capital budget includes, among other things, $36
million for purchases of furniture and fixtures and computer equipment, $31
million for development of new information systems, and $24 million for the
development of a new long distance network. Also, the Company will construct
new office facilities to enhance its customer service, representative
services, information technology, and distribution functions for $18 million.
The Company has committed capital expenditures of approximately $17.8 million
at December 31, 1995.

Currently, the Company anticipates that additional capital expenditures of
$27 million in 1997 and $50 million in 1998 will be required for the continued
development of a new long distance network. During 1997 and subsequent
periods, the Company anticipates additional expenditures will be required to
purchase furniture, fixtures, and computer equipment and to continue the
development of new information systems.

The Company believes that the net proceeds from the Common Stock offered by
the Company hereby, together with existing sources of liquidity and
anticipated funds from operations, will be sufficient to fund its capital
expenditures, working capital, and other cash requirements through the end of
1996. If the Offering is not completed, the Company believes that its current
cash and cash equivalents will be sufficient to pay the $20 million dividend
declared by the Company's predecessor on December 31, 1995 without impacting
the operating capabilities of the Company. However, to the extent that the
Offering is not consummated or that the funds generated by the Offering,
together with existing sources of liquidity, are insufficient to fund the
Company's activities in the short or long term, the Company may need to raise
additional funds through public or private financing. There can be no
assurance that additional financing will be available or, if available, will
be on terms acceptable to the Company.

On May 3, 1996, a group of IRs, including one IR who has been one of the
Company's top ten highest earning representatives for the last six months,
sued the Company and others, claiming defamation, unfair competition, and
interference with contractual relationships for which such group seeks actual
and punitive damages of $405 million. The Company denies the allegations, is
vigorously defending the litigation, and believes the ultimate outcome thereof
will not have a material adverse effect upon the Company's results of
operations or financial position. The Company believes that its actions with
respect to the IRs, including the plaintiffs, have been reasonable and in
compliance with the Company's contractual agreements with the IRs. However, an
unfavorable outcome in this matter could have a material adverse effect upon
the Company's results of operations or financial position. Even if the Company
and other defendants ultimately prevail, the defense effort could involve
considerable cost and a diversion of management efforts. In the past, the
Company has had IRs with significant downlines reduce their efforts and in
some cases quit the business completely, and such actions have not had a
material adverse impact upon the Company's results of operations or financial
position. As a result, the Company believes that these issues with the
plaintiffs will not have a material adverse effect upon the Company's results
of operations or financial position. However, regardless of the outcome of the
litigation, the mere existence of this dispute with these plaintiffs could
lead to a decline in revenues generated from or through the efforts of the
plaintiffs and their respective downlines as well as an adverse impact on the
Company's relationship with IRs and the Company's ability to attract potential
IRs generally, all of which could have a material adverse effect on the
Company. See "Risk Factors--Dependence on Independent Representatives and
Legal Action by Certain IRs" and "Business--Legal Matters."

IMPACT OF NEW FEDERAL TELECOMMUNICATIONS LEGISLATION

On February 8, 1996, the 1996 Telecommunications Act was enacted into law.
This comprehensive federal legislation will affect every sector of the
telecommunications industry. Included in the new statutory provisions is the
opening up of local telephone markets to competition and, subject to certain
safeguards, the elimination of

29
<PAGE>

restrictions on BOC and GTOC entry into the long distance telecommunications
market. It is unknown at this time what impact the 1996 Telecommunications Act
will have on the Company. Depending on the nature and timing of BOC and GTOC
entry into the long distance market, the Company will face significant
additional competition in the provision of long distance services. See "Risk
Factors--Competition" and "--Regulation" and "Business--Industry Overview and
Competition," "--Statutory and Regulatory Changes," and""--Regulation."

NEW ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." As a result of this statement,
the Company will begin to provide additional disclosures related to its stock
based compensation plans in its 1996 financial statements. Adoption of SFAS
No. 123 will not have a material effect on the Company's financial position or
results of operations. The Company has adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets," which did not have a
material effect on the Company's financial position or results of operations.

30
<PAGE>

QUARTERLY RESULTS OF OPERATIONS

The following tables include summarized quarterly financial data for each of
the four quarters of 1994 and 1995 and for the first quarter of 1996. This
quarterly information is unaudited, has been prepared on the same basis as the
annual financial statements, and, in the opinion of the Company's management,
reflects all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the periods
presented. Operating results for any quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
1994 1995 1996
---------------------------------- ------------------------------------ ----------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
(IN THOUSANDS, EXCEPT FOR OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Communication
services............. $12,379 $21,808 $32,908 $41,724 $51,015 $67,302 $100,479 $144,505 $ 205,274
Marketing services(1). 6,491 11,291 13,674 11,883 17,724 30,417 41,844 53,412 75,516
------- ------- ------- ------- ------- ------- -------- -------- ----------
Total revenues.......... 18,870 33,099 46,582 53,607 68,739 97,719 142,323 197,917 280,790
------- ------- ------- ------- ------- ------- -------- -------- ----------
Operating expenses:
Communication......... 6,330 11,628 18,003 22,964 29,366 40,087 59,077 81,465 113,514
Marketing services(2). 5,953 10,172 14,172 16,427 21,265 29,789 40,954 55,468 76,940
General and
administrative....... 2,391 4,659 5,472 7,257 9,310 14,453 20,907 26,844 36,941
------- ------- ------- ------- ------- ------- -------- -------- ----------
Total operating
expenses............... 14,674 26,459 37,647 46,648 59,941 84,329 120,938 163,777 227,395
------- ------- ------- ------- ------- ------- -------- -------- ----------
Operating income........ 4,196 6,640 8,935 6,959 8,798 13,390 21,385 34,140 53,395
------- ------- ------- ------- ------- ------- -------- -------- ----------
Other income (expense):
Interest expense...... (17) (40) (76) (162) (188) (207) (138) (60) (52)
Income (losses) from
joint venture........ -- -- -- -- (345) (647) (2,057) (3,199) 1,041
Other................. -- 34 21 28 55 106 69 237 503
------- ------- ------- ------- ------- ------- -------- -------- ----------
Income before income
taxes.................. 4,179 6,634 8,880 6,825 8,320 12,642 19,259 31,118 54,887
Provision for income
taxes.................. 1,644 2,665 3,580 2,759 3,136 4,767 7,260 11,730 20,901
------- ------- ------- ------- ------- ------- -------- -------- ----------
Net income.............. $ 2,535 $ 3,969 $ 5,300 $ 4,066 $ 5,184 $ 7,875 $ 11,999 $ 19,388 $ 33,986
======= ======= ======= ======= ======= ======= ======== ======== ==========
SUPPLEMENTAL OPERATING DATA:
Long distance minutes of
usage (in 000's)(3).... 57,960 101,683 160,478 224,431 269,882 386,054 586,951 858,353 1,227,713
Weighted average long
distance revenue per
minute of usage(4)..... $ 0.214 $ 0.214 $ 0.205 $ 0.186 $ 0.189 $ 0.174 $ 0.171 $ 0.168 $ 0.167
Weighted average
communication charges
per minute of usage(5). $ 0.109 $ 0.114 $ 0.112 $ 0.102 $ 0.109 $ 0.104 $ 0.101 $ 0.095 $ 0.092
Number of applications
from new independent
representatives (IRs).. 29,257 46,097 43,971 36,950 53,534 98,450 136,117 173,057 245,965
</TABLE>
- -------------------
(1) Revenues from marketing services include the effect of deferring a portion
of the cash received during each period and amortizing the deferred
revenues over 12 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 to the
Consolidated Financial Statements.
(2) Marketing services cost includes the effect of capitalizing the portion of
commissions paid for acquisition of new subscribers and amortizing the
capitalized costs over 12 months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 to
the Consolidated Financial Statements.
(3) Long distance minutes of usage represent minutes billable to subscribers
during the period.
(4) Weighted average long distance revenue per minute of usage equals revenues
for calls billed to subscribers for domestic interstate and intrastate
service, 800 service, calling cards, service charges, and international
calls divided by the aggregate minutes of usage.
(5) Weighted average communication charges per minute of usage equal the cost
to purchase all long distance services sold to the Company's subscribers
divided by the aggregate minutes of usage.

31
<PAGE>

BUSINESS

GENERAL

EXCEL is one of the fastest growing providers of long distance
telecommunications services in the United States. At March 31, 1996, the
Company provided service to approximately 3.1 million residential and small
business subscribers and believes that, based upon domestic residential long
distance revenues, it ranks fourth after AT&T, MCI, and Sprint. The Company
markets its long distance service through a network marketing system of IRs,
which has contributed to its significant growth since January 1, 1993. The
Company also believes that its network marketing approach provides it with
lower net marketing expenses than many of its competitors. The Company's
revenues were $30.8 million for 1993, $152.2 million for 1994, $506.7 million
for 1995, and $280.8 million for the three months ended March 31, 1996, while
net income was $2.4, $15.9, $44.4, and $34.0 million, respectively, for the
same periods. The Company's pricing structure is regularly reviewed so that
subscribers of the Company's long distance service generally pay less than
they would for AT&T, MCI, or Sprint long distance service. In addition, the
Company currently provides value-added services to its subscribers, such as
calling cards, 800 service, and international telecommunications service. The
Company intends to provide nationwide paging services beginning in the third
quarter of 1996.

According to a 1995 FCC report, revenues of the U.S. long distance
telecommunications industry were approximately $67 billion in 1994. The
industry is highly competitive and is dominated by four carriers, AT&T, MCI,
Sprint, and WorldCom, which together in 1994 accounted for approximately 88%
of the overall market according to such 1995 FCC report. Moreover, according
to such 1995 FCC report, while industry revenues grew at a compound annual
rate of over 5% during the period from 1989 through 1994, the revenues of all
carriers other than AT&T, MCI, Sprint, and WorldCom grew in the aggregate at
an annual compound rate of over 16% during the same period.

The Company's strategy has been to build a subscriber base without
committing capital or management resources to construct its own network and
transmission facilities. This strategy has allowed the Company to add
subscribers without being limited by the capacity, geographic coverage, or
configuration of any particular network that the Company might have developed.
In 1990, the Company contracted with Frontier to provide switching services
and network transmission of its subscribers' traffic, which has allowed the
Company to pursue this strategy. As the volume of the Company's traffic has
reached sufficient levels in certain markets, the Company now intends to seek
other providers of long distance service and to develop its own long distance
network, which may include the acquisition or leasing of switches and
dedicated transmission lines, in those markets to reduce its dependence upon
Frontier, provide additional services to its subscribers, and reduce expenses
associated with the transmission of long distance calls.

The Company's services are marketed nationwide exclusively through a network
of IRs. The Company encourages IRs to enroll subscribers with whom the IRs
have an ongoing relationship as a result of being a family member, friend,
business associate, neighbor, or otherwise. The Company encourages, but does
not require, the IRs to use the Company's products and services and to
communicate the results of their use of such products and services to their
subscribers. This network marketing system has been selected by the Company
because the Company believes it reduces net marketing costs, subscriber
acquisition costs, and subscriber attrition. The Company believes that
subscribers will be more likely to remain with the Company because they have
been enrolled with the Company by someone with whom they have an ongoing
relationship. The Company also believes that its network marketing system will
continue to build a base of potential subscribers for additional services and
products. The Company does not require a person to be an IR in order to be a
subscriber, and less than 25% of the Company's subscribers are IRs. The
Company's network marketing system is particularly attractive to potential IRs
because of the potential for supplemental income and because the IRs are not
required to purchase any inventory, have no monthly sales quotas or account
collection issues, have minimal paperwork, and have a flexible work schedule.
The sales efforts of IRs are supported through various means, including
Company-sponsored training and motivational satellite broadcast television
shows. While other long distance carriers such as MCI and LCI market their
long distance and paging services through network marketing alliances as part
of their marketing strategy, EXCEL utilizes this marketing channel
exclusively. The Company

32
<PAGE>

believes that because of its focus on the structuring, management, and control
of the network marketing program, it has the information and the
organizational structure to modify marketing and training programs for the IRs
to respond to market changes and maintain the brand allegiance of the IRs. The
Company believes that this focus has contributed to the Company's growth and
the Company's ability to obtain and maintain IRs who are available and
motivated to sell additional communications products.

The following table includes the revenues and operating income (loss) for
the communication and marketing operations of the Company for the years ended
December 31, 1993, 1994, and 1995 and the three months ended March 31, 1995
and 1996.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1993 1994 1995 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Communication services...... $24,198 $108,819 $363,301 $ 51,015 $ 205,274
Marketing services.......... 6,650 43,339 143,397 17,724 75,516
------- -------- -------- -------- ---------
Total......................... $30,848 $152,158 $506,698 $ 68,739 $ 280,790
======= ======== ======== ======== =========
Operating income (loss):
Communication services...... $ 4,626 $ 30,115 $ 81,792 $ 12,339 $ 54,819
Marketing services.......... (1,080) (3,385) (4,079) (3,541) (1,424)
------- -------- -------- -------- ---------
Total......................... $ 3,546 $ 26,730 $ 77,713 $ 8,798 $ 53,395
======= ======== ======== ======== =========
</TABLE>

INDUSTRY OVERVIEW AND COMPETITION

Since the break-up of AT&T in 1984, the domestic long distance market has
roughly doubled to an estimated $67 billion in annual revenues in 1994 and
AT&T's share has declined to approximately 56% of the market. MCI, Sprint, and
WorldCom have increased their market shares to approximately 17%, 10%, and 5%
of the market, respectively. AT&T, MCI, Sprint, and WorldCom constitute what
generally is regarded as the first tier in the U.S. long distance market. The
remainder of the market share is held by several large regional long distance
companies, some with national capabilities such as the Company, Frontier,
Cable & Wireless Communications, Inc., and LCI, and by several hundred smaller
companies. Of the major long-distance carriers, AT&T, Sprint, WorldCom, and
Frontier have been providing long distance products for resale for a number of
years in order to capture incremental traffic volume. In 1994, MCI also
adopted an aggressive stance in providing products for resale.

In November 1995, the FCC terminated AT&T's status as a "dominant" carrier
for the following domestic services: residential, operator, 800, directory
assistance, and analog private line services. Like other non-dominant carriers
such as the Company, AT&T is now allowed to file tariffs for all of its
domestic services on one day's notice, and such tariffs are presumed lawful.
As a non-dominant carrier, AT&T will no longer have to

33
<PAGE>

submit cost support data with certain tariff filings. In addition, AT&T will
no longer have to file carrier-to-carrier contracts and will be relieved of
certain annual reporting requirements as well as automatically authorized to
extend service to any domestic point. The FCC deferred taking action on AT&T's
status in the international market, although there can be no assurance that
the FCC will not similarly terminate AT&T's status as a dominant carrier in
the international market in the future. The FCC has recently proposed to
regulate BOCs providing out-of-region interstate long distance services as
"non-dominant" carriers as long as such long distance services are provided by
an affiliate of the BOC and certain structural separation requirements are
met, which may make it easier for the BOCs to compete directly with the
Company for long distance subscribers.

Today's domestic long distance telecommunications industry was principally
shaped by a court decree entered in 1982 (the "AT&T Decree") that required the
divesture by AT&T of its 22 BOCs. The AT&T Decree and subsequent proceedings
administering the AT&T Decree divided the country into 201 LATAs (or Local
Access and Transport Areas). The BOCs were given the right to provide local
telephone service, local access service, and intra-LATA long distance service
(service within the same LATAs). Almost all of the 22 BOCs were grouped under
the Regional Bell Operating Companies (the "RBOCs"), which were separated from
the long distance provider, AT&T. The BOCs were prohibited from providing
inter-LATA service (service between LATAs). AT&T was allowed to continue
providing inter-LATA service. Inter-LATA service, and in most states intra-
LATA long distance services, also may be provided by other interexchange
carriers ("IXCs"), including resale carriers such as the Company.

The long distance market has also been affected by a separate court decree
(the "GTE Decree") entered in 1984 that required the local exchange operations
of the GTOCs to be structurally separated from the competitive operations of
GTE, their parent company. The GTE Decree also prohibited the GTOCs from
providing inter-LATA services.

The 1996 Telecommunications Act includes certain prohibitions on AT&T, MCI,
Sprint, and any other long distance carrier serving more than five percent of
the nation's presubscribed access lines from jointly marketing their long
distance services with local phone services acquired from the RBOCs for a
specified period ending on the earlier of BOC receipt of in-region long
distance authority or February 8, 1999. Because EXCEL does not meet such
threshold, such prohibition does not currently apply to it. Consequently,
during the time period that the prohibition is in effect in a particular
state, the Company, upon receipt of all necessary regulatory approvals to
provide local resale services, will be the only one of the four leading
providers of residential long distance phone service able to resell the local
phone service products of the RBOCs and jointly market those products with its
long distance service. However, if during that time period a company were to
build a facilities-based network that could compete with the BOCs in providing
local residential phone service, AT&T, MCI, Sprint, and any long distance
carrier serving more than five percent of the nation's presubscribed access
lines could jointly market that company's local phone service with their long
distance service. According to a 1995 FCC report, the U.S. local basic phone
service market was estimated by the FCC to be in excess of $40 billion in
1994, and the domestic intra-LATA long distance market was estimated by the
FCC to be in excess of $11 billion in 1994.

To encourage the development of competition in the long distance market, the
AT&T Decree requires the BOCs to provide all IXCs with access to local
exchange services for inter-LATA calls that is "equal in type, quality, and
price" to that provided to AT&T and to maintain a subscription process that
gives telephone subscribers the right to designate a primary IXC (i.e., a "1-
plus" long distance carrier) of their choice for inter-LATA and interstate
calls. These so-called "equal access" and related provisions were intended to
prevent preferential treatment of AT&T and to level the access charges that
the BOCs could charge IXCs, regardless of their volume of traffic. Similar
equal access requirements have been imposed upon the GTOCs by the GTE Decree
and upon other independent telephone companies by the FCC. However, there
remain a few limited "non-equal access" areas in the United States that are
yet to be converted to "equal access," and the Company's services are not
available in those areas. As a result of the equal access obligations imposed
on the BOCs, the GTOCs, and the independent telephone companies, subscribers
of all inter-LATA long distance companies were

34
<PAGE>

eventually allowed to initiate their calls by utilizing simple "1-plus"
dialing (i.e., by dialing "1" plus the area code and telephone number of the
person being called), rather than having to dial access or identification
numbers and codes in order to be routed to the IXC preselected by the
subscribers.

Largely as a result of the AT&T and GTE Decrees, an inter-LATA long distance
telephone call begins with the LEC transmitting the call by means of its local
network to a point of connection with an IXC. The IXC, through its switching
and transmission network, transmits the call to the LEC serving the area where
the recipient of the call is located, and the receiving LEC then completes the
call over its local facilities. For each long distance call, the originating
LEC charges an access fee and the terminating LEC charges a terminating fee to
the IXC. The IXC charges a fee for its transmission of the call, a portion of
which covers the cost of the access and terminating fees charged by the LECs,
which are regulated by the FCC and state utility commission. As competition
emerges in the local service market, IXCs will have the ability to choose
among incumbent LECs and competitive local service providers based upon price,
quality of service, and other relevant factors.

The 1996 Telecommunications Act has removed the restrictions in the AT&T
Decree and the GTE Decree concerning the provision of inter-LATA service and
telecommunications equipment manufacturing by the BOCs and GTOCs. If the
regulations governing such access and related charges change, and when the
BOCs and the GTOCs are permitted to participate in inter-LATA long distance
service, then the BOCs or the GTOCs might, through control of such charges,
obtain a competitive advantage over the Company and other IXCs.

Legislative, judicial, and technological factors have helped to create the
foundation for smaller long distance providers to emerge as viable competitive
alternatives to AT&T, MCI, and Sprint for long distance telecommunication
services. The FCC has required that all IXCs allow the resale of their
services, and the AT&T Decree substantially eliminated different access
arrangements as distinguishing features among long distance carriers. In
recent years, national and regional network providers have substantially
upgraded the quality and capacity of their domestic long distance networks,
resulting in significant excess transmission capacity for voice and data
communications. Due to anticipated advances in telecommunications transmission
technology, the Company expects the resale of excess transmission capacity to
continue to be an important factor in long distance telecommunications.

An integral component of long distance telecommunications transmission is
the switches necessary to direct calls or data over the appropriate
transmission line. Facilities-based carriers maintain their own switches as
part of their networks. Smaller, nonfacilities-based providers, such as the
Company, generally contract for the use of switches in connection with their
contractual arrangements for the use of a network. Profitability for
nonfacilities-based carriers is based primarily on their ability to generate
and retain sufficient revenue volume to negotiate attractive pricing with one
or more facilities-based carriers. As an alternative, these providers may
install their own switches and arrange for the acquisition, construction, or
leasing of transmission facilities in those areas where they have sufficient
volume to justify the capital expense and ongoing maintenance costs, and the
Company anticipates using a portion of the net proceeds of the Offering for
such purpose. The Company believes that its cost of providing communication
services (expressed as a percentage of communication services revenues) is
comparable to or less than that of the four largest long distance carriers
when depreciation expenses are taken into account; although communication
services line items for each of the four largest long distance carriers
contain a blend of services in addition to long distance that may have either
higher or lower margins than the long distance business itself.

Telecommunication companies compete for subscribers based on price, among
other things, with major long distance carriers conducting extensive
advertising campaigns to capture market share. The Company does not incur the
costs of advertising campaigns or many of the routine sales and marketing
costs of the four largest long distance carriers. Consequently, the Company
has achieved lower net marketing costs (approximately 1% of communication
services revenues in 1995), which, coupled with its competitive transmission
costs, has provided it with favorable operating margins, as compared with the
four largest long distance carriers. There can

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<PAGE>

be no assurance that such advantage will continue in the future or that a
decrease in the rates charged for communications services by the major long
distance carriers or other competitors, whether caused by general competitive
pressures or the entry of the BOCs, GTOCs, and other LECs into the long
distance market, would not have a material adverse effect on the Company's
business, operating results, and financial condition.

STATUTORY AND REGULATORY CHANGES

There are currently numerous regulatory changes under consideration,
including the pricing of access charges paid to the LECs by the IXCs. In
addition, changes have been made to the terms of the AT&T Decree since it was
entered. On February 1, 1996, the U.S. House of Representatives and the U.S.
Senate passed the 1996 Telecommunications Act, which is intended to introduce
additional competition to the U.S. telecommunications market. The legislation
was signed into law on February 8, 1996 by President Clinton. The legislation
opens the local services market to competition by requiring LECs to permit
interconnection to their networks and establishing, among other things, LEC
obligations with respect to unbundled access, resale, number portability,
dialing parity, access to rights-of-way, and mutual compensation. The
legislation also codifies the LECs' equal access and nondiscrimination
obligations and preempts inconsistent state regulation. In addition, the
legislation contains special provisions that eliminate the AT&T Decree and the
GTE Decree, thereby eliminating certain restrictions on the BOCs and GTOCs,
respectively, providing long distance services and engaging in
telecommunications equipment manufacturing. These new statutory provisions
permit the BOCs to enter the long distance market. As of the date of enactment
of the legislation, a BOC is no longer restricted from providing inter-LATA
long distance service outside of those markets in which it provides local
exchange service (referred to as "out-of-region" long distance service). A BOC
may provide long distance service within the regions in which it also provides
local exchange service (referred to as "in-region" service) if it satisfies
several procedural and substantive requirements, including obtaining FCC
approval upon a showing that (i) in certain situations facilities-based
competition is present in its market, (ii) the BOC has entered into
interconnection agreements in those states in which it seeks long distance
relief, (iii) the interconnection agreements satisfy a 14-point "checklist" of
competitive requirements, and (iv) BOC entry into in-region long distance
markets is in the public interest. Before making its ruling, the FCC is
instructed to consult with the U.S. Department of Justice (the "DOJ"), but the
FCC is not bound by the recommendations of the DOJ. The GTOCs are permitted to
enter the long distance market as of the date of enactment without regard to
limitations by region, although the necessary state and/or federal regulatory
approvals that are otherwise applicable to the provision of intrastate and/or
interstate long distance service will need to be obtained, and the GTOCs are
subject to the provisions of the 1996 Telecommunications Act that impose
interconnection and other requirements on LECs.

Prior to the passage of the 1996 Telecommunications Act, certain of the BOCs
and the GTOCs were seeking this same kind of permission through the courts.
Because the 1996 Telecommunications Act has removed the restrictions in the
AT&T Decree and the GTE Decree, court actions to remove the restrictions are
no longer necessary. On April 11, 1996 the District Court for the District of
Columbia issued an order formally terminating the AT&T Decree. In addition,
the GTOCs have filed motions to withdraw all motions pending before the
District Court for the District of Columbia involving the GTE Decree,
including GTE's previously filed request to terminate the decree.

The BOCs thus are permitted to enter the out-of-region long distance market
as of the date of enactment of the legislation, although a BOC seeking to
provide long distance services must obtain any necessary state and/or federal
regulatory approvals that are otherwise applicable to the provision of
intrastate and/or interstate long distance service. The BOCs will be able to
enter the in-region long distance market upon specific FCC approval and a
finding by the FCC that the BOC satisfies the checklist and has satisfied the
other applicable procedural and substantive requirements. The legislation
defines in-region service to include every state, in its entirety, in which
the BOC provides local exchange service, even if the BOC is not the incumbent
local exchange service provider in all portions of that state. The Company
will be facing new competition from the BOCs and the GTOCs that are able to
obtain the necessary state and/or FCC approvals to provide out-of-region
and/or in-region long distance service. The new legislation provides for
certain safeguards to protect against anticompetitive abuse

36
<PAGE>

by the BOCs. Among other things, the legislation limits the ability of the
BOCs to market jointly inter-LATA long distance service, equipment, and
certain information services together with local services. The BOCs must
pursue such activities only through separate subsidiaries with separate books
and records, financing, management, and employees. All affiliate transactions
must be conducted on an arm's length and nondiscriminatory basis. The BOCs are
also prohibited from jointly marketing local and long distance services,
equipment, and certain information services unless they permit competitors to
offer similar packages of local and long distance services. Further, the BOCs
must obtain in-region long distance authority before jointly marketing local
and long distance service in a particular state. It is unknown whether these
safeguards will provide adequate protection, and the impact of anticompetitive
conduct on the Company, if such conduct occurs, is uncertain. In addition,
IXCs such as the Company will be significantly affected by the implementation
and enforcement of statutory and regulatory provisions designed to prevent the
BOCs and the GTOCs from capitalizing on their monopolistic provision of local
services to existing subscribers to win inter-LATA business.

The 1996 Telecommunications Act also addresses a wide range of other
telecommunications issues that will potentially impact the Company's
operations, including a sunset provision pertaining to when safeguards
designed to prevent BOCs from capitalizing on their local exchange monopolies
will cease to apply; provisions pertaining to regulatory forbearance by the
FCC; the imposition of additional liability for the unauthorized switching of
subscribers' long distance carriers; the creation of new opportunities for
competitive local service providers; and requirements pertaining to the
treatment and confidentiality of subscriber network information. The
legislation also restricts for some period AT&T and other long distance
carriers serving more than five percent of the nation's presubscribed access
lines from packaging their long distance services with local services provided
over BOC facilities. It is unknown at this time precisely the nature and
extent of the impact that the legislation will have on the Company. The
legislation requires the FCC to conduct a large number of proceedings over the
next year to adopt rules and regulations to implement the new statutory
provisions and requirements.

Depending on the exact nature and time of GTOC and BOC out-of-region and in-
region entry into the long distance market, such entry and the ability of the
Company's competitors to market jointly local and long distance services could
have a material adverse effect upon the Company's results of operations. It is
expected by the Company that most or all of the BOCs will file applications
for out-of-region long distance service. Certain of the BOCs have already
taken steps to provide out-of-region long distance services in multiple
states. It is not known when, and under what specific conditions, other
applications will be granted by the state utility commissions in those states.

Other regulatory changes being seriously considered by state and federal
regulatory authorities derive from competition that has developed in many
areas for the provision of local access services. Competitive access providers
have installed local networks that allow subscribers to route their long
distance traffic directly to the designated IXC, and that allow end users to
be connected to IXC points of presence, thereby bypassing the LEC. In certain
instances, the LECs also have been afforded a degree of pricing flexibility in
differentiating among markets and carriers in setting access charges and other
rates in areas where adequate competition has emerged. The impact on the
Company of granting the LECs greater pricing flexibility, together with other
regulatory developments, cannot be determined at this time. The ability of
LECs to grant volume discounts for charges billed to the larger IXCs, for
which the Company would qualify (and to the extent the Company would continue
to qualify), provides the Company with a competitive advantage over smaller
IXCs. The LECs have yet to elect to provide volume discounts on access and
terminating charges. See "--Regulation."

37
<PAGE>

COMPANY STRATEGY

. Maintain and Expand its Subscriber Base by continuing to offer high
quality, competitively-priced products and superior customer care through
a highly motivated and growing network of IRs.

. Offer Additional Communications Products by entering into agreements for
the resale of additional communications products and services that meet
the expanding needs of its subscribers, which may include, among others,
paging, wireless cable, home security monitoring and communication,
cellular phone service, local phone service, and Internet access. In
March 1996, the Company entered into an agreement with PageMart to
provide for the nationwide resale of paging products and services to the
Company's subscribers, including Narrowband PCS products when they become
available to PageMart's customers. The Company also intends to make
strategic acquisitions to expand its product line.

PRODUCTS AND SERVICES

The Company offers a variety of long distance and value-added services and
products to its subscribers in equal access areas, which currently include
residential service, commercial service, 800 service, international service,
and calling cards. All of the Company's long distance services require the
subscriber to pay a minimum monthly fee regardless of actual usage. However,
the Company's pricing structure is regularly reviewed so that most of the
Company's tariffed rates are lower than the tariffed rates of AT&T, MCI, and
Sprint, although in some instances the tariffed rates of the Company are
higher. As a result, subscribers of the Company's long distance service
generally pay less than they would for AT&T, MCI, or Sprint long distance
service. The tariffed rates of the Company, AT&T, MCI, and Sprint change from
time to time.

The following summarizes the various long distance and value-added services
and products the Company currently provides to its subscribers.

RESIDENTIAL SERVICES

The Company currently offers the following four residential services:
ExcelPLUSSM, ExcelPLUS IISM, PremierPLUS II SM, and My 800SM. ExcelPLUS, a "1-
plus" dialing service, was the Company's primary residential long distance
service until the introduction of ExcelPLUS II, which is currently the
Company's primary residential long distance service. The Company no longer
actively promotes or markets ExcelPLUS; although a small percentage of the
Company's subscribers still use the service. For those subscribers still using
ExcelPLUS, this service provides lower rates on nights and weekends and,
except for Maine intrastate calls, a 50% discount off the Company's tariffed
rates for direct dialed and calling card calls to other EXCEL residential and
small business subscribers.

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<PAGE>

ExcelPLUS II, a "1-plus" dialing service, is currently the Company's primary
residential long distance service. ExcelPLUS II provides lower rates on nights
and weekends and provides the largest savings on calls to other residential
and small business subscribers of the Company. Except for Maine intrastate
calls, the Company currently offers its subscribers using ExcelPLUS II a 30%
discount off the Company's tariffed rates for direct dialed and calling card
calls to all other numbers, which increases to a 50% discount off the
Company's tariffed rates for direct dialed and calling card calls to numbers
of other EXCEL residential or small business subscribers. The Company's
tariffed rates, coupled with its discounts, result in the Company's
subscribers generally paying less than they would for AT&T, MCI, or Sprint
long distance service.

PremierPLUS II, a "1-plus" dialing service, is designed for residents and
small, in-the-home businesses, which generally make long distance calls during
the business day. This service provides flat, non-distance sensitive rates and
optional account codes. If a subscriber elects to have the account code
option, then the subscriber will be billed directly by the Company rather than
the LEC. Except for Maine intrastate calls, the Company currently offers its
subscribers using PremierPLUS II a 30% discount off the Company's tariffed
rates for direct dialed and calling card calls to all other numbers, which
increases to a 50% discount off the Company's tariffed rates for direct dialed
and calling card calls to numbers of other EXCEL residential or small business
subscribers.

My 800 service permits calls to a single location from telephones in diverse
geographical service areas. My 800 is designed for residential subscribers,
and it allows the residential subscriber to call home on an 800 number or to
provide a toll-free number for family members to call home. The Company
markets My 800 as an alternative to collect calling or calling card calls to
home. This service offers subscribers a personal identification number, thus
allowing each subscriber to restrict access to the 800 number. My 800 is only
available to subscribers to one of the Company's "1-plus" calling plans. The
rate charges for this service are designed to be generally less than those
available from AT&T for comparable service.

COMMERCIAL SERVICE

The Company currently offers the following two commercial services: Premier
Dial OneSM and Premier 800SM.

Premier Dial One, a "1-plus" dialing service, is designed for small to
medium-sized businesses outside the home, which generally make long distance
calls during the business day. This service offers subscribers the following:
(i) incremental billing after the initial minute in six-second increments,
(ii) volume discounts, which currently range from 23% to 28.75% off the
Company's tariffed rates, and (iii) optional account coding, which allows
subscribers of this service to be billed directly by the Company.

Premier 800 service permits calls to a single location from telephones in
diverse geographical service areas. This service is designed for medium to
large businesses. This service offers subscribers the following: (i) a toll-
free 800 number, (ii) incremental billing after the initial minute in six-
second increments, (iii) volume discounts, which currently range from 23% to
28% off the Company's tariffed rates, and (iv) optional account coding, which
allows subscribers of this service to be billed directly by the Company.

CALLING CARDS

The Company offers a calling card to its residential and small business "1-
plus" subscribers that can be used from any location. The calling card offers
subscribers a 50% discount off the Company's applicable tariffed rate for each
additional minute after the initial minute for calls to numbers of other EXCEL
residential or small business subscribers. There is no monthly fee for calling
cards.

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<PAGE>

INTERNATIONAL SERVICE

All Company subscribers have direct dial long distance service for
international calls, and, as of August 1, 1995, all of the Company's
subscribers became eligible to subscribe to the Company's WorldNet service.
The Company's direct dial international rates are competitive with those of
MCI and AT&T. However, any subscriber may elect to join the Company's WorldNet
service for a $3 monthly fee and receive substantially lower international
rates. International sales of long distance service were approximately $27.2
million, or 7.5% of the Company's total long distance revenues, for the year
ended December 31, 1995.

DIRECTORY ASSISTANCE

The Company provides "1-plus" directory assistance to its residential and
small business subscribers at a flat charge per call.

PAGING

In March 1996, the Company entered into a Reseller Agreement (the "Reseller
Agreement") with PageMart, which is in the business of providing paging and
wireless communications products and services. Under the Reseller Agreement,
PageMart is required to provide, on a nonexclusive basis, paging products and
services to the Company, including Narrowband PCS products when they become
available to PageMart's customers, which may be resold nationwide by the
Company to its subscribers under the "EXCEL" trade name or any other trade
name, service mark, or trademark that the Company desires to use.

The Reseller Agreement has a three-year term and will renew automatically
for successive one-year periods unless either party gives at least six months'
notice of its intent not to renew. In addition, under the Reseller Agreement,
PageMart is required to provide the Company at least 90 days' prior written
notice of any material modification, addition, and/or deletion to its paging
network that has an adverse effect on the paging services to be provided to
the Company's subscribers. PageMart may not terminate the Reseller Agreement
other than for nonpayment or material breaches (after expiration of the
applicable cure periods), except that PageMart may terminate the Reseller
Agreement if the Company has failed to sell 10,000 pager numbers within six
months after the Company commences providing paging services to its
subscribers. In certain cases, PageMart will continue to provide paging
services to subscribers of the Company who were receiving paging services as
of the date of termination of the Reseller Agreement.

The Reseller Agreement does not prohibit the Company from receiving paging
services from any other paging company or from migrating its subscribers to
another paging network upon 30 days' notice.

The Company has not provided any paging products and services for its IRs to
sell but expects to do so in the near future. There can be no assurance that
such paging products or services will receive market acceptance in a timely
manner, or at all, or that demand for such products or services will be at a
level sufficient to provide profitable operations.

MARKETING

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<PAGE>

than 25% of the Company's subscribers are IRs. The Company's network marketing
system is particularly attractive to prospective IRs because of the potential
for supplemental income and because the IRs are not required to purchase any
inventory, have no monthly sales quotas or account collection issues, have
minimal paperwork, and have a flexible work schedule. The sales efforts of IRs
are supported through various means, including Company-sponsored training held
periodically throughout the year and motivational satellite broadcast
television shows broadcast four times a week. For the year ended December 31,
1995, the Company experienced an attrition rate of approximately 22% for IRs
(which, using the method of measuring attrition used by the Direct Selling
Association, is calculated by dividing the number of IRs who leave the network
during the year by the sum of the IRs at the beginning of the year plus the
new IRs who sign up during the year). During the year ended December 31, 1995,
86% of the IRs who had a subscription for the Company's management services
program, and whose annual renewals were due in 1995, elected not to renew;
however, the Company has continued to add IRs at a higher rate than this
attrition rate. The Company believes that this level of attrition is
comparable to that experienced by other companies that use direct selling to
market their products and services.

All IR compensation is paid directly by the Company and is based on the
acquisition of subscribers and their long distance usage. IRs receive
subscriber acquisition commissions only after, among other things, subscribers
sign up for the Company's long distance service. IRs receive commissions on
the long distance usage of subscribers who they have personally signed up. In
addition, while the Company does not pay a commission to IRs for introducing
new IRs to the Company, IRs do receive subscriber acquisition commissions and
long distance usage commissions for subscribers signed up by certain other IRs
they have recruited directly themselves or indirectly, as in the case of
subscribers recruited by other IRs in their downline, although certain
performance criteria must be maintained in order to qualify to receive all
such commissions. The performance criteria include maintaining a minimum
number of personally-recruited subscribers and a minimum number of personally-
recruited IRs. Commissions, once paid, are not reclaimable by the Company due
to subscriber cancellation. The maximum aggregate subscriber acquisition
commissions the Company may be required to pay for any new subscriber are
approximately $95, but averaged $46.08 for the year ended December 31, 1995.
The maximum aggregate long distance usage commissions the Company may be
required to pay for a single subscriber from such subscriber's long distance
usage are 9.75%, but averaged approximately 6.62% for the year ended December
31, 1995. The difference between actual commission payments and the maximum
payment occurs as a result of the failure of certain IRs to qualify to receive
commissions from the efforts of downline IRs. If over time IRs' downline
structures are developed more fully and/or more IRs maintain the required
qualifications, commissions expense will increase.

An individual, partnership, or corporation may become an IR by paying a one-
time, fully-refundable application deposit of $50, except in certain states
where no deposit is required. Upon payment of the deposit, the IR receives a
package of basic materials to begin his or her business. The Company strongly
encourages IRs to purchase its optional management services program for $195,
with an annual renewal of $180 (the $50 application deposit is waived upon
purchase of this program) (the "Management Services Program"). This program
provides the IR with an enhanced kit, including marketing materials, and
personal training by a certified trainer, who is paid by the Company for
training such IR. The program also includes a subscription to the monthly IR
newsletter, important bookkeeping services, and access to corporate marketing
personnel as advisors, all of which the Company believes are helpful to an IR
in the management of his or her business. The great majority of IRs have
chosen to purchase the optional Management Services Program. IRs are not
restricted to any specific geographic location to acquire subscribers or
recruit downline IRs, and the Company believes that many IRs acquire
subscribers and recruit downline IRs who reside in a different geographic
location than such IRs.

MANAGEMENT OF IRS

The Company seeks to limit the statements that IRs make about the Company's
business by requiring IRs giving presentations to potential subscribers or new
IRs to adhere to a prescribed script. Each IR also receives policies and
procedures that must be followed in order to maintain the IR's status in the
organization. IRs are expressly forbidden from making any representation as to
the possible earnings of any IR from the Company,

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<PAGE>

other than a statement prepared by the Company indicating the range of actual
earnings by all IRs. IRs are also prohibited from creating any marketing
literature that has not been pre-approved by the Company. The Company
regularly enforces these policies and procedures by either suspending or
terminating violators. The Company regularly audits business presentations
around the country, generating a "report card" for the presenting IR, and
applies penalties, if necessary. However, because the IRs are classified as
independent contractors, the Company is unable to provide them the same level
of direction and oversight as Company employees. While the Company has these
policies and procedures in place governing the conduct of the IRs, it is
difficult to enforce such policies and procedures for the IRs. Violations of
these policies and procedures reflect negatively on the Company and have led
to informal complaints by various state regulatory authorities, which may
occur again in the future and which could have a material adverse effect on
the Company's results of operations. See "Risk Factors--Dependence on
Independent Representatives and Legal Action by Certain IRs" and "--Regulation
and Management of Independent Representatives" and "Business--Legal Matters."

TRAINING AND MARKETING SUPPORT

The Company provides training to all IRs who have purchased the optional
Management Services Program. The training includes a detailed explanation of
the Company's products, the IR compensation plan, and the use of the various
marketing tools available to the IR. The Company publishes a monthly
newsletter for the IRs providing informative and motivational articles (the
"Communicator"), as well as recognizing IR achievements. The Company also
broadcasts motivational and training shows to the IRs who have purchased a
satellite dish via transmission on a private band ("Excelevision") four times
weekly. The Communicator and Excelevision allow the Company to keep the IRs up
to date on new promotions, products, developments, and changes to the
Company's policies and procedures. The Company also offers for sale through
its catalogs a wide variety of marketing tools, audio and videotapes, visual
aids, desk accessories, and clothing and novelty items designed to assist IRs
in their marketing efforts and to promote name recognition of the Company. The
Company regularly updates its marketing materials to reflect the Company's
available services and products and timely information about the Company. The
Company holds an annual convention, known as "Excelebration(TM)," for IRs each
year. This event provides recognition to the top performers, direct access to
senior management, and a chance for IRs to share experiences and develop
support systems. The Company also participates throughout the country in
rallies that current IRs and potential new IRs attend to learn more about the
Company.

The Company encourages individuals to become an AC to provide personal
training to IRs. The fee to become an AC is generally $395 (with an annual
renewal fee of $100), and the Company does not require that the individual be
an IR (although most of the ACs are also IRs). An AC must complete a more
extensive training course than that offered to IRs to become certified as an
AC. The maximum amount the Company may be required to pay for the training of
an AC is $100, but averaged approximately $74.16 for the year ended December
31, 1995. The difference between actual AC training fees and the maximum
payment occurs as a result of a variety of factors, including the failure of
ACs to obtain training, the failure of the persons training the ACs, or
persons in their upline, to meet or maintain the necessary qualifications for
receiving such training fees, and the failure of the persons training the ACs
from time to time to request such payments.

ACs train IRs and, upon submitting a request for payment, an AC receives a
one-time $40 payment from the Company for each IR trained. In addition, IRs
who have achieved certain performance benchmarks become eligible to receive up
to $14 in additional commissions on all training fees paid to ACs that such
IRs have personally recruited to become ACs. ACs are initially trained by
other ACs who have received advanced training, known as Regional Training
Directors and National Training Directors. Additional training compensation,
in the amount of $80 for each AC they personally train, is available for ACs
who are further certified through advanced training and become Regional
Training Directors or National Training Directors. As ACs qualify at higher
levels within the organization, they can obtain payments for each IR trained
by ACs within their downline organization. The maximum amount the Company may
be required to pay for the training of an IR is $54 ($40 to the AC and $14 to
the IR who recruited the AC), but averaged approximately $34.43 for the year
ended December 31, 1995. The difference between actual IR training fees and
the maximum payment occurs as a result of a variety of factors, including the
failure of IRs to obtain training, the failure of the persons training the
IRs, or the ACs in the upline of the IRs being trained, to meet or maintain
the necessary qualifications for receiving such training

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<PAGE>

fees, and the failure of the persons training the IRs from time to time to
request such payments. ACs are not restricted to training IRs who reside in
any specific geographic location, and the Company believes that many ACs train
IRs who reside in a different geographic location than such ACs.

The Company operates a call center staffed by service agents who have
automated systems to answer IR questions and provide IR support. This system
includes a current database of all IRs, their downlines, and their
subscribers. During 1995, the Company added an interactive voice recognition
system that allows IRs 24-hour access to information through their touch-tone
phones. In addition, the Company has developed a proprietary commission
processing system to process the high volumes of data necessary to calculate
commissions on long-distance usage, commissions on the acquisition of long
distance subscribers, and commissions on IR and AC training. This system
incorporates the provisions of the Company's marketing program to prepare
monthly downline reports and commission payment details to IRs and ACs.
Certain commissions are calculated and paid weekly.

Set forth below is certain data of the Company relating to IRs and ACs:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1993 1994 1995
<S> <C> <C> <C>
Number of applications from new independent repre-
sentatives (IRs).................................... 28,067 156,275 461,158
Number of applications from new area coordinators
(ACs)............................................... 4,740 28,220 100,538
</TABLE>

CUSTOMER CARE

The Company strives to provide superior customer care and support for its
subscribers and believes that personal contact with its subscribers through
IRs and customer service representatives is a significant factor in subscriber
acquisition and retention. The Company encourages IRs to contact each of their
subscribers on a monthly basis to keep the subscriber satisfied with the
Company's long distance service.

The Company operates a call center staffed by the Company's customer service
employees, who have completed a certification and training program provided by
the Company. To enhance the effectiveness of the customer service
representatives, the Company, in addition to the initial training program,
provides ongoing training to all customer service representatives. The
Company's customer service department uses on-line, real-time automated
systems that (i) interface with the marketing database to obtain related IR
information, (ii) provide notes from all prior contacts with the subscriber,
and (iii) provide a complete account and payment history for subscribers
directly billed by the Company. Through this proprietary contact management
software, the Company is able to provide a high level of customer care. The
Company also provides subscriber support on a bilingual basis, in English and
Spanish, and is in the process of developing systems that will enable the
Company to provide multilingual support; however, no assurance can be made as
to when, if ever, the Company will be able to provide multilingual support.

By the end of 1996, the Company intends to have operational two additional
call centers with automated systems to manage calls. The Company will build
one of these call centers (and has already commenced construction on that call
center) and will lease the other. The Company believes that the additional
call centers will enhance the Company's ability to provide superior customer
care and subscriber support.

The Company has a "win-back" program, in which customer service
representatives call subscribers who have cancelled the Company's services.
For the year ended December 31, 1995, over 25% of the subscribers contacted
elected to sign up with EXCEL again.

In order to improve the Company's products and services, the Company
internally audits its various products and services. Furthermore, since IRs
are frequently subscribers, the Company benefits from monitoring by and
suggestions of IRs, including suggestions from a Company-sponsored focus group
of leading IRs, on how to improve the Company's products and services.

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INFORMATION SYSTEMS

The Company believes that maintaining sophisticated and reliable transaction
processing systems is essential for a communications company. The Company
continues to invest substantial resources in maintaining and enhancing its
computer systems. The Company's systems are designed to: (i) minimize the time
to connect a subscriber to the Company's long distance service through the LEC
(referred to as provisioning), (ii) provide detailed and customized subscriber
billing information, (iii) respond quickly to subscriber and IR needs and
information requests, (iv) provide detailed and customized IR commission
payments, and (v) monitor and analyze financial and operating trends. In order
to meet these needs and expand transaction processing systems to accommodate
the Company's expected growth, capital and operating expenditures for
information technology operations and development activities are expected to
exceed $57 million during 1996.

SUBSCRIBER SUPPORT

The Company utilizes automated systems to support its subscriber
provisioning and subscriber maintenance processes. These processes include
adding the subscriber to the Company's database, notifying the long distance
carrier and the LEC of subscribers' elections, and monitoring subscriber
status changes. The Company maintains dedicated lines with Frontier including
subscriber account information, subscriber status information, and the
addition and deletion of features and products, such as secondary phone lines
and personal 800 numbers. These dedicated lines enhance communications and
minimize the time required to provision new subscribers and enhance the
ability to respond to changes in subscriber status. The timely exchange of
information facilitates the Company's efforts to monitor disconnects by the
LECs in order to minimize bad debt expenses related to calling card usage and
reacquire subscribers who have switched from the Company's long distance
service.

Call detail records are received daily from Frontier over dedicated lines.
The call detail record includes the originating telephone number, the
terminating number, the duration of the call, the type of call, and the date
and time of the call. Each call detail record is rated according to the
subscriber's rate plan in effect at the time of the call utilizing the
Company's proprietary billing systems. The daily receipt of call detail
records accelerates cash collections by minimizing the time between the call
dates and billing dates. Daily call detail records also enable the Company to
monitor traffic patterns and investigate potential fraudulent calls in a more
timely manner.

IR SUPPORT

The Company operates a call center where advisors utilize automated systems
to answer IR questions and provide information to the IRs. This system
includes a current database of all IRs, their downlines, and their
subscribers. During 1995, the Company added an interactive voice recognition
system that allows IRs 24-hour access to information through touch-tone
phones.

The Company has developed a custom commission processing system that
incorporates the provisions of the Company's marketing program for purposes of
calculating commissions on long distance usage, commissions on the acquisition
of long distance subscribers, and commissions for IR and AC training. The
Company also maintains transaction processing systems that facilitate the
automatic shipment of IR training and marketing materials. In addition, the
Company has an order processing system that tracks the receiving, storage,
shipment, and purchasing of sales aid products.

FINANCIAL SYSTEMS

The Company's financial software was upgraded at the end of 1995 with an
enhanced financial system. The system is capable of operating on several
platforms, exists in a client-server environment, employs a graphical
interface, and has a relational and scalable database. In addition, the
Company purchased a decision support system that interfaces with its financial
systems. These systems enable the Company to track and analyze financial
information and operations efficiently and effectively as well as create
custom reports.

Receivables for subscribers who are directly billed by the Company are
maintained on an automated system that tracks each billing invoice, payments,
adjustments, and current balance. The software used by the collections

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department allows it to suspend or cancel a subscriber for non-payment and to
reactivate the subscriber once payment is received. In order to reduce bad
debt expense, the Company performs on-line, real-time credit checks through a
national service for commercial accounts. Additionally, the Company and its
carriers actively monitor calls on a continuous basis through automated
systems in an effort to detect fraud as early as possible.

SUPPLIERS

The Company does not own a long distance network, and pursuant to the
Company's current contract with Frontier, the Company currently depends
primarily upon Frontier to provide for the transmission of phone calls by its
subscribers and to provide the call detail records upon which the Company
bases its subscriber billings. The Company originally contracted with Frontier
(then known as Allnet Communication Services, Inc.) to provide switching
services and network transmission of its subscribers' traffic in 1990.
Effective as of April 1, 1995, the Company entered into a new multiple-year
contract with Frontier, which has a fixed term expiring on April 30, 1998
(although it may be extended), for long distance telecommunications services.
Although the Company believes that its relations with Frontier are strong and
should remain so with continued contract compliance, the termination of the
Company's current contract with Frontier, the loss of the telecommunication
services, or a reduction in the quality of the service the Company receives
from this long distance carrier could have a material adverse effect on the
Company's results of operations. In addition, the accurate and prompt billing
of the Company's subscribers is dependent upon the timeliness and accuracy of
call detail records provided to the Company by Frontier. There can be no
assurance that accurate information will be provided by Frontier on a timely
basis, the failure of which would have a material adverse effect on the
Company's results of operations.

On May 2, 1996, the Company received a notice of a price increase to be
effective on September 1, 1996 from Frontier for approximately 30% of its
LATAs and may receive additional notices in the future for other LATAs. The
Company is seeking agreements to route its long distance traffic in the LATAs
covered by the notice and in other LATAs to other carriers and believes that
it will be able to obtain rates as favorable as those rates previously charged
by Frontier for such areas, although no assurance can be given that such
agreements will be entered into or regarding the terms that such agreements
will contain. The Frontier contract provides that if such affected long
distance traffic is moved to another carrier as a result of such price
increase, the monthly minimum commitment of 100 million minutes to Frontier
will be reduced proportionately.

The Frontier contract currently provides that Frontier is the exclusive
carrier for the Company for its calling card and 800 personal identification
number services. The Company has the right to transfer other long distance
traffic to SSC and any network developed by the Company, including any third
party network with circuits that are directly connected to the EXCEL network,
and, in the event that Frontier raises transmission costs, the affected
traffic (including calling card and 800 personal identification number
traffic) may be moved to any network while reducing the Company's overall
commitment to Frontier. Additionally, the Frontier contract was amended on
April 27, 1996 to allow the Company to utilize additional carriers for certain
states, provided that the Company must notify Frontier by June 1, 1996 if it
has entered into agreements with other carriers or the
right to utilize such additional carriers terminates. As permitted by the
Frontier contract and as part of the Company's strategy to develop its own
long distance network to, among other things, ease its reliance on

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Frontier, the Company has contracted with SSC for the provision of long
distance usage services for the Company's subscribers. SSC was formed by the
Company and IXC Long Distance, Inc. ("IXC Long Distance") to lease, install,
and operate five switches incorporated into the SSC network in order to
provide switched services to IXC Long Distance and the Company. In January
1996, the Company sold its entire 49% interest in SSC to IXC Long Distance.
See "Recent Developments and Certain Transactions."

The Company is required to purchase or use certain minimum monthly amounts
of long distance usage under both the Frontier contract and the SSC contract.
Under the Frontier contract, the Company must purchase a monthly minimum of
100 million minutes of long distance usage, subject to certain reductions,
irrespective of the actual usage of the Company's subscribers. For the month
of March 1996, the Company used approximately 435 million minutes. In
addition, contemporaneously with the sale of its entire 49% interest in SSC to
IXC Long Distance in January 1996, the Company agreed to purchase a minimum of
70 million minutes of long distance usage per month over the SSC network,
irrespective of the actual usage of the Company's subscribers. Such minimum
minutes of usage required by Frontier and SSC may be more difficult to
maintain if additional carriers are utilized by the Company. In February 1996,
the Company began transferring sufficient amounts of existing long distance
traffic from the Frontier network, or directing new long distance traffic to
the SSC network, such that the Company expects that, as required under the SSC
contract, this minimum commitment will be met beginning no later than October
1996. The minimum commitment continues through the earlier of (i) the date on
which the Company has routed 4.2 billion minutes over the SSC network, (ii)
five years from the beginning of the month during which the Company first
routes 70 million minutes over the SSC network, and (iii) the date on which
certain other conditions are met. Once EXCEL is in compliance with its minimum
commitment requirements, EXCEL will be required to provide notice to SSC if
EXCEL subsequently migrates long distance traffic away from the SSC network,
unless the Company's service agreement with SSC has been previously
terminated.

The Company intends to meet the minimum commitment under the SSC contract,
subject to SSC's ability to meet the agreed performance criteria. As a result,
while Frontier was responsible for carrying traffic representing all of the
Company's revenues from sales of long distance revenues in 1994 and 1995, the
Company does not expect this historical reliance on Frontier to continue.
However, since the rates charged to the Company under the Frontier contract
for long distance service are discounted at certain volumes, the Company
expects that Frontier will continue to carry a substantial amount of the
Company's long distance traffic in the foreseeable future. The Company is
currently seeking agreements with other carriers in selected markets including
MCI and WorldCom. The Company anticipates that such agreements would contain
minimum commitment requirements and would provide for rates comparable to
those provided by Frontier and SSC, although no assurance can be given as to
whether such agreements will be entered into or the terms that they would
contain. See "--Industry Overview and Competition," "Risk Factors--
Relationship with Carriers," "Management's Discussion and Analysis of
Financial Condition and Results of Operation," and "Recent Developments and
Certain Transactions."

DEVELOPMENT OF A LONG DISTANCE NETWORK

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complete a long distance call, and such repricing could affect the economies
associated with developing a long distance network. As a result, while the
development of a long distance network is an important part of the Company's
strategy in the future, there can be no assurance that development of a long
distance network will be completed or, if completed, will be beneficial to the
Company. See "Risk Factors--Risks Relating to Development of a Long Distance
Network."

PROPRIETARY RIGHTS

The Company has acquired from another company a federally-registered service
mark for the name "EXCEL" for long distance telecommunications services and
has licensed back to such company the right to continue to use the "EXCEL"
mark for five years (subject to renewals) for certain outbound long distance
communications. In addition, the Company relies upon common law rights to
establish and protect its intellectual property. There can be no assurance
that the Company's measures to protect its intellectual property will deter or
prevent the unauthorized use of the Company's intellectual property. If the
Company is unable to protect its intellectual property rights, including
existing trademarks and service marks, it could have a material adverse effect
upon the Company's results of operations.

Numerous companies have preexisting rights to the name "EXCEL," and these
companies could seek to require the Company to obtain a license from them or
require the Company to change its name, either of which could entail
substantial costs. Additionally, if the Company were required to change its
name, it would lose all associated goodwill. From time to time, companies may
assert other trademark and service mark rights relevant to the Company's
business. In such cases, the Company will evaluate each claim relating to its
intellectual property and, if appropriate, would seek a license; however,
there can be no assurance that the Company could obtain a license on
commercially reasonable terms. If the Company is unable to obtain such a
license, the Company could be prohibited from utilizing such trademark or
service mark and would lose all associated goodwill that it has developed. In
addition, future products of the Company may need to be marketed under
different names if the mark "EXCEL" is being used by other companies. The
Company could also incur substantial costs to defend any legal action taken
against the Company. If, in any legal action that might arise, the Company's
asserted trademarks or service marks should be found to infringe upon other
intellectual property rights, the Company could be enjoined from further
infringement and required to pay damages. In the event a third party were to
sustain a valid claim against the Company, and in the event any required
license were not available on commercially reasonable terms, the Company's
results of operations could be materially adversely affected. Litigation,
which could result in substantial cost to and diversion of resources of the
Company, may also be necessary to enforce intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. See "Risk Factors--Possible Claims Relating to Ownership of
Proprietary Rights."

REGULATION

The terms and conditions under which the Company provides communications
services are subject to government regulation. Federal laws and FCC
regulations apply to interstate telecommunications, while particular state
regulatory authorities have jurisdiction over telecommunications that
originate and terminate within the same state. In addition, the Company's
network marketing system is or may be subject to or affected by extensive
federal and state regulation.

FEDERAL

The Company is classified by the FCC as a non-dominant carrier, and
therefore is subject to somewhat reduced federal regulation. After the recent
reclassification of AT&T as a non-dominant carrier in its provision of
domestic services, among domestic carriers only the LECs are classified as
dominant carriers for the provision of interstate access services. As a
consequence, the FCC regulates many of the rates, charges, and services of the
LECs to a greater degree than the Company's. The FCC has proposed that the
BOCs offering out-of-region

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<PAGE>

interstate interexchange services be regulated as non-dominant carriers, as
long as such services are offered by an affiliate of the BOC that complies
with certain structural separation requirements, which may make it easier for
the BOCs to compete directly with the Company for long distance subscribers.
These would be the same separation requirements that currently are applicable
to independent LECs that provide interstate interexchange services, although
the FCC on March 21, 1996 initiated a rulemaking proceeding in which it is
considering whether to modify or eliminate these separation requirements.

Because AT&T is no longer classified as a dominant carrier, certain pricing
restrictions that formerly applied to AT&T have been eliminated, which should
make it easier for AT&T to compete with the Company for low volume long
distance subscribers. International carriers may also be classified as
dominant if they exercise market power or are considered to be affiliated with
foreign carriers, as defined under the FCC's rules. Non-dominant carriers are
currently required to file interstate and international tariffs. The FCC
generally does not exercise direct oversight over cost justification and the
level of charges for service of non-dominant carriers, such as the Company,
although it has the statutory power to do so. Non-dominant carriers are
required by statute to offer interstate and international services under
rates, terms, and conditions that are just, reasonable, and not unduly
discriminatory. The FCC has the jurisdiction to act upon complaints filed by
third parties or brought on the FCC's own motion against any common carrier,
including non-dominant carriers for failure to comply with its statutory
obligations. The FCC also has the authority to impose more stringent
regulatory requirements on the Company and change its regulatory
classification from non-dominant to dominant. In the current regulatory
environment, the Company believes, however, that the FCC is unlikely to do so.
Additionally, the 1996 Telecommunications Act grants explicit authority to the
FCC to "forbear" from regulating any telecommunications services provider in
response to a petition and if the agency determines that the public interest
will be served. On February 15, 1996, Hyperion Telecommunications, Inc., a
competitive access provider, filed a petition with the FCC requesting that the
FCC adopt a forbearance policy with regard to tariff filing requirements for
non-dominant carriers. If the petition is granted, the Company and other non-
dominant carriers would no longer be required to maintain tariffs on file at
the FCC. Additionally, on March 21, 1996, the FCC adopted a Notice of Proposed
Rulemaking that proposes, pursuant to the forbearance authority granted to the
FCC by the 1996 Telecommunications Act, that non-dominant domestic IXCs should
no longer file tariffs. If finally adopted, the FCC's proposal would not allow
domestic non-dominant carriers to maintain tariffs on file with the FCC. The
Notice of Proposed Rulemaking also initiates a review of other FCC regulations
currently applicable to domestic interstate interexchange services to
determine how such regulations should be changed consistent with the
deregulatory goals of the 1996 Telecommunications Act. Among other issues, the
FCC is proposing to eliminate the current prohibition against the bundling of
subscriber premises equipment with the provision of interexchange services by
non-dominant domestic carriers. It is not known when the FCC will take final
action in this rulemaking proceeding or whether any or all of the proposed
rules will be finally adopted.

The FCC imposes only minimal reporting requirements on non-dominant
resellers, although the Company is subject to certain reporting, accounting,
and record keeping obligations. A number of these requirements are imposed, at
least in part, on all carriers and others are imposed on carriers such as the
Company, whose annual operating revenues exceed $100 million. The Company has
been granted authority by the FCC to provide international telecommunication
services through the resale of switched services of various carriers. The FCC
reserves the right to condition, modify, or revoke such international
authority for violations of the Communications Act of 1934 or its rules.

The Company currently has two tariffs on file with the FCC, one covering its
domestic interstate services and one covering international services. Although
the tariffs of non-dominant carriers, and the rates and charges they specify,
are subject to FCC review, they are presumed to be lawful and are seldom
contested. As a domestic non-dominant carrier, the Company is permitted to
make domestic tariff filings on a single day's notice and without cost support
to justify specific rates. As an international non-dominant carrier, the
Company has been required to include, and has included, detailed rate
schedules in its international tariffs, which are filed on 14-days' notice
without cost support to justify rates. Resale carriers, like all other
interstate carriers, are also subject

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to a variety of miscellaneous regulations that, for instance, govern the
documentation and verifications necessary to change a subscriber's long
distance carrier, limit the use of "800" numbers for pay-per-call services,
require disclosure of certain information if operator assisted services are
provided, and govern interlocking directors and management.

The Company is also subject to the FCC's prior approval requirement for a
transfer of control or assignment of its international authority, including
for pro forma transfers such as that created by the Reorganization, which was
undertaken by the Company in January 1996. See "Recent Developments and
Certain Transactions." As a result, the Company has obtained retroactive FCC
approval of a pro forma transfer of control that occurred as part of the
Reorganization.

At present, the FCC exercises its regulatory authority to set rates
primarily with respect to the rates of dominant carriers, and it has
increasingly relaxed its control in this area. Even when AT&T was classified
as a dominant carrier for its domestic services, the FCC most recently
employed a "price cap" system, which essentially exempted most of AT&T's
services, including virtually all of its commercial and "800" services, from
traditional rate of return rate regulation because the FCC believed that these
services were subject to adequate competition. Similarly, the FCC is in the
process of repricing the local transport component of access charges (i.e.,
the fee for use of the LEC transmission facilities connecting the LEC's
central offices and the IXCs' access points). In addition, the LECs have been
afforded a degree of pricing flexibility in setting interstate access charges
where adequate competition exists. The impact of such repricing and pricing
flexibility on IXCs, such as the Company, cannot be determined at this time.

The 1996 Telecommunications Act, which was enacted into law on February 8,
1996, authorizes the BOCs to provide inter-LATA interexchange
telecommunication services, upon the receipt of any necessary state and/or
federal regulatory approvals that are otherwise applicable to the provision of
intrastate or interstate long distance services and, for in-region long
distance services, upon specific FCC approval and upon satisfying other
conditions, including a checklist of interconnection and other requirements.
The 1996 Telecommunications Act also provides for certain safeguards against
anticompetitive conduct by the BOCs in the provision of inter-LATA service
including a requirement for a separate subsidiary and certain joint marketing
limitations. Anticompetitive conduct could result, among other things, from a
BOC's access to all subscribers on its existing local network as well as from
the potential for improper cross-subsidization to lower costs related to the
termination and origination of calls on its own local network facilities
within its operating territory. It is unknown whether these safeguards will
provide adequate protection, and the impact of anticompetitive conduct on the
Company, if it occurs, is uncertain. The legislation also restricts AT&T and
other long distance carriers serving more than five percent of the nation's
presubscribed access lines from packaging their long distance services with
local services provided over BOC facilities.

The GTOCs were previously prohibited from providing interexchange
telecommunications services by the GTE Decree. The 1996 Telecommunications Act
vacates the GTE Decree and authorizes the GTOCs to provide inter-LATA
interexchange telecommunications services without regard to limitations by
region, although the necessary state and/or federal regulatory approvals that
are otherwise applicable to the provision of intrastate and/or interstate long
distance service must be obtained by the GTOCs prior to the provision of long
distance service, and the GTOCs are subject to the provisions of the 1996
Telecommunications Act that impose interconnection and other requirements on
LECs. Anticompetitive conduct could result from, among other things, a GTOC's
access to all subscribers on its existing network as well as the potential for
improper cross-subsidization to lower costs related to termination and
origination of calls within its territory.

Like other long distance carriers, the Company has been the subject of
complaints before the FCC regarding the unauthorized switching of subscribers'
long distance carriers, also known in the industry as "slamming." The FCC has
made a preliminary finding that the Company engaged in two alleged slamming
incidents, which occurred in August 1994, and for which the FCC assessed
proposed fines against the Company in the aggregate amount of $80,000. This
finding is not a final order, and the Company has filed a timely response with
the FCC

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<PAGE>

in which facts were presented that, in the Company's view, justify rescinding
in its entirety or reducing the proposed penalty. The Company's response is
still pending, and the FCC has not issued a final decision. The Company
believes that this matter will be resolved without a material adverse impact
upon the Company's results of operations, but the Company cannot be assured of
such resolution. Additional informal complaints for unauthorized switching of
subscribers' long distance carriers and regarding subscriber liability for
billed calls for which the subscriber denies responsibility and other billing
issues also have been lodged against the Company before the FCC. The Company
has filed timely responses to these informal complaints. Although such
complaints could result in additional legal actions or proceedings being
initiated against the Company, the Company believes that such matters would be
satisfactorily resolved without a material adverse impact upon the Company's
results of operations, but the Company cannot be assured of such resolution.
Should the Company's belief with respect to any or all of the complaints
pending before the FCC be incorrect, a final determination by the FCC that the
Company engaged in the unauthorized switching of subscribers' long distance
carriers or other unauthorized conduct could have a material adverse effect
upon the Company's results of operations as, among other requirements, the
Company would be subject to financial penalties and potential revocation of
its operating authority for interstate calls, as well as other possible
restrictions.

In addition, the 1996 Telecommunications Act adds a new provision that
imposes liability upon all telecommunications carriers, including the Company,
to the carrier previously selected by the subscriber for unauthorized
switching of subscribers' long distance carriers. Liability is imposed in an
amount equal to all charges paid by the subscriber after the unauthorized
conversion. The FCC is required to adopt new rules to implement this new
statutory requirement. The impact that this statutory provision will have on
the Company cannot be determined at this time.

STATE

The Company is subject to varying levels of regulation in the states in
which it is currently authorized to provide intrastate telecommunications
services. The vast majority of the states require the Company to apply for
certification to provide intrastate telecommunications services, or at least
to register or to be found exempt from regulation, before commencing
intrastate service. The vast majority of states also require the Company to
file and maintain detailed tariffs listing their rates for intrastate service.
Many states also impose various reporting requirements and/or require prior
approval for transfers of control of certified carriers, and/or for corporate
reorganizations; acquisitions of telecommunications operations; assignments of
carrier assets, including subscriber bases; carrier stock offerings; and
incurrence by carriers of significant debt obligations. As a result, the
Company has filed notices with various states regarding the Offering. The
Company has also filed notices and/or applications for approval for the
Reorganization. In certain jurisdictions the Company has sought retroactive or
nunc pro tunc authority for the Reorganization. While the Company expects to
receive all requested approvals with respect to the Reorganization, the
Company has not received all such approvals as of the date of this Prospectus.
Certificates of authority can generally be conditioned, modified, cancelled,
terminated, or revoked by state regulatory authorities for failure to comply
with state law and/or the rules, regulations, and policies of the state
regulatory authorities. Fines and other penalties, including the return of all
monies received for intrastate traffic from residents of a state, may be
imposed for such violations. If state regulatory agencies conclude that the
Company has taken steps without obtaining the required authority, they may
impose one or more of the sanctions listed above.

The staff at the Pennsylvania Public Utility Commission ("PPUC") has
informally indicated that the PPUC will not process the Company's application
for approval of the Reorganization until completion of the Pennsylvania
Attorney General's discussion with the Company regarding its marketing
practices. The discussions with the Pennsylvania Attorney General's Office are
part of the routine reviews conducted by various states from time to time of
the activities of the IRs in such states. The Company believes that it is in
compliance with the applicable laws and regulations of Pennsylvania and that
its application to the PPUC for approval of the Reorganization will be granted
in the near future.

The states accounting for the most minutes of long distance usage of the
Company, based on minutes of long distance usage from calls originating within
the state (and from 800 calls originating outside the state but

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that are billable to a subscriber who resides in that state), are California,
Florida, Texas, North Carolina, and Michigan, which for the year ended
December 31, 1995 accounted for approximately 12.2%, 7.6%, 5.8%, 5.1%, and
4.3% (or approximately 35% in the aggregate) of the Company's total minutes of
long distance usage.

Currently, the Company is certificated and tariffed to provide intrastate
inter-LATA service in all states where such authorization can be obtained. Six
states in the U.S. are single-LATA states (Alaska, Connecticut, Hawaii, New
Hampshire, Rhode Island, and Vermont), and, therefore, the only authority
available in those states is intra-LATA authority. The Company has received
intra-LATA authority in Alaska, Connecticut, New Hampshire, and Vermont. In
addition, the Company has obtained authority to provide intrastate intra-LATA
service, in addition to inter-LATA authority, in a number of other states and
is actively pursuing such authority in all remaining states. Although the
Company intends and expects to obtain operating authority in each jurisdiction
in which operating authority is required, there can be no assurance that one
or more of these jurisdictions will not deny the Company's request for
operating authority. The Company continuously monitors regulatory developments
in all 50 states in order to ensure regulatory compliance. To the extent that
the Company converts from a switchless reseller to a switched-based reseller
or a facilities-based carrier, modification or amendment of the Company's
state certifications may be required.

The Company has resolved a show cause proceeding before the Florida Public
Service Commission that initially had proposed a fine in the aggregate amount
of $35,000 against the Company for 35 unauthorized switching incidents, which
occurred over a period of several years. On March 5, 1996, the Florida Public
Service Commission voted to resolve this matter without a finding of liability
against the Company. An order has been approved by the Florida Public Service
Commission that terminates the proceeding without an admission of wrongdoing
by the Company; provided the Company makes a $10,000 payment to the Florida
treasury, which is less than the $35,000 payment initially sought by the
Florida Public Service Commission. The $10,000 payment has been made by the
Company, and this matter has become final. The Company also has resolved
satisfactorily a proceeding before the Maine Public Utilities Commission (the
"Maine Commission") concerning the level of certain rate increases proposed by
the Company in tariff revisions filed with the Maine Commission. Although
issues regarding marketing practices and notice to subscribers may be
considered in a future proceeding, on March 7, 1996, the Maine Commission
approved a stipulation in this proceeding that resolves the tariff issues
raised by the Maine Commission and allows the tariff revisions that were at
issue in this proceeding to become effective. The Company has implemented a
number of safeguards to greatly reduce the number of unauthorized
subscriptions being activated by the Company. Since the Company and the IRs do
not telemarket and do require signed letters of agency from all subscribers,
the Company believes that the potential for slamming is substantially reduced.

Additional complaints for unauthorized switching of subscribers' long
distance carriers and for other issues involving subscriber liability for
billed calls for which the subscriber denies responsibility and other billing
issues have been lodged against the Company before other state public
utilities commissions. Although such complaints could result in additional
legal actions or proceedings being initiated against the Company, the Company
believes that such matters would be satisfactorily resolved without a material
adverse impact upon the Company's results of operations, although the Company
cannot be assured of such resolution. A final determination by one or more
jurisdictions that the Company engaged in the unauthorized switching of
subscribers' long distance carriers or other unauthorized conduct could have a
material adverse effect upon the Company's results of operations as, among
other things, the Company would be subject to financial penalties and
potential revocation of its operating authority in the particular
jurisdiction, as well as other possible restrictions.

NETWORK MARKETING

The Company's network marketing system is or may be subject to or affected
by extensive government regulation, including, without limitation, state
regulation of marketing practices and federal and state regulation of the
offer and sale of business franchises, business opportunities, and securities.
In addition, the Internal Revenue Service and state taxing authorities in any
of the 50 states where the Company has IRs could classify the IRs or the ACs
as employees of the Company (as opposed to independent contractors). Any
assertion or determination that the Company's business is not in compliance
with government requirements could have a material adverse effect upon the
Company's results of operations.

51
<PAGE>

The Company believes that it is in compliance with the requirements of
federal and state regulatory authorities and maintains communications
regularly with the various regulatory authorities in each jurisdiction. The
Missouri Department of Labor and Industrial Relations has made a determination
that the IRs in Missouri (approximately 2.4% of the Company's IRs at December
31, 1995) were employees for unemployment compensation withholding purposes,
and had demanded tax payments for all completed taxable periods commencing
with the 1990 fiscal year, which, as of the date of this Prospectus, was in
excess of $200,000. However, the Missouri Department of Labor and Industrial
Relations has agreed in exchange for a voluntary payment of $7,000 by the
Company, without the Company admitting any liability, and a promise by the
Company to cooperate in a new determination, that it will withdraw its earlier
determination, accept such payment as full and complete settlement of all
periods prior to January 1, 1995, and issue a new determination for the year
1995 forward. The Company believes that the determination by Missouri for the
year 1995 forward will be that the IRs are not employees based upon an
exclusion from the definition of employment in the applicable Missouri statute
for services performed as a direct seller. A final determination by Missouri
or any other jurisdiction that the IRs are employees could cause the Company
to be subject to penalties and interest for taxes not withheld, require the
Company to withhold taxes in the future, and require the Company to pay
unemployment insurance. Additionally, an adverse determination by any one
state could influence the decisions of regulatory authorities in other
jurisdictions. Any or all of such factors could adversely affect the way the
Company does business and could affect the Company's ability to attract
potential IRs.

While the regulations governing network marketing are complex and vary from
state to state, the Company believes that it is in compliance with and has
from time to time modified its network marketing system to comply with
interpretations of various regulatory authorities. The failure to comply in
any one state could cause the Company to pay fines as well as to stop doing
business in that state, which could influence the decisions of regulatory
authorities in other states and could have a material adverse effect upon the
Company's results of operations.

FACILITIES

The Company operates out of eight separate locations in Dallas, Texas
consisting of approximately 350,000 square feet of general and administrative
office space and one service center in Houston, Texas consisting of
approximately 60,000 square feet under leases that expire at various times in
the future. The Company has commenced construction on a new facility, which
includes a new call center and a new distribution center, consisting of an
aggregate of approximately 250,000 square feet in Addison, Texas, which the
Company expects to be completed in 1996 and which is owned by the Company in
fee simple. The Company believes that, due to its recent growth, it will have
to lease or build additional facilities in order to meet adequately its needs
in the future, including at least one additional call center and new corporate
headquarters.

EMPLOYEES

As of March 31, 1996, the Company employed approximately 1,500 people. This
number does not include IRs and ACs, who are classified by the Company as
independent contractors rather than employees of the Company; however, this
number does include a limited number of employees who are also IRs. The
Company no longer allows employees to be IRs or ACs, but has a few employees
that became IRs before July 1, 1995 and have been allowed to continue in both
capacities. The Company's employees are not unionized, and the Company
believes its relationship with its employees is good.

AREA CODE AGREEMENTS

In addition to the fees and commissions described above that are paid to
IRs, the Company entered into agreements with nine persons or entities from
1990 to 1992 whereby, in return for a one-time payment to the Company, each of
the persons or entities receives a commission on long distance usage in
specified area codes of approximately 2%, which payments totaled $855,000 (or
approximately 0.23% of the Company's total long distance revenues) for the
year ended December 31, 1995. These agreements have an indefinite term. These
agreements were entered into to provide a cash infusion to the Company, and
the Company does not intend to enter into any additional agreements of a
similar nature.

52
<PAGE>

LEGAL MATTERS

On May 3, 1996, Linden Wood, Brad Campbell, Candy Campbell, Jerry
Szeszulski, and Team Excel of Independent Representatives ("Team Excel") filed
suit in state district court in Tulsa County, Oklahoma, jointly and severally,
against the Company, its indirect subsidiary, EXCEL Telecommunications, Inc.,
Stephen R. Smith, a director and the Executive Vice President of Marketing of
the Company, and Kenny A. Troutt, a director and the Chief Executive Officer,
President, and Chairman of the Board of the Company. Each of the individual
plaintiffs is an IR and a member of Mr. Wood's downline and each is alleged to
be a member of Team Excel. Team Excel is alleged to be an unincorporated
association of IRs that was formed by Mr. Wood and others as an independent
association of IRs. Mr. Wood has been an IR for several years and has been one
of the top ten highest earning representatives for the last six months.

The plaintiffs have asserted claims against the Company and the individual
defendants for defamation, unfair competition, and interference with
contractual relations. The plaintiffs allege that the defendants have
threatened to terminate the IR agreement with each of the plaintiffs and that
the defendants have maliciously: published an article containing false
statements about each plaintiff; engaged in actions that constitute unfair
competition and trade practices; and engaged in actions that constitute
interference with the alleged contractual relationships between each
individual plaintiff and his or her downline IRs. The plaintiffs collectively
are seeking actual damages of $105,000,000 and punitive damages of
$300,000,000. The plaintiffs are also seeking attorneys' fees and costs, and
such other relief as the court deems just and appropriate. The Company and the
other defendants have removed the action to the United States District Court
for the Northern District of Oklahoma.

The Company denies the allegations, is vigorously defending the litigation,
and believes the ultimate outcome thereof will not have a material adverse
effect upon the Company's results of operations or financial position. The
Company believes that its actions with respect to the IRs, including the
plaintiffs, have been reasonable and in compliance with the Company's
contractual agreements with the IRs. However, an unfavorable outcome in this
matter could have a material adverse effect upon the Company's results of
operations or financial position. Even if the Company and other defendants
ultimately prevail, the defense effort could involve considerable cost
(including the costs of paying for the defense of Mr. Troutt and Mr. Smith
pursuant to their rights to indemnification) and a diversion of management
efforts. In the past, the Company has had IRs with significant downlines
reduce their efforts and in some cases quit the business completely, and such
actions have not had a material adverse impact upon the Company's results of
operations or financial position. As a result, the Company believes that these
issues with Mr. Wood and the other plaintiffs will not have a material adverse
effect upon the Company's results of operations or financial position.
However, regardless of the outcome of the litigation, the mere existence of
this dispute with these plaintiffs could lead to a decline in revenues
generated from or through the efforts of the plaintiffs and their respective
downlines as well as an adverse impact on the Company's relationship with IRs
and the Company's ability to attract potential IRs generally, all of which
could have a material adverse effect on the Company.

A former consultant to the Company verbally notified the Company in 1995
that it is his belief that he will have an option to acquire shares of the
Common Stock after the Offering. From 1990 to 1993, the Company was a party to
a written consulting agreement with such consultant, which granted him the
option to purchase 0.05% of the outstanding Common Stock of the Company at an
exercise price of $0.0000025 per share in the event the Company completes an
initial public offering. The Company terminated the consulting agreement in
accordance with its terms during 1993. The Company believes that such option
has been terminated, although there can be no assurance that such consultant
will not make such a claim against the Company or, if made, whether it would
be successful. The Company has offered to settle this matter by confirming the
existence of an option to acquire 49,500 shares of the Company's Common Stock
exercisable at an exercise price of $.001 per share.

In addition, from time to time the Company is party to routine litigation
and proceedings that may be considered as part of the ordinary course of its
business. The Company is not aware of any current or pending litigation that
it believes will have a material or adverse effect on the Company's results of
operations or financial condition. See "--Regulation" and "Risk Factors--
Dependence on Independent Representatives and Legal Action by Certain IRs" and
"Management--Limitation of Liability."

53
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table provides certain information regarding the executive
officers and directors of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Kenny A. Troutt............. 48 Chief Executive Officer, President, Chairman of
the Board, and Director
John J. McLaine............. 47 Executive Vice President, Chief Financial
Officer, Secretary, and Director
Stephen R. Smith............ 51 Executive Vice President of Marketing and
Director
Craig E. Holmes............. 38 Vice President and Chief Accounting Officer
J. Christopher Dance........ 31 Vice President--Legal Affairs and Assistant
Secretary
Steven J. Troutt............ 43 Vice President and Treasurer
M. Kathy Delahoussaye....... 39 Vice President--Teleservices
Daniel Martignon, Jr. ...... 56 Vice President--Network Operations
Linda L. Gimnich............ 48 Vice President--Revenue Management
Dan L. Robison.............. 38 Vice President--Facilities Management
Sandra L. Egland............ 47 Vice President--Human Resources
</TABLE>

Each director serves until the next annual meeting of stockholders and until
his successor is duly elected and qualified. Officers serve at the discretion
of the Board of Directors. Pursuant to its listing agreement with the NYSE,
the Company intends to appoint one outside director as soon as practicable,
but in no event later than three months following the date of listing, and a
second outside director within one year of listing.

KENNY A. TROUTT, Chief Executive Officer, President, Chairman of the Board,
Director, and the founder of the Company, has served as President and a
director of the Company since the Company's formation in 1988. In January
1991, Mr. Troutt was elected as Chairman of the Board of the Company and, in
July 1995, he was elected as Chief Executive Officer of the Company. Mr.
Troutt served as Secretary and Treasurer of the Company from December 1988
until July 1995. Prior to 1988, Mr. Troutt served as President of SunTex
Resources, Inc., an oil and gas exploration company located in Dallas, Texas,
which he founded in 1982. In 1970, Mr. Troutt founded Kenny Troutt
Construction, a construction company located in Omaha, Nebraska, and served as
its sole manager until 1982. Mr. Troutt is a graduate of Southern Illinois
University.

JOHN J. MCLAINE, Executive Vice President, Chief Financial Officer,
Secretary, and Director, has been employed by the Company and has performed
the function of chief financial officer since August 1994. In July 1995, Mr.
McLaine was elected as Secretary and a director of the Company and, in January
1996, he was formally elected as Executive Vice President and Chief Financial
Officer of the Company. Mr. McLaine served as Vice President and Treasurer of
the Company from July 1995 until January 1996. Prior to August 1994,
Mr. McLaine served as President of McLaine Associates, Inc., a consulting firm
providing consulting services with respect to mergers and acquisitions and
business turnarounds, which he founded in 1990. From June 1991 to September
1992, Mr. McLaine provided services to, and served as Chairman of the Board
and Chief Executive Officer of, HPC Laboratories, Inc. and its subsidiary,
Hunt Products Company, Inc., which were clients of McLaine Associates, Inc.
Hunt Products Company was a distributor of private label personal care
products. After Mr. McLaine's resignation, a change of control of such
companies occurred and, in February 1994, the subsidiary company was put into
involuntary bankruptcy. From 1989 until 1990, Mr. McLaine served as the Chief
Financial Officer and President of International Operations for Pearle Vision,
Inc., a retail optical chain. Prior to 1989, Mr. McLaine served as Vice
President of Finance and Control for American National Can Company, an
international packaging company. Mr. McLaine holds an MBA from DePaul
University and a BS degree from the University of Scranton and is a Certified
Public Accountant.

54
<PAGE>

STEPHEN R. SMITH, Executive Vice President of Marketing and Director, served
the Company as an independent consultant from January 1989 until January 1996.
Mr. Smith was elected as Executive Vice President and a director of the
Company in July 1995. Mr. Smith was elected as Executive Vice President of
Marketing of the Company in January 1996 and became an employee of the Company
in February 1996. Mr. Smith helped to develop the Company's network marketing
system. From 1984 through 1988, Mr. Smith served as an independent
representative and consultant for various network marketing organizations,
including Coastal Telephone, a regional long distance company, and Netcom
Information Systems, a voice mail company.

CRAIG E. HOLMES, Vice President and Chief Accounting Officer, has been
employed by the Company and has performed the function of chief accounting
officer since September 1995. In January 1996, Mr. Holmes was formally elected
Vice President and Chief Accounting Officer of the Company. From 1982 until
September 1995, Mr. Holmes was with Arthur Andersen LLP, and he was elected as
a Partner in the Audit and Business Advisory Services unit at Arthur Andersen
LLP in 1995. Mr. Holmes' practice focused in the areas of financial audits,
corporate finance, and business process re-engineering. Mr. Holmes holds BBA
and MS degrees from Texas Tech University and is a Certified Public
Accountant.

J. CHRISTOPHER DANCE, Vice President--Legal Affairs and Assistant Secretary,
has been employed by the Company and has performed the function of general
counsel since May 1995. In January 1996, Mr. Dance was formally elected as
Vice President--Legal Affairs and Assistant Secretary of the Company. Prior to
assuming his present position, Mr. Dance served as an attorney with Munsch
Hardt Kopf Harr & Dinan, P.C. From 1990 until 1994, Mr. Dance served as an
attorney with Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr. Dance holds a BBA
in Accounting & Finance from Texas A & M University and a JD from the
University of Texas School of Law.

STEVEN J. TROUTT, Vice President and Treasurer, has been employed by the
Company and has performed the function of treasurer since January 1995. In
January 1996, Mr. Troutt was formally elected as Vice President and Treasurer
of the Company. From February 1990 to January 1995, Mr. Troutt served as
Accounting Systems Coordinator with Lincoln Telephone and Telegraph Company, a
local telephone operating company based in Lincoln, Nebraska, and from 1979
until 1990 Mr. Troutt held various other accounting positions with Lincoln
Telephone and Telegraph Company. Mr. Troutt holds a BS in Accounting from
Southern Illinois University. Mr. Troutt is the brother of Kenny Troutt, a
director of the Company, as well as its Chairman of the Board, President, and
Chief Executive Officer.

M. KATHY DELAHOUSSAYE, Vice President--Teleservices, has been employed by
the Company and has performed the function of head of the teleservices
department since January 1995. In January 1996, Ms. Delahoussaye was formally
elected as Vice President--Teleservices of the Company. From August 1993 to
January 1995, Ms. Delahoussaye served as a Senior Consultant for The
Management Network Group, Inc., a consulting firm specializing in
telecommunications companies. From 1991 until July 1993, Ms. Delahoussaye
served as Executive Vice President, Operations for The National Registry,
Inc., a start-up company established to develop and market industrial,
government, and consumer applications for biometric fingerprint identification
systems. From 1990 until 1991, Ms. Delahoussaye served as Chief Executive
Officer and President of Mega Designs, Inc., an apparel company specializing
in the design and distribution of garments for the tourist industry. Ms.
Delahoussaye holds an Associates degree from Lon Morris College.

DANIEL MARTIGNON, JR., Vice President--Network Operations, has been employed
by the Company and has performed the function of head of network operations
since October 1994. In January 1996, Mr. Martignon was formally elected as
Vice President--Network Operations of the Company. From June 1992 until
October 1994, Mr. Martignon served as Area Manager, Common Channel Signaling
for Southwestern Bell Telephone's five-state territory supporting the
administrative functions of the SS7 network. From September 1987 until June
1992, Mr. Martignon served as Area Manager for Southwestern Bell Telephone, a
RBOC, and was responsible for network management of switching and SS7
elements. Prior to 1987, Mr. Martignon served in various engineering
capacities with Southwestern Bell Telephone.

55
<PAGE>

LINDA L. GIMNICH, Vice President--Revenue Management, has been employed by
the Company and has performed the function of head of revenue management since
June 1995. In January 1996, Ms. Gimnich was formally elected as Vice
President--Revenue Management. From August 1993 to June 1995, Ms. Gimnich
served as a principal of The Management Network Group, Inc., a consulting firm
specializing in telecommunications companies. From December 1992 until August
1993, Ms. Gimnich served as Director of Program Management, Strategic Planning
for Sprint. From March 1990 until December 1992, Ms. Gimnich served as Lead
Facilitator, IS Organization of Sprint's TQM Process. Ms. Gimnich holds a BS
from Louisiana State University.

DAN L. ROBISON, Vice President--Facilities Management, has been employed by
the Company and has performed the function of head of facilities management
since July 1995. In January 1996, Mr. Robison was formally elected as Vice
President--Facilities Management. From February 1992 to July 1995, Mr. Robison
held various marketing positions with the Company. From June 1989 until
February 1992, Mr. Robison served as a Leasing Director with Rubeloff, a
national real estate leasing and management company. Mr. Robison holds a BA in
business from the University of Kansas.

SANDRA L. EGLAND, Vice President--Human Resources, has been employed by the
Company and has performed the function of head of the human resources
department since December 1995. In January 1996, Ms. Egland was formally
elected as Vice President--Human Resources. From May 1991 to December 1995,
Ms. Egland was Vice President, Human Resources, at BeautiControl Cosmetics,
Inc., a national manufacturer and retailer of cosmetics, beauty supplies, and
skin care products. From January 1988 to May 1991, Ms. Egland was head of
human resources at Convex Computer Corporation. Ms. Egland holds a BA from
Bradley University and has a Masters Degree from Marquette University.

COMMITTEES OF THE BOARD

Subsequent to the Offering, the Board of Directors will establish an audit
committee (the "Audit Committee"). The Audit Committee will be comprised
solely of independent directors and will be charged with reviewing the
Company's annual audit and meeting with the Company's independent accountants
to review the Company's internal controls and financial management practices.

Also, subsequent to the Offering, the Board of Directors will establish a
compensation committee (the "Compensation Committee"). The Compensation
Committee will be comprised solely of "disinterested persons" within the
meaning of Rule 16b-3(c)(2)(i) promulgated under the Exchange Act and "outside
directors" as contemplated by Section 162(m)(4)(C)(i) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Compensation Committee will be
responsible for establishing salaries, bonuses, and other compensation for the
Company's executive officers and for administering the Company's 1995 Stock
Option Plan, including granting options and setting the terms thereof pursuant
to such plan.

DIRECTORS' COMPENSATION

The Company's policy is not to pay compensation to directors who are also
employees of the Company. The Company is in the process of establishing a
compensation policy for non-employee directors.

LIMITATION OF LIABILITY

As permitted by the DGCL, the Company's Certificate of Incorporation
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability for (i) any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) any act or omission not in
good faith or that involves intentional misconduct or a knowing violation of
law, (iii) any transaction from which the director derived any improper
personal benefit, or (iv) any act related to an unlawful stock repurchase or
payment of a dividend.

56
<PAGE>

The Company's Certificate of Incorporation further provides that a director
shall not be liable to the Company or its stockholders to such further extent
as permitted by any law hereafter enacted, including, without limitation, any
subsequent amendment to the DGCL.

As a result of these provisions, the Company and its stockholders may be
unable to obtain monetary damages from a director for breach of the duty of
care. Although stockholders may continue to seek injunctive or other equitable
relief for an alleged breach of fiduciary duty by a director, stockholders may
not have any effective remedy against the challenged conduct if equitable
remedies are unavailable.

In addition, the Company's Certificate of Incorporation provides certain
rights of indemnification for all officers and directors and the Company has
in effect a directors and officers liability insurance policy.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table summarizes for the fiscal year ended December 31, 1995,
the compensation of the Company's Chief Executive Officer and the other five
highest paid executive officers of the Company who were paid more than
$100,000 during such fiscal year (collectively, the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
1995 ANNUAL COMPENSATION AWARDS
------------------------------------------- --------------------
OTHER ANNUAL NUMBER OF SECURITIES ALL OTHER COM-
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($)(1) COMPENSATION ($) UNDERLYING OPTIONS PENSATION($)
<S> <C> <C> <C> <C> <C>
Kenny A. Troutt.......... $1,365,000 $2,000,000 -- -- --
Chief Executive Officer,
President, and Chairman
of the Board
Stephen R. Smith......... -- -- -- -- $3,938,000(2)
Executive Vice President
of Marketing
John J. McLaine.......... 225,000 76,950 -- 990,000(3) 66,262(4)
Executive Vice
President, Chief
Financial Officer, and
Secretary
M. Kathy Delahoussaye.... 122,500(5) 40,793 -- 495,000(3) 42,482(4)
Vice President--
Teleservices
Daniel Martignon, Jr..... 110,000 36,531 -- -- 34,864(4)
Vice President--Network
Operations
Steven J. Troutt......... 108,365(6) 37,061 -- 495,000(3) 36,025(4)
Vice President and
Treasurer
</TABLE>
- ---------------------
(1) Represents bonus amounts earned in fiscal year 1995 and paid in fiscal
year 1996.
(2) Represents amounts earned through commissions pursuant to a written
agreement between the Company and Mr. Smith that was entered into on May
1, 1989. See "Recent Developments and Certain Transactions." Although Mr.
Smith was elected as Executive Vice President of the Company in July 1995,
Mr. Smith served the Company principally as an independent consultant in
1995. Mr. Smith was elected as Executive Vice President of Marketing of
the Company in January 1996 and became an employee of the Company in
February 1996. See "--Executive Officers and Directors."
(3) Represents stock options granted pursuant to the 1995 Stock Option Plan,
which have an exercise price of $4.55 and are subject to vesting
requirements.

57
<PAGE>

(4) Represents shares of Common Stock, valued at $5.17 per share, allocated in
1995 to the participant's account under the ESOP. See "--Benefit Plans--
Employee Ownership Plan."
(5) Represents the portion of M. Kathy Delahoussaye's $130,000 annual salary
earned since her employment commenced in January 1995.
(6) Represents the portion of Steven J. Troutt's $120,000 annual salary earned
since his employment commenced in January 1995.

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information on options granted to the Named
Executive Officers during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED
---------------------------------------------- ANNUAL
RATES OF NUMBER OF
PERCENT STOCK PRICE SECURITIES VALUE OF
NUMBER OF OF TOTAL APPRECIATION UNDERLYING UNEXERCISED
SECURITIES OPTIONS FOR OPTION UNEXERCISED IN-THE- MONEY
UNDERLYING GRANTED TO EXERCISE TERM($)(3) OPTIONS AT OPTIONS AT
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------- DECEMBER 31, DECEMBER 31,
NAME GRANTED(1) FISCAL YEAR SHARE($)(2) DATE 5% 10% 1995(4) 1995($)(4)(5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J. McLaine......... 990,000 19.6% $4.55 10/30/05 $2,830,023 $7,171,834 990,000 $618,300
M. Kathy Delahoussaye... 495,000 9.8% 4.55 10/30/05 1,415,011 3,585,917 495,000 309,200
Steven J. Troutt........ 495,000 9.8% 4.55 10/30/05 1,415,011 3,585,917 495,000 309,200
</TABLE>
- ---------------------
(1) The options granted vest in six installments of varying percentages. The
options begin vesting on May 1, 1997 and become fully vested five years
after the first vesting date, subject to earlier vesting upon a change of
control (as defined in the 1995 Stock Option Plan pursuant to which such
options were granted).
(2) All options were granted at a price at least equal to the fair market
value of the Common Stock on the date of grant, as determined by the Board
of Directors of the Company based on a business valuation of the Company
performed by an independent appraiser.
(3) The 5% and 10% assumed annual compound rates of stock appreciation are
mandated by the rules of the Commission and do not represent the Company's
estimate or projection of future Common Stock prices. The actual value
realized may be greater or less than the potential realizable value set
forth in the table.
(4) All of these options were unexercisable at December 31, 1995.
(5) Calculated on the basis of the fair market value of the Common Stock on
December 31, 1995 of $5.17 per share, as determined by an independent
appraisal, less the exercise price payable for such shares.

BENEFIT PLANS

1995 STOCK OPTION PLAN

The EXCEL Telecommunications, Inc. 1995 Stock Option Plan was adopted in
October 1995 by the Board of Directors of EXCEL Telecommunications, Inc. and
approved by its shareholders in October 1995, and was assumed by EXCEL
Communications, Inc. in connection with the Reorganization. In March 1996, the
1995 Stock Option Plan was amended (as amended, the "1995 Stock Option Plan")
by the Board of Directors of the Company to increase the number of shares that
may be issued upon exercise of options granted thereunder, and the
stockholders approved such amendment. The 1995 Stock Option Plan is intended
to provide a means by which selected employees and consultants of the Company
may be given an opportunity to purchase Common Stock. EXCEL Communications,
Inc., by means of the 1995 Stock Option Plan, seeks to retain the services of
persons who are now employees of or consultants to EXCEL Communications, Inc.
and its affiliates, to secure and obtain the services of new employees and
consultants, and to provide incentives for such persons to exert maximum
efforts for the success of EXCEL Communications, Inc. and its affiliates.

Options granted under the 1995 Stock Option Plan may be either options that
qualify (the "Incentive Stock Options") or options that do not qualify for
treatment as "incentive stock options" under Section 422 of the

58
<PAGE>

Code. Incentive Stock Options may be granted under the 1995 Stock Option Plan
to any person who is an officer or other employee (including officers and
employees who are also directors) of EXCEL Communications, Inc. or any of its
subsidiaries. The exercise price of Incentive Stock Options must be at least
the fair market value of a share of Common Stock on the date of grant (and not
less than 110% of the fair market value in the case of an Incentive Stock
Option granted to an optionee owning 10% or more of the Common Stock). A total
of 8,910,000 shares of Common Stock have been reserved for issuance upon the
exercise of options granted or to be granted under the 1995 Stock Option Plan.
As of the date of this Prospectus, options to purchase 5,127,325 shares of
Common Stock are outstanding, with 4,853,475 shares of Common Stock issuable
at an exercise price of $4.55 per share and 273,850 shares of Common Stock
issuable at an exercise price per share equal to the initial public offering
price (none of which are vested or exercisable), no options have been
exercised, and 3,782,675 shares remain available for future option grants.

The 1995 Stock Option Plan provides that it is to be administered by the
Company's Board of Directors or a committee appointed by the Board of
Directors (the "Administrators"). Prior to the consummation of the Offering,
the 1995 Stock Option Plan was administered by the Board of Directors of the
Company. Subsequent to the Offering, the members of the Compensation Committee
of the Board, who will be disinterested persons as such term is used in Rule
16b-3 promulgated under the Exchange Act, will administer the 1995 Stock
Option Plan. The Administrators have full and final authority in their
discretion, subject to the 1995 Stock Option Plan's provisions, (i) to
determine the individuals to whom, and the time or times at which, options
shall be granted and the number of shares of Common Stock covered by each
option, (ii) to construe and interpret the 1995 Stock Option Plan, and (iii)
to make all other determinations and take all other actions deemed necessary
or advisable for the proper administration of the 1995 Stock Option Plan. The
1995 Stock Option Plan and any option may be amended or discontinued by the
Administrators at any time without the approval of the stockholders of the
Company, subject to certain exceptions.

Generally, options that have been granted under the 1995 Stock Option Plan
vest in six installments of varying percentages. These options begin vesting
on May 1, 1997, and become fully vested five years after the first vesting
date. The term of an option may not exceed 10 years (or five years in the case
of an Incentive Stock Option granted to an optionee owning 10% or more of the
Common Stock). However, at any time after January 31, 1996, in the event of
(i) a merger or consolidation of the Company or transfer of voting stock of
the Company as a result of which the holders of all of the voting stock of the
Company prior to such event do not continue to hold either directly or
indirectly at least a majority of the Company's voting stock after such event,
(ii) a sale of all or substantially all of the assets of the Company, or (iii)
certain changes in the majority of the Board of Directors during any 12
consecutive month period after the Company has registered securities under the
Securities Act, the options may be exercised in whole or in part without
regard to the installment vesting provisions thereof. The accelerated vesting
of outstanding options upon the occurrence of such a "change in control"
transaction could have the effect of delaying, deferring, or preventing a
change in control of the Company. See "Description of Capital Stock--Certain
Anti-Takeover Matters."

MANAGEMENT INCENTIVE PLAN

The EXCEL Telecommunications, Inc. 1996 Management Incentive Plan (the
"Incentive Plan") was adopted by the Board of Directors of EXCEL
Telecommunications, Inc. and by the Board of Directors of EXCEL
Communications, Inc. on February 5, 1996 and replaced the previous incentive
plan, which had been adopted in July 1995.

The Incentive Plan provides for the payment of cash compensation to eligible
participants upon the achievement of individual and corporate performance
targets, which performance targets are determined by the Compensation
Committee of the Board of the Company based on the recommendations of senior
management. Under the Incentive Plan, award eligibility is determined by the
Compensation Committee at the beginning of each performance/award period,
based on management's recommendations. Vice presidents, departmental
directors, and officers of the Company who are primarily responsible for the
growth and profitability of the Company are eligible to be participants in the
Incentive Plan. The performance measurement periods are each 12 months, as
determined by the Compensation Committee.

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<PAGE>

EMPLOYEE OWNERSHIP PLAN

Effective October 1, 1995, EXCEL Telecommunications, Inc., the Company's
predecessor, established its Amended and Restated Employee Ownership Plan (the
"Plan"), which amended and modified its existing tax qualified defined
contribution plan by adding provisions that permit a portion of the plan to be
treated as an employee stock ownership plan. In connection with the
Reorganization, sponsorship of the Plan was transferred to the Company, which
assumed all of EXCEL Telecommunication, Inc.'s duties and responsibilities
under the Plan. The Plan is qualified under Section 401(a) of the Code. Under
one portion of the Plan, employees can contribute on a pre-tax basis pursuant
to Section 401(k) of the Code, and the Company may make both matching and
profit sharing contributions (the "401(k) Plan"). Under the 401(k) Plan,
eligible participants may contribute from 1% up to 15% of their salary to a
maximum of $9,500 in 1996. It is the Company's practice prior to the beginning
of each year to determine and announce the amount, if any, of employee
contributions that will be matched for the following Plan year; however, there
have been no matching contributions made by the Company since 1993. In
addition, the Company may make discretionary profit sharing contributions to
the 401(k) Plan. Company contributions, both matching and discretionary, vest
at the rate of 10% after the first year of service, 10% after the second year
of service, and an additional 20% at the end of each of the third, fourth,
fifth, and sixth years of service with the Company. Participants in the 401(k)
Plan are permitted to withdraw funds during employment for certain specified
hardship reasons and may, under certain terms and conditions, borrow a portion
of their accounts.

Under the part of the Plan that is designed to be an Employee Stock
Ownership Plan (the "ESOP"), the Company contributes in cash, or Company
securities, such amounts as the Board of Directors deems appropriate, provided
that the Company is required to contribute an amount sufficient to timely
amortize the principal and interest of any loan incurred by the ESOP to
acquire Company securities. On October 1, 1995, the ESOP borrowed $6.0 million
(the "Loan") from the Company's predecessor and used the proceeds to acquire
3,000,000 shares of Common Stock from Kenny A. Troutt, the President, Chief
Executive Officer, and Chairman of the Board of the Company, and Thomas P.
Wittmann pursuant to that certain Stock Purchase Agreement, dated October 1,
1995 (the "Stock Purchase Agreement"). Under the terms of the Loan and the
Stock Purchase Agreement, the Company securities so acquired are held in a
suspense account and released over the term of the Loan incurred to purchase
such securities, with a number of shares released in any year determined by
reference to the amount in principal and interest paid in that year as
compared to principal and interest payments for the current year and all
future years. Even though the terms of the Loan and the Stock Purchase
Agreement permit the Company to contribute over a period of nearly seven years
to amortize the Loan with a resulting allocation of Company securities over
the same period, the Company determined to contribute amounts sufficient to
retire the Loan by the end of 1996. In connection therewith, the Company
contributed $4.1 million in 1995 and $2.0 million in January 1996 to
completely retire the principal and interest of the Loan, with a result that
all of the 3,000,000 shares of Company securities acquired pursuant to the
Loan and the Stock Purchase Agreement will be allocated to eligible employee
participants as of December 31, 1996, with 1,707,000 shares released and
1,660,000 shares allocated in 1995 and the remaining 1,340,000 shares
(including 47,000 shares held in suspense as of December 31, 1995) to be
allocated in 1996. The Company securities that are released from the suspense
account upon repayment of the Loan are allocated to individual participants'
ESOP accounts and a participant's interest in his or her ESOP account vests on
the same schedule as is described with respect to the 401(k) Plan. Company
securities released from suspense are allocated among participants based on
their comparative compensation (as defined in the Plan) in the year in which
the securities are allocated. Participants are entitled to direct the ESOP
trustee as to the manner in which the shares of Company Stock allocated to
their accounts will be voted. See "Recent Developments and Certain
Transactions."

EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER

Effective January 1, 1996, the Company entered into an employment agreement
with Kenny A. Troutt, the Company's Chief Executive Officer, President,
Chairman of the Board, and a director, providing for a base salary of
$1,500,000 per year, subject to such increases as the Board of Directors may
approve. In addition, Mr. Troutt is eligible for such bonuses as the Board of
Directors may determine. The employment agreement is scheduled

60
<PAGE>

to terminate on December 31, 2000, although it will automatically renew for
successive one-year periods unless either Mr. Troutt or the Company provides
notice, at least 30 days prior to the scheduled termination date, to the other
of his or its desire to terminate the agreement. Mr. Troutt may also terminate
the agreement in his sole discretion upon 30 days' notice. If the agreement is
voluntarily terminated by Mr. Troutt, in his sole discretion, or if the
agreement is terminated because either party chooses not to renew it, Mr.
Troutt will not be entitled to any severance payments under the agreement. The
agreement automatically terminates upon the death of Mr. Troutt, although the
Company will be obligated to pay his estate his base salary for one year after
death. The Company may not terminate the agreement except for cause, as
defined in the agreement. Mr. Troutt will be entitled to receive all amounts
that would have been due to him through the scheduled termination of the
agreement or, if such a termination occurs within one year after a change of
control (as defined in the agreement), the greater of such amounts and two
times the base salary for the year during which such termination occurs
("Severance Payment"). Furthermore, if Mr. Troutt terminates his employment
within one year after a change of control that is followed by either a
material increase or decrease in his duties from those that were required of
him prior to the change of control or the imposition of duties that are
inconsistent with his executive status, he will be entitled to the Severance
Payment. A change of control is deemed to have occurred if a majority of the
directors of the Company have not been voted for or approved by Mr. Troutt or
by other directors he has so voted for or approved. The agreement further
provides that the Board of Directors may delegate their authority under the
agreement to a compensation committee.

Section 162(m) of the Code provides that, in the case of a publicly held
corporation, no deduction shall be allowed for "applicable employee
remuneration" with respect to any "covered employee" to the extent that the
amount of such remuneration for a taxable year exceeds $1,000,000. The term
"covered employee" means the chief executive officer of the taxpayer
corporation and any other employee of the taxpayer corporation whose total
compensation for the taxable year is required to be reported to shareholders
under the Exchange Act by reason of such employee being among the four highest
compensated officers (other than the chief executive officer). The term
"applicable employee remuneration" generally means the aggregate amount
allowable as a deduction under the Code for such taxable year for remuneration
for services performed by a covered employee (whether or not such services are
performed during the taxable year). Certain types of remuneration are excluded
from the definition of "applicable employee remuneration" and, therefore, are
not subject to the deduction limit. If a corporation pays remuneration
pursuant to a compensation plan or arrangement that existed during the period
the corporation was not publicly held and if certain other conditions are met,
the deduction limit does not apply to amounts paid during a stated relief
period. This relief period generally lasts until the first meeting of
stockholders at which directors are to be elected that occurs after the close
of the third calendar year following the calendar year in which an initial
public offering occurs or the earlier occurrence of several other events. The
Company believes that it will satisfy the requirements of this exception with
respect to amounts payable to Kenny A. Troutt pursuant to the Company's
employment agreement with Mr. Troutt for the 1996, 1997, 1998, and 1999 fiscal
years and believes that any compensation received by any executive officer or
other employee of the Company pursuant to the 1995 Stock Option Plan would
also qualify for such exception to the extent that the compensation is paid or
an option is granted prior to the expiration of the stated relief period. In
addition, if Section 162(m) would otherwise apply to the commissions paid to
Stephen R. Smith, the Company's Executive Vice President of Sales and
Marketing, pursuant to the agreement between him and the Company that was
entered into on May 1, 1989, the Company believes that there is an exception
under the Code relating to amounts paid to employees under a written binding
contract that was in effect on or prior to February 17, 1993 that should apply
to prevent such payments from being subject to the deduction limit. See
"Recent Developments and Certain Transactions."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During its fiscal year ended December 31, 1995, the Company had no
compensation committee or other committee of the Board of Directors performing
similar functions. Decisions concerning compensation of executive officers
were made by the Board of Directors, which in 1995 consisted of Kenny A.
Troutt, the Company's Chairman, Chief Executive Officer, and President, and
Stephen R. Smith and John J. McLaine.

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<PAGE>

Messrs. Smith and McLaine both were elected as directors of the Company in
July 1995 and both served as executive officers of the Company in 1995. It is
contemplated that the Board of Directors will establish the Compensation
Committee, consisting of outside directors, subsequent to consummation of the
Offering.

In 1995, the Company's predecessor loaned an aggregate of $5,640,000 to Mr.
Troutt, which amount was repaid by Mr. Troutt in full, together with all
accrued interest, in November and December 1995. In October 1995, Mr. Troutt
sold 2,820,000 shares of Common Stock to the trustee of the Company's ESOP for
an aggregate purchase price of $5,640,000. The ESOP borrowed the funds
necessary to acquire such shares from the Company's predecessor. In addition,
in January 1996, an agreement between the Company and Mr. Smith, pursuant to
which Mr. Smith receives a payment for each IR who enters the Company's
network marketing program and for each person who enrolls as a trainer in
EXCEL's training program for IRs prior to the date of his death, was amended
retroactively to August 1, 1992 (the time at which the parties verbally
amended the agreement). Prior to such amendment, the payments to Mr. Smith
were based upon new subscribers as well as on long distance usage and were
calculated using higher rates. See "Recent Developments and Certain
Transactions."

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<PAGE>

RECENT DEVELOPMENTS AND CERTAIN TRANSACTIONS

In connection with the Offering, the Company completed a corporate
reorganization (the "Reorganization") in January 1996 pursuant to which (i)
EXCEL Telecommunications, Inc. (which, prior to the Reorganization, conducted
all of the business and operations of the Company) formed EXCEL
Communications, Inc. (formerly known as EXCEL Telecommunications Holdings,
Inc.) and contributed cash in exchange for all of the outstanding common stock
of EXCEL Communications, Inc. under Section 351 of the Code, (ii) EXCEL
Communications, Inc. formed seven operating subsidiaries and one merger
subsidiary and contributed cash to each subsidiary in exchange for all of the
outstanding stock in each subsidiary, (iii) EXCEL Telecommunications, Inc.
contributed certain assets to EXCEL Communications, Inc., which assets were
then contributed to the various operating subsidiaries, and (iv) EXCEL
Telecommunications, Inc. then effected a reverse triangular merger with the
merger subsidiary of EXCEL Communications, Inc. As a result, EXCEL
Telecommunications, Inc. became a wholly owned subsidiary of EXCEL
Communications, Inc., and the former shareholders of EXCEL Telecommunications,
Inc. became stockholders of EXCEL Communications, Inc., receiving 1,000 shares
of Common Stock for each share of stock held by them in EXCEL
Telecommunications, Inc. EXCEL Communications, Inc. then contributed all of
the stock of EXCEL Telecommunications, Inc. to one of its wholly owned
subsidiaries. EXCEL Communications, Inc. currently conducts all of its
business and operations through its subsidiaries.

On October 1, 1995, EXCEL Telecommunications, Inc., the Company's
predecessor, amended and restated its 401(k) Plan to add the ESOP. In
connection therewith, EXCEL Telecommunications, Inc., Kenny A. Troutt, the
President, Chief Executive Officer, Chairman of the Board, and a director of
the Company, and Thomas P. Wittmann, a shareholder who at that time held more
than 5% of the common stock of EXCEL Telecommunications, Inc., entered into
the Stock Purchase Agreement, whereby Messrs. Troutt and Wittmann sold, in the
aggregate, 3,000,000 shares of Common Stock to Bank One Texas, N.A., acting in
its capacity as trustee of the EXCEL Telecommunications, Inc. Employee
Ownership Plan Trust Agreement. Under the terms and conditions set forth in
the Stock Purchase Agreement, Mr. Troutt received $2.00 per share for his
2,820,000 shares of Common Stock, or $5,640,000, and Mr. Wittmann received
$2.00 per share for his 180,000 shares of Common Stock, or $360,000. In
connection with these purchases, the ESOP borrowed $6.0 million from EXCEL
Telecommunications, Inc. to fund the acquisition of these shares and executed
a Non-Recourse Promissory Note, dated October 1, 1995, in the original
principal amount of $6.0 million and bearing interest at an annual rate equal
to the lesser of (i) the prime rate plus 0.50% or (ii) the maximum legal rate.
The principal and accrued interest was due on October 1, 2002; however, the
Company made an initial principal payment in 1995 and then repaid all
remaining unpaid principal and interest in January 1996. See "Management--
Benefit Plans--Employee Ownership Plan."

On or about April 20, 1995, EXCEL Telecommunications, Inc., the Company's
predecessor, loaned $4,920,000 to Kenny A. Troutt, as evidenced by a
promissory note, dated April 20, 1995, that accrued interest at the rate of
7.25% and required all principal and accrued interest thereon to be repaid 90
days from the date thereof. Subsequent thereto, the maturity date of such
promissory note was extended to December 31, 1995. On September 29, 1995,
EXCEL Telecommunications, Inc. loaned an additional $720,000 to Mr. Troutt, as
evidenced by a promissory note dated September 29, 1995, that accrued interest
at the rate of 7.25% and required all principal and accrued interest thereon
to be paid 90 days from the date thereof. Mr. Troutt paid both notes plus
accrued interest thereon in full in November and December 1995.

On or about April 21, 1995, EXCEL Telecommunications, Inc., the Company's
predecessor, loaned $360,000 to Thomas P. Wittmann, a shareholder who at that
time held more than 5% of the common stock of EXCEL Telecommunications, Inc.,
as evidenced by a promissory note dated April 21, 1995, that, as modified,
accrued interest at the rate of 7.25% and required all principal and accrued
interest thereon to be repaid on demand or 90 days from the date thereof.
Subsequent thereto, the maturity date of such promissory note was extended to
December 31, 1995. Mr. Wittmann paid the promissory note plus accrued interest
thereon in full in November and December 1995.

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<PAGE>

In September 1994, EXCEL Telecommunications, Inc., the Company's
predecessor, began making a series of capital contributions in connection with
its 49% interest in SSC, a Texas limited liability company that was formed by
EXCEL Telecommunications, Inc. and IXC Long Distance in September 1994 for the
purpose of obtaining and operating switches to provide telecommunications
services to the Company and other long distance providers, including IXC Long
Distance. As of December 31, 1995, EXCEL Telecommunications, Inc.'s share in
SSC's net losses exceeded EXCEL's contributed capital in SSC of approximately
$6.2 million. The limited liability company interest was assigned by EXCEL
Telecommunications, Inc. to the Company in connection with the Reorganization.
In January 1996, the Company sold its entire 49% interest in SSC to IXC Long
Distance for a sales price of approximately $6.2 million, as evidenced by a
non-interest bearing promissory note secured by the limited liability company
interest being purchased. Principal payments commenced on March 1, 1996 and
are payable monthly thereafter, with the last payment due on August 1, 1996.
Contemporaneously with such sale, the Company agreed to purchase a minimum of
70 million minutes of long distance usage per month over the SSC network,
irrespective of the actual usage of the Company's subscribers. Commencing in
February 1996, the Company began transferring sufficient amounts of existing
long distance traffic from the Frontier network, or directing new long
distance traffic to the SSC network, such that the Company expects that this
minimum commitment will be met beginning no later than October 1996. See
"Business--Suppliers."

In connection with that certain Loan and Security Agreement dated May 26,
1994 (the "Loan Agreement") between EXCEL Telecommunications, Inc., the
Company's predecessor, and Marine Midland Business Loan, Inc., Kenny A. Troutt
executed a Limited Continuing Guaranty pursuant to which he guaranteed the
greater of $250,000 or 10% of EXCEL Telecommunications, Inc.'s payment
obligations under the Loan Agreement, which agreement governs a loan facility
that was initially $6.0 million and has since that time been increased to
$10.0 million. There are currently no amounts outstanding under such loan
facility. As consideration for this guaranty and the payment by Mr. Troutt of
$100, 10,000 shares of common stock of EXCEL Telecommunications, Inc., which
stock had been held as treasury stock, were issued to Mr. Troutt in 1994.
Those shares were converted into 10,000,000 shares of Common Stock pursuant to
the Reorganization. Effective as of December 29, 1995, the Loan Agreement was
amended to accomplish a number of things including, but not limited to, the
release of Mr. Troutt's Limited Continuing Guaranty.

On May 26, 1994, EXCEL Telecommunications, Inc., the Company's predecessor,
declared a dividend payable to its then existing shareholders in an aggregate
amount of approximately $1.5 million. On December 31, 1994, EXCEL
Telecommunications, Inc. declared a dividend payable to its then existing
shareholders in an aggregate amount of approximately $3.0 million. In
addition, on December 31, 1995, EXCEL Telecommunications, Inc. declared a
dividend payable to its then existing shareholders in an aggregate amount of
$20.0 million.

The Company, through EXCEL Telecommunications, Inc., its predecessor, has an
agreement with Stephen R. Smith, a director and the Executive Vice President
of Marketing of the Company, whereby he receives $5.00 for each IR who enters
the Company's network marketing program prior to the date of his death and
$5.00 for each person who enrolls as a trainer in EXCEL's training program for
IRs prior to the date of his death. In addition, Mr. Smith receives 0.5% of
the long distance charges paid by each subscriber using the Company's long
distance service as a result of its network marketing program. This agreement
with Mr. Smith, which is dated May 1, 1989, was amended January 8, 1996, with
such amendment being effective as of August 1, 1992 (the time at which the
parties verbally amended the agreement). Prior to August 2, 1992, the payments
to Mr. Smith were based upon new subscribers as well as on long distance usage
and were calculated using higher rates. These payments were $356,000, $1.3
million, and $3.9 million, respectively, for the fiscal years ended December
31, 1993, 1994, and 1995. All payments under the agreement must be made until
Mr. Smith's death. Thereafter, the Company will no longer be required to make
payments for new IRs or IR trainers, but will still be required to pay long
distance usage commissions to Mr. Smith's heirs and assigns indefinitely on
the Company's subscribers who are using the Company's long distance service at
the date of Mr. Smith's death. See "Management."

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<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth as of April 30, 1996 and as adjusted to give
effect to the Offering, the number of shares of Common Stock and the
percentage of the outstanding shares of such class that are beneficially owned
by (i) each person that is the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the directors and the Named
Executive Officers of the Company, (iii) each Selling Stockholder, and (iv)
all of the current directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)(2)
----------------------- -----------------------
NUMBER OF NUMBER OF SHARES NUMBER OF
NAME AND ADDRESS SHARES PERCENT BEING OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Kenny A. Troutt(3)...... 64,180,000 64.8% -- 64,180,000 59.8%
Stephen R. and Sarah H.
Smith(4)(5)............ 10,000,000 10.1 -- 10,000,000 9.3
Austex Enterprises,
Ltd.(5)................ 9,000,000 9.1 -- 9,000,000 8.4
16004 Chateau Ave.
Austin, Texas 78734
John J. McLaine(6)...... 12,817 * -- 12,817 *
M. Kathy
Delahoussaye(7). ...... 8,217 * -- 8,217 *
Steven J. Troutt(8)..... 170,642 * -- 170,642 *
Daniel Martignon,
Jr.(9)................. 4,006,743 4.0 -- 4,006,743 3.7
William A. Casner....... 10,000,000 10.1 700,000 9,300,000 8.7
13181 Lakeview
Southlake, Texas 76092
Thomas P. Wittmann ..... 5,820,000 5.9 500,000 5,320,000 5.0
12000 Cheltenham
DesPeres, Missouri
63131
Charles F. and Charlotte
I. Parrill............. 2,000,000 2.0 500,000 1,500,000 1.4
217 Manana Dr.
Grand Prairie, Texas
75050
All executive officers
and directors as a
group (11
persons)(10)........... 78,238,018 79.0 -- 78,238,018 72.9
</TABLE>
- ---------------------
* Less than 1% of the outstanding shares of the class.
(1) The information contained in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under
the Exchange Act. All information with respect to the beneficial ownership
of any stockholder has been furnished by such stockholder and, except as
otherwise indicated or pursuant to community property laws, each
stockholder has sole voting and investment power with respect to shares
listed as beneficially owned by such stockholder. Except as otherwise
indicated, the address of each of the persons in this table is as follows:
c/o EXCEL Communications, Inc., 9101 LBJ Freeway, Suite 800, Dallas, Texas
75243.
(2) Assumes no exercise of the U.S. Underwriters' over-allotment option.
(3) Includes 81,837 shares of Common Stock held by the Kenny Allan Troutt
Children's Trust and 81,837 shares of Common Stock held by the Lisa Elaine
Troutt Children's Trust. Steven J. Troutt, the brother of Kenny Troutt, is
the trustee of both of these trusts and Kenny A. Troutt's children are the
beneficiaries of the trusts. Kenny Troutt disclaims beneficial ownership
of the shares held by the trusts.
(4) Represents 500,000 shares of Common Stock held by Stephen R. Smith,
500,000 shares of Common Stock held by Sarah H. Smith, and 9,000,000
shares of Common Stock held by Austex Enterprises, Ltd. Stephen R. Smith
and Sarah H. Smith are married; as a consequence, each may be deemed to be
the beneficial owner of all these shares.
(5) Austex Enterprises, Ltd., which is the record owner of 9,000,000 shares of
Common Stock, is a Texas limited partnership of which Stara Corporation, a
Texas corporation, is the general partner. Stephen R. Smith is the
President of Stara Corporation and he and Sarah H. Smith are each
directors of Stara Corporation and each owns 50% of the outstanding common
stock of Stara Corporation; as a result, each of them has shared voting,
investment, and dispositive power with respect to the 9,000,000 shares
held by

65
<PAGE>

Austex Enterprises, Ltd. The limited partner interests in Austex
Enterprises, Ltd. are either held individually by Stephen R. Smith or Sarah
H. Smith or by trusts of which he or she, as the case may be, is the
trustee. Stephen R. Smith and Sarah H. Smith are married; as a consequence,
each may be deemed to be the beneficial owner of all the shares held by
Austex Enterprises, Ltd.
(6) Represents 12,817 shares held by the ESOP and allocated to Mr. McLaine's
account.
(7) Represents 8,217 shares held by the ESOP and allocated to Ms.
Delahoussaye's account.
(8) Represents 6,968 shares held by the ESOP and allocated to Steven J.
Troutt's account and 81,837 shares held by the Kenny Allan Troutt
Children's Trust and 81,837 shares held by the Lisa Elaine Troutt
Children's Trust, of which Steven J. Troutt is the trustee with sole
investment, dispositive, and voting power.
(9) Includes 6,743 shares held by the ESOP and allocated to Mr. Martignon's
account.
(10) Includes 58,018 shares held by the ESOP and allocated to such persons'
accounts and 81,837 shares held by the Kenny Allan Troutt Children's
Trust and 81,837 shares held by the Lisa Elaine Troutt Children's Trust,
trusts established for the benefit of Kenny A. Troutt's children of which
Steven J. Troutt is the trustee, with sole investment, dispositive, and
voting power.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 510,000,000 shares,
consisting of (i) 500,000,000 shares of Common Stock, $0.001 par value per
share, and (ii) 10,000,000 shares of Preferred Stock, $0.001 par value per
share. After giving effect to the Offering, the issued and outstanding capital
stock of the Company will consist of 107,300,000 shares of Common Stock (or
108,800,000 if the U.S. Underwriters' over-allotment option is exercised in
full). No shares of Preferred Stock will be outstanding.

COMMON STOCK

As of April 30, 1996, there were 99,000,000 shares of Common Stock
outstanding, which were held of record by 11 stockholders. The holders of
Common Stock are entitled to one vote per share on all matters submitted to a
vote of the stockholders. Cumulative voting of shares of Common Stock is
prohibited, which means that the holders of a majority of shares voting for
the election of directors can elect all members of the Board of Directors.
Except as otherwise required by applicable law, a majority vote is sufficient
for any act of stockholders. The holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor, subject to
the payment of any preferential dividends with respect to any Preferred Stock
that from time to time may be outstanding. In the event of liquidation,
dissolution, or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of the holders of any
outstanding Preferred Stock. The holders of Common Stock have no preemptive or
conversion rights or other subscription rights, and there are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are fully paid and nonassessable, and all of the shares
of Common Stock offered hereby, when issued, will be fully paid and
nonassessable.

PREFERRED STOCK

The Board of Directors has the authority to issue 10,000,000 shares of
Preferred Stock in one or more series and to fix the designations, relative
powers, preferences, rights, qualifications, limitations, and restrictions of
all shares of each of such series, including without limitation dividend
rates, preemptive rights, conversion rights, voting rights, redemption and
sinking fund provisions, liquidation preferences, and the number of shares
constituting each such series, without any further vote or action by the
stockholders. The issuance of Preferred Stock could decrease the amount of
earnings and assets available for distribution to holders of Common Stock or
adversely affect the rights and powers, including voting rights, of the
holders of Common Stock. The issuance of Preferred Stock could also have the
effect of delaying, deferring, or preventing a change in control of the
Company, including transactions in which the stockholders might otherwise
receive a premium for their shares over the then current market prices, and
may adversely affect the market price of the Common Stock. At present, the
Company has no plans to issue any shares of Preferred Stock.

CERTAIN ANTI-TAKEOVER MATTERS

Upon the consummation of the Offering, there will be 10,000,000 authorized
and unissued shares of Preferred Stock. The existence of authorized but
unissued Preferred Stock may enable the Board of Directors to render more
difficult or to discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy solicitation, or otherwise. For
example, if in the due exercise of its fiduciary obligations, the Board of
Directors were to determine that a takeover proposal is not in the Company's
best interests, the Board of Directors could cause shares of Preferred Stock
to be issued without stockholder approval in one or more private offerings or
other transactions that might dilute the voting or other rights of the
proposed acquiror or insurgent stockholder or stockholder group or create a
substantial voting block in institutional or other hands that might undertake
to support the position of the incumbent Board of Directors. In this regard,
the Company's Certificate of Incorporation grants the Board of Directors broad
power to establish the rights and preferences of authorized and unissued
Preferred Stock. The issuance of shares of Preferred Stock pursuant to the
Board of Director's authority described above could decrease the amount of
earnings and assets available for distribution to holders of Common Stock or
adversely affect the rights and powers, including voting rights, of such
holders. The

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<PAGE>

issuance of Preferred Stock could also have the effect of delaying, deferring,
or preventing a change in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
the then current market price, and may adversely affect the market price of
the Common Stock. The Board of Directors does not currently intend to seek
stockholder approval prior to any issuance of Preferred Stock, unless
otherwise required by law.

In addition, in the event of (i) a merger or consolidation of the Company or
transfer of voting stock of the Company as a result of which the holders of
all of the voting stock of the Company prior to such event do not continue to
hold either directly or indirectly at least a majority of the Company's voting
stock after such event, (ii) a sale of all or substantially all of the assets
of the Company, or (iii) certain changes in the majority of the Board of
Directors of the Company during any 12 consecutive month period after the
Company has registered securities under the Securities Act, options granted
under the 1995 Stock Option Plan may be exercised in whole or in part without
regard to the installment vesting provisions thereof. The accelerated vesting
of outstanding options upon the occurrence of such a "change in control"
transaction could have the effect of delaying, deferring, or preventing a
change in control of the Company. See "Management--Benefit Plans."

The Company is also subject to prior regulatory approval by the FCC and
various state regulatory agencies for a transfer of control of the Company or
for the assignment of the Company's intrastate certification authority and its
international authority. Such requirements could have the effect of delaying,
deferring, or preventing a change of control of the Company. See "Business--
Regulation."

The Company is further subject to Section 203 of the DGCL, which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any
"business combination" with any "interested stockholder" for a period of three
years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, those shares owned by persons who are directors and also officers
and those shares owned by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, and if such transaction is approved or not opposed by the majority
of the board of directors then in office.

Section 203 generally defines a business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition of 10% or more of the assets of the corporation to the
interested stockholder; (iii) subject to certain exceptions, any transaction
that results in the issuance or transfer by the corporation of any stock of
the corporation to the interested stockholder; (iv) any transaction involving
the corporation that has the effect of increasing the proportionate share of
the stock of any class or series of the corporation beneficially owned by the
interested stockholder; or (v) the receipt by the interested stockholder of
the benefit of any loans, advances, guarantees, pledges, or other financial
benefits provided by or through the corporation. In general, Section 203
defines an interested stockholder as any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation and any entity
or person affiliated with or controlling or controlled by such entity

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<PAGE>

or person; however, transactions with stockholders owning more than such 15%
threshold before the Offering will not be subject to these restrictions. The
provisions of Section 203 could have the effect of delaying, deferring, or
preventing a change in control of the Company. See "Risk Factors--Certain
Anti-Takeover Matters."

TRANSFER AGENT AND REPORTS

The transfer agent and registrar for the Company's Common Stock is The First
National Bank of Boston.

The Company will distribute to its stockholders annual reports containing
audited financial statements as promptly as practicable after the end of each
fiscal year and quarterly reports containing unaudited financial information
as promptly as practicable after the end of each quarterly fiscal period.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
107,300,000 shares of Common Stock (or 108,800,000 shares if the U.S.
Underwriters' over-allotment option is exercised in full), assuming no
exercise of options after the date of this Prospectus. Of these shares, the
10,000,000 shares offered hereby (11,500,000 shares if the U.S. Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act, unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act described below. However, to the extent that any of the shares
of Common Stock offered hereby are acquired by certain IRs from the 750,000
shares reserved for them by Donaldson, Lufkin & Jenrette Securities
Corporation, such IRs will be prohibited from offering, selling, pledging,
contracting to sell, granting any option to purchase, or otherwise disposing
of any such shares for a period of 120 days following the effective date of
the Registration Statement. The remaining 97,300,000 shares of Common Stock
outstanding upon completion of the Offering are "restricted securities" as
that term is defined in Rule 144. All of these shares are subject to Lock-Up
Agreements. See "Underwriting."

Upon expiration of the Lock-Up Agreements 180 days after the effective date
of the Registration Statement, all of these 97,300,000 restricted shares will
be eligible for sale in the open market under and subject to the restrictions
contained in Rule 144. Donaldson, Lufkin & Jenrette Securities Corporation in
its sole discretion, and at any time without notice, can release all or any
portion of the securities subject to Lock-Up Agreements. In addition, the
Company has reserved for issuance 8,910,000 shares of Common Stock under the
1995 Stock Option Plan. Under the 1995 Stock Option Plan, as of the date of
this Prospectus options to purchase 5,127,325 shares of Common Stock are
outstanding, of which options to purchase 1,025,465 shares are scheduled to
vest on May 1, 1997. Once vested, any shares of Common Stock acquired upon
exercise of such options will be eligible for resale pursuant to Rule 701 (in
the case of options granted in reliance on Rule 701, which has less
restrictive restrictions on resale than Rule 144) and Rule 144 (in the case of
options not granted in reliance on Rule 701) or pursuant to an effective
registration statement under the Securities Act. See "Business--Legal Matters"
and "Management--Benefit Plans."

In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least two years,
including persons who may be deemed to be "affiliates" of the Company, as that
term is defined under Rule 144, would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of (i) 1% of
the then outstanding shares of the Common Stock (approximately 1,073,000
shares after the Offering) or (ii) the average weekly trading volume of the
Common Stock on the New York Stock Exchange during the four calendar weeks
preceding the date on which the notice of the sale is filed with the
Commission. Generally, sales by affiliates and beneficial owners of restricted
securities held for less than three years may not be made under Rule 144 until
90 days after the date of this Prospectus and are subject to the foregoing
volume limitations and to certain manner of sale provisions, notice
requirements, and the availability of current public information about the
Company. However, a person who is not an affiliate of the

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<PAGE>

Company at any time within 90 days preceding a sale, and who has beneficially
owned shares for at least three years, would be entitled immediately, upon the
date of this Prospectus, to sell such shares under Rule 144(k) without regard
to the volume limitations, manner of sale provisions, and notice and current
public information requirements. Under Rule 144, the two-year holding period
for shares issued to a stockholder in a corporate recapitalization or
restructuring, such as the Company's Reorganization, is generally deemed to
have commenced on the date that the stockholder acquired the shares
surrendered for exchange in the recapitalization or reorganization.

In general, Rule 701 permits resales in reliance on Rule 144 of shares not
exceeding the maximum dollar limit specified in Rule 701 that are issued
pursuant to certain compensatory benefit plans and contracts commencing 90
days after an issuer becomes subject to the reporting requirements of the
Exchange Act, but without compliance with certain restrictions, including the
holding period requirements, contained in Rule 144.

The Company intends to register on registration statements on Form S-8
subsequent to the date of the Offering the 8,910,000 shares of Common Stock
reserved for issuance under the 1995 Stock Option Plan and the 3,000,000
shares of Common Stock held by the ESOP. Following the effective date of such
registration statements, shares of Common Stock issued upon exercise of
options granted under the 1995 Stock Option Plan and shares distributed to
ESOP participants (upon vesting) will be generally eligible for sale in the
open market. See "Management--Benefit Plans." Prior to the Offering, there has
been no public market for the Common Stock of the Company, and any sale of
substantial amounts of Common Stock in the open market may adversely affect
the market price of the Common Stock offered hereby.

CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. STOCKHOLDERS

The following is a general discussion of certain of the United States
federal income and estate tax consequences of the acquisition, ownership, and
disposition of shares of Common Stock by non-U.S. holders. For purposes of
this discussion, a "non-U.S. holder" is any person other than (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other
entity created or organized in the United States or under the laws of the
United States or of any state, or (iii) an estate or trust whose income is
includible in gross income for United States federal income tax purposes
regardless of its source. This discussion does not consider any specific facts
or circumstances that may apply to a particular non-U.S. holder. Furthermore,
the following discussion is based on current provisions of the Code and
administrative and judicial interpretations as of the date hereof, all of
which are subject to change (possibly on a retroactive basis).

EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT ITS OR HIS OWN TAX
ADVISOR WITH RESPECT TO THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF SHARES OF COMMON STOCK
(INCLUDING SUCH AN INVESTOR'S STATUS AS A NON-U.S. HOLDER), AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY STATE, MUNICIPALITY, OR
OTHER TAXING JURISDICTION, INCLUDING ANY FOREIGN TAXING JURISDICTION.

DIVIDENDS

In general, dividends paid to a non-U.S. holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are effectively connected with a
trade or business carried on by the non-U.S. holder within the United States
or, if a tax treaty applies, attributable to a United States permanent
establishment maintained by the non-U.S. holder and the non-U.S. holder files
certain forms with the payor of the dividends. Dividends effectively connected
with such trade or business or attributable to such permanent establishment
generally will be subject to United States federal income tax at regular
rates. In the case of a non-U.S. holder that is a corporation, such
effectively connected income may also be subject to the "branch profits tax"
(which is generally imposed on a foreign corporation on the repatriation from
the United States of effectively connected earnings and profits). Non-U.S.
holders should consult any

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<PAGE>

applicable income tax treaties, which may provide for a lower rate of
withholding or other rules different than those described above. Under current
United States Treasury Regulations, dividends paid to an address in a foreign
country are presumed to be paid to a resident of such country for purposes of
determining whether withholding is required pursuant to the rules discussed
above and, under current interpretations of such regulations, for purposes of
determining the applicability of a treaty rate. However, under proposed United
States Treasury Regulations issued in April 1996, to claim the benefits of an
applicable tax treaty, a non-U.S. holder of Common Stock would be required to
file a valid Internal Revenue Service Form W-8 certifying such non-U.S.
holder's entitlement to benefits under a treaty. These proposed United States
Treasury Regulations, if published as final regulations in their current form,
contain a transition rule that would allow dividends paid on Common Stock to
accounts in existence on or before a date that is 60 days after these
regulations are published as final regulations to continue to be subject to
the current address rule until December 31, 1999. This transition rule would
apply only if the Common Stock continued to be traded on a U.S. established
financial market.

GAIN ON DISPOSITION

A non-U.S. holder generally will not be subject to United States federal
income or withholding tax on any gain recognized on a sale or other
disposition of Common Stock unless, assuming the Common Stock of the Company
is regularly traded on an established securities market within the meaning of
the Treasury regulations promulgated under Section 897 of the Code (as the
Company believes is likely), (i) the Company is or has been a "United States
real property holding corporation," as defined in Section 897(c)(2) of the
Code, for United States federal income tax purposes (which the Company does
not believe that it is or is likely to become), and the non-U.S. holder
disposing of the Common Stock owned, directly or constructively, at any time
during the five-year period preceding the disposition, more than five percent
of outstanding Common Stock; (ii) the gain is effectively connected with the
conduct of a trade or business within the United States carried on by the non-
U.S. holder or, if a tax treaty applies, attributable to a permanent
establishment maintained within the United States by a non-U.S. holder; (iii)
in the case of a non-U.S. holder who is an individual, the holder holds the
Common Stock as a capital asset and is present in the United States for 183
days or more in the taxable year of disposition, and either (a) such non-U.S.
holder has a "tax home," for United States federal income tax purposes, in the
United States, and the gain from the disposition is not attributable to an
office or other fixed place of business maintained by such non-U.S. holder in
a foreign country or (b) the gain from the disposition is attributable to an
office or other fixed place of business maintained by such non-U.S. holder in
the United States; or (iv) the non-U.S. holder is subject to tax pursuant to
provisions of the Code applicable to certain United States expatriates.

In 1989, 1990, 1992, and 1995, legislation was introduced that, if enacted,
would, under certain circumstances, have imposed federal income tax on gain
realized from dispositions of Common Stock by certain non-U.S. holders who
owned at or prior to the time of disposition 10% or more of the Common Stock.
There can be no assurance that similar legislation will not be proposed and,
if proposed, enacted in the future.

FEDERAL ESTATE TAXES

Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States federal estate tax
purposes) of the United States at the individual's date of death will be
included in such individual's gross estate for United States federal estate
tax purposes unless an applicable estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING

The Company must report annually to the Internal Revenue Service and each
non-U.S. holder the amount of dividends paid to, and the tax withheld with
respect to, such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these information returns may also be made available
under the provisions of a specific tax treaty or agreement to the tax
authorities in the country in which the non-U.S. holder resides. United States
backup withholding (which generally is withholding imposed at the rate of 31%
on certain payments to persons not otherwise exempt who

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<PAGE>

fail to furnish certain information required under the United States
information reporting requirements) generally will not apply to dividends paid
on Common Stock to a non-U.S. holder at an address outside the United States.
Dividends paid to a non-U.S. holder at an address within the United States may
be subject to backup withholding if the non-U.S. holder fails to establish
that he or she is entitled to an exemption or to provide a correct taxpayer
identification number and other information to the payor.

The proposed United States Treasury Regulations issued in April 1996 will,
if adopted, alter the foregoing rules in certain respects. Among other things,
these regulations provide certain presumptions under which non-U.S. holders
may be subject to backup withholding in the absence of required
certifications.

The payment of the proceeds of the disposition of Common Stock by a non-U.S.
holder to or through the United States office of a broker will be subject to
information reporting and backup withholding at a rate of 31% unless the
owner, under penalties of perjury, certifies, among other things, its status
as a non-U.S. holder, or otherwise establishes an exemption. The payment of
the proceeds of a disposition by a non-U.S. holder of Common Stock to or
through a non-U.S. office of a broker will, except as noted below, not be
subject to backup withholding and information reporting. In the case of
proceeds from a disposition of Common Stock paid to or through a non-U.S.
office of a U.S. broker or paid to or through a non-U.S. office of a non-U.S.
broker that is (i) a "controlled foreign corporation" for United States
federal income tax purposes or (ii) a person 50% or more of whose gross income
from all sources for certain three-year period was effectively connected with
a United States trade or business, (a) backup withholding will not apply
unless the broker has actual knowledge that the owner is not a non-U.S.
holder, and (b) information reporting will not apply if the broker has
documentary evidence in its files that the owner is a non-U.S. holder (unless
the broker has actual knowledge to the contrary).

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a non-U.S. holder will be refunded
(or credited against the non-U.S. holder's United States federal income tax
liability, if any) provided that the required information is furnished to the
Internal Revenue Service.

The backup withholding and information reporting rules discussed above are
currently under review by the Treasury Department, and their application to
the Common Stock is subject to change.

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<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the U.S. Underwriters named below (the "U.S.
Underwriters") and the international managers named below (the "International
Managers" and, together with the U.S. Underwriters, the "Underwriters"), for
whom Donaldson, Lufkin & Jenrette Securities Corporation is acting as the
representative (the "Representative"), have severally agreed to purchase
8,300,000 shares of Common Stock from the Company and 1,700,000 shares of
Common Stock from the Selling Stockholders. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............. 4,850,000
CS First Boston Corporation..................................... 100,000
Alex. Brown & Sons Incorporated................................. 100,000
Dean Witter Reynolds Inc........................................ 100,000
Dillon, Read & Co. Inc.......................................... 100,000
A.G. Edwards & Sons, Inc........................................ 100,000
Hambrecht & Quist LLC........................................... 100,000
Lazard Freres & Co. LLC......................................... 100,000
Lehman Brothers Inc............................................. 100,000
Morgan Stanley & Co. Incorporated............................... 100,000
PaineWebber Incorporated........................................ 100,000
Prudential Securities Incorporated.............................. 100,000
Robertson, Stephens & Company LLC............................... 100,000
UBS Securities LLC.............................................. 100,000
Rauscher Pierce Refsnes, Inc.................................... 100,000
The Robinson-Humphrey Company, Inc.............................. 100,000
Advest, Inc..................................................... 50,000
J. C. Bradford & Co............................................. 50,000
The Chicago Corporation......................................... 50,000
Crowell, Weedon & Co............................................ 50,000
Cruttenden Roth Incorporated.................................... 50,000
Fahnestock & Co. Inc............................................ 50,000
First Manhattan Co.............................................. 50,000
First of Michigan Corporation................................... 50,000
Furman Selz LLC................................................. 50,000
Gabelli & Company, Inc.......................................... 50,000
Gerard Klauer Mattison & Co..................................... 50,000
Hoak Securities Corporation..................................... 50,000
Interstate/Johnson Lane Corporation............................. 50,000
Janney Montgomery Scott Inc..................................... 50,000
Johnston, Lemon & Co. Incorporated.............................. 50,000
Ladenburg, Thalmann & Co. Inc................................... 50,000
McDonald & Company Securities, Inc.............................. 50,000
Edgar M. Norris & Co., Inc...................................... 50,000
The Ohio Company................................................ 50,000
Ormes Capital Markets, Inc...................................... 50,000
Parker/Hunter Incorporated...................................... 50,000
Pennsylvania Merchant Group Ltd................................. 50,000
Principal Financial Securities, Inc............................. 50,000
Ragen MacKenzie Incorporated.................................... 50,000
Raymond James & Associates, Inc................................. 50,000
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
<S> <C>
Roney & Co...................................................... 50,000
Sanders Morris Mundy Inc........................................ 50,000
Sands Brothers & Co., Ltd....................................... 50,000
Southwest Securities, Inc....................................... 50,000
Sutro & Co. Incorporated........................................ 50,000
Tucker Anthony Incorporated..................................... 50,000
Van Kasper & Company............................................ 50,000
Wheat First Butcher Singer...................................... 50,000
---------
Total....................................................... 8,000,000
=========
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............. 1,212,500
ABN Amro Bank N.V............................................... 112,500
Banque Indosuez................................................. 112,500
Cazenove & Co................................................... 112,500
Credit Lyonnais Securities...................................... 112,500
Paribas Capital Markets......................................... 112,500
SBC Warburg..................................................... 112,500
Societe Generale................................................ 112,500
---------
Total....................................................... 2,000,000
=========
</TABLE>

The Underwriting Agreement provides that the several Underwriters will be
obligated to purchase all of the shares of Common Stock offered hereby (other
than the shares covered by the over-allotment option described below) if any
of such shares are purchased.

The Company and the Selling Stockholders have been advised by the
Representative that the Underwriters propose to offer the shares of Common
Stock directly to the public initially at the public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less
a discount not in excess of $0.60 per share, and that the Underwriters may
allow, and such dealers may reallow, a concession not in excess of $0.10 per
share on sales to other dealers. After the Offering, the public offering price
and other selling terms may be changed by the Representative.

The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to 1,500,000
additional shares of Common Stock from the Company at the initial public
offering price, less underwriting discounts and commissions. The U.S.
Underwriters may exercise such right of purchase solely for the purpose of
covering over-allotments, if any, made in connection with the sale of the
shares of Common Stock offered hereby. To the extent that the U.S.
Underwriters exercise such option, each of the U.S. Underwriters will become
obligated, subject to certain conditions, to purchase the same proportion of
such additional shares as the number of shares set forth opposite such U.S.
Underwriter's name in the above table bears to 8,000,000 shares of Common
Stock.

Under the terms of the Underwriting Agreement, the Company, the Selling
Stockholders, and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

Subject to certain exceptions, the Company and all of its current
stockholders have entered into agreements (the "Lock-Up Agreements") providing
that they will not sell, contract to sell, grant any option for the sale of,
or otherwise dispose of any shares of Common Stock for a period of 180 days
following the effective date of the Registration Statement without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation.

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<PAGE>

The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers pursuant to
which each U.S. Underwriter has represented and agreed that, with respect to
the shares included in the U.S. Offering and with certain exceptions, (i) it
is not purchasing any Common Stock for the account of anyone other than a U.S.
or Canadian Person (as defined below) and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any Common Stock or distribute
any prospectus relating to the Common Stock outside the U.S. or Canada or to
anyone other than a U.S. or Canadian Person, and any dealer to whom it may
sell any of the Common Stock will represent that it is not purchasing any of
the Common Stock for the account of anyone other than a U.S. or Canadian
Person and will agree that it will not offer or resell such Common Stock,
directly or indirectly, outside the U.S. or Canada or to anyone other than a
U.S. or Canadian Person or to any other dealer who does not so represent and
agree. Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented and agreed that, with
respect to the shares included in the International Offering and with certain
exceptions, (i) it is not purchasing any Common Stock for the account of any
U.S. or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Common Stock or distribute any
prospectus relating to the Common Stock in the U.S. or Canada or to any U.S.
or Canadian Person, and any dealer to whom it may sell any of the Common Stock
will represent that it is not purchasing any of the Common Stock for the
account of any U.S. or Canadian Person and will agree that it will not offer
or resell such Common Stock, directly or indirectly, in the U.S. or Canada or
to any U.S. or Canadian Person or to any other dealer who does not so
represent and agree. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions among the U.S. Underwriters and
International Managers. As used herein, "U.S. or Canadian Person" means any
resident or national of the U.S. or Canada or any corporation, pension,
profit-sharing, or other trust, or other entity organized under or governed by
the laws of the U.S. or Canada or any political subdivision thereof (other
than a branch located outside the U.S. or Canada of any U.S. or Canadian
Person) and includes any U.S. or Canadian branch of a person who is not
otherwise a U.S. or Canadian Person, and "U.S." means the United States of
America, its territories, its possessions, and all areas subject to its
jurisdiction.

Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of Common
Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send to
any dealer who purchases from it any Common Stock a notice stating in
substance that, by purchasing such Common Stock, such dealer represents and
agrees that it has not offered or sold, and will not offer or sell, directly
or indirectly, any of such Common Stock in Canada or to, or for the benefit
of, any resident of Canada in contravention of the securities laws of Canada
or any province or territory thereof and that any offer of Common Stock in
Canada will be made only pursuant to an exemption from the requirement to file
a prospectus in the province or territory of Canada in which such offer is
made, and that such dealer will deliver to any other dealer to whom it sells
any of such Common Stock a notice to the foregoing effect.

Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented that: (i) it has not
offered or sold and will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing, or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances that do not constitute an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995
(the "Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the Common Stock in, from, or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the issue of the Common Stock to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (No. 2) (Exemptions) Order 1995 or is a person to whom such
document may otherwise lawfully be issued or passed on.

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<PAGE>

No registration, filing, or other action has been or will be made or taken
in any jurisdiction by the Company, the Selling Stockholders, or the
International Managers that would permit an offering to the general public of
the shares offered hereby in any jurisdiction other than the United States.

Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page
thereof.

Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between the U.S. Underwriters and the
International Managers of any number of shares of Common Stock to be purchased
pursuant to the Underwriting Agreement as may be mutually agreed. The per
share price and currency of settlement of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, in U.S.
dollars, less an amount not greater than the per share amount of the
concession to the dealers set forth above.

The Common Stock has been approved for listing on the NYSE under the symbol
"ECI," subject to notice of issuance. The Underwriters intend to sell the
shares of Common Stock so as to meet the distribution requirements of the
NYSE.

The Company and the Selling Stockholders have been advised by the
Representative that the Underwriters do not intend to confirm sales to any
account over which they exercise discretionary authority.

Donaldson, Lufkin & Jenrette Securities Corporation has reserved for sale
approximately 750,000 shares of Common Stock for certain IRs who are executive
directors under the Company's marketing plan as of April 1, 1996 (the
"Participants") and who have an interest in purchasing such shares of Common
Stock in the Offering. Donaldson, Lufkin & Jenrette Securities Corporation has
advised the Company that the price per share for such shares will be the
initial public offering price. The number of shares available for sale to the
general public in the Offering will be reduced to the extent the Participants
purchase such reserved shares. Any reserved shares not so purchased will be
offered by Donaldson, Lufkin & Jenrette Securities Corporation to the general
public on the same basis as the other shares offered hereby. Any Participant
who purchases any of the shares offered in the Offering will be prohibited
from offering, selling, pledging, contracting to sell, granting any option to
purchase, or otherwise disposing of any such shares for a period of 120 days
following the effective date of the Registration Statement.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price was determined by negotiations among the
Company, the Selling Stockholders, and the Representative. Among the principal
factors considered in such negotiations were prevailing market conditions, the
results of operations of the Company in recent periods, market valuations of
companies that the Company and the Representative believe to be comparable to
the Company, estimates of the business potential of the Company, the history
of and prospects for the industry in which the Company competes, and such
other factors as the Company, the Selling Stockholders, and the Representative
deemed relevant.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Munsch Hardt Kopf Harr & Dinan, P.C., Dallas, Texas. Certain legal
matters in connection with the Common Stock offered hereby will be passed upon
for the Underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Dallas,
Texas.

EXPERTS

The audited financial statements of the Company at December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995
appearing in this Prospectus and Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report with respect thereto, and are included herein in reliance upon the
authority of such firm as experts in giving such reports.

76
<PAGE>

ACCOUNTANTS

On September 15, 1994, Keith A. Barfield, P.C. resigned as the Company's
independent public accountants. On the same day, the Board of Directors of the
Company approved the appointment of Arthur Andersen LLP to replace Keith A.
Barfield, P.C. as the Company's independent public accountants. As a result,
Keith A. Barfield, P.C. did not perform any audits of the financial statements
of the Company for the past two years. The accountant's report on the Company's
financial statements for the past two years did not contain any adverse opinion
or disclaimer of opinion or qualification or modification as to uncertainty,
audit scope, or accounting principles. During the Company's two most recent
fiscal years, there have been no disagreements between the Company and Keith A.
Barfield, P.C. on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures and there were no
"reportable events," as that term is defined in Item 304(a)(1)(v) of Regulation
S-K under the Securities Act.

77
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March
31, 1996 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994, and 1995 and the three months ended March 31, 1995 and 1996
(unaudited)............................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended De-
cember 31, 1993, 1994, and 1995 and the three months ended March 31,
1996 (unaudited)....................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994, and 1995 and the three months ended March 31, 1995 and 1996
(unaudited)............................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To EXCEL Communications, Inc.:

We have audited the accompanying consolidated balance sheets of EXCEL
Communications, Inc. (a Delaware corporation) and subsidiaries (the "Company")
as of December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1995. These consolidated 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 audits 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 the Company as of December
31, 1994 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.

As explained in Note 2 to the consolidated financial statements, the Company
has given retroactive effect to the changes in accounting for management
services fees and subscriber acquisition costs.

Arthur Andersen LLP

Dallas, Texas
February 8, 1996

F-2
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 8,821 $ 30,387 $ 29,004
Accounts receivable, net...................... 28,591 90,427 150,636
Inventories................................... 1,077 2,862 2,753
Deferred income tax asset..................... 581 2,100 2,100
Other current assets.......................... 295 566 2,122
------- -------- --------
39,365 126,342 186,615
------- -------- --------
Property and equipment, net..................... 2,476 8,560 18,179
------- -------- --------
Deferred subscriber acquisition costs........... 16,953 68,366 95,942
------- -------- --------
Other assets.................................... 618 313 1,123
------- -------- --------
$59,412 $203,581 $301,859
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $16,303 $ 65,116 $ 86,264
Commissions payable........................... 4,717 20,886 32,455
Accrued liabilities........................... 4,890 13,822 20,093
Income taxes payable.......................... 2,803 4,974 6,453
Current maturities of long-term debt and capi-
tal lease obligations........................ 518 473 424
Dividends payable............................. 3,000 20,000 20,000
------- -------- --------
32,231 125,271 165,689
------- -------- --------
Long-term debt and capital lease obligations.... 3,369 345 286
------- -------- --------
Deferred management services fees............... 5,489 21,291 29,581
------- -------- --------
Deferred income taxes payable................... 4,688 18,966 33,175
------- -------- --------
Commitments and contingencies................... -- -- --
------- -------- --------
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000
shares authorized, none outstanding.......... -- -- --
Common stock, $0.001 par value, 500,000,000
shares authorized, 100,000,000, 99,000,000,
and 99,000,000 issued and 99,000,000
outstanding.................................. 100 99 99
Additional paid-in capital.................... 345 1,902 2,796
Unearned Compensation......................... -- (2,158) (1,618)
Treasury stock, 1,000,000 shares at cost in
1994 (13) -- --
Retained earnings............................. 13,203 37,865 71,851
------- -------- --------
Total stockholders' equity.................. 13,635 37,708 73,128
------- -------- --------
$59,412 $203,581 $301,859
======= ======== ========
</TABLE>

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

F-3
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Communication services....... $24,198 $108,819 $363,301 $51,015 $205,274
Marketing services........... 6,650 43,339 143,397 17,724 75,516
------- -------- -------- ------- --------
Total revenues............. 30,848 152,158 506,698 68,739 280,790
------- -------- -------- ------- --------
Operating expenses:
Communication................ 13,761 58,925 209,995 29,366 113,514
Marketing services........... 7,730 46,724 147,476 21,265 76,940
General and administrative... 5,811 19,779 71,514 9,310 36,941
------- -------- -------- ------- --------
Total operating expenses... 27,302 125,428 428,985 59,941 227,395
------- -------- -------- ------- --------
Operating income........... 3,546 26,730 77,713 8,798 53,395
------- -------- -------- ------- --------
Interest expense............. (75) (295) (593) (188) (52)
Income (losses) from joint
venture..................... -- -- (6,248) (345) 1,041
Other income................. 24 83 467 55 503
------- -------- -------- ------- --------
Income before income taxes..... 3,495 26,518 71,339 8,320 54,887
------- -------- -------- ------- --------
Provision for income taxes... 1,126 10,648 26,893 3,136 20,901
------- -------- -------- ------- --------
Net income..................... $ 2,369 $ 15,870 $ 44,446 $ 5,184 $ 33,986
======= ======== ======== ======= ========
Net income per share........... $ 0.03 $ 0.18 $ 0.46 $ 0.05 $ 0.34
======= ======== ======== ======= ========
Weighted average number of
share and share equivalents
outstanding................... 93,167 89,655 97,321 96,240 100,087
======= ======== ======== ======= ========
</TABLE>

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

F-4
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN UNEARNED TREASURY EARNINGS TOTAL
STOCK CAPITAL COMPENSATION STOCK (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... $100 $ 173 $ -- $ (23) $ (586) $ (336)
Net income............ -- -- -- -- 2,369 2,369
Purchase of treasury
stock................ -- -- -- (100) -- (100)
Issuance of treasury
stock................ -- 51 -- 11 -- 62
---- ------ ------- ----- ------- -------
Balance, December 31,
1993................... 100 224 -- (112) 1,783 1,995
Net income............ -- -- -- -- 15,870 15,870
Dividends declared
($.046 per share).... -- -- -- -- (4,450) (4,450)
Purchase of treasury
stock................ -- -- -- (30) -- (30)
Issuance of treasury
stock................ -- 121 -- 129 -- 250
---- ------ ------- ----- ------- -------
Balance, December 31,
1994................... 100 345 -- (13) 13,203 13,635
Net income............ -- -- -- -- 44,446 44,446
Dividends declared
($.202 per share).... -- -- -- -- (19,784) (19,784)
Advances to employee
stock ownership plan. -- -- (6,000) -- -- (6,000)
Allocation of common
stock to employees... -- 1,569 3,842 -- -- 5,411
Cancellation of
treasury stock....... (1) (12) -- 13 -- --
---- ------ ------- ----- ------- -------
Balance, December 31,
1995................... 99 1,902 (2,158) -- 37,865 37,708
Net income
(unaudited).......... -- -- -- -- 33,986 33,986
Allocation of common
stock to employees
(unaudited).......... -- 894 540 -- -- 1,434
---- ------ ------- ----- ------- -------
Balance, March 31, 1996
(unaudited)............ $ 99 $2,796 $(1,618) $ -- $71,851 $73,128
==== ====== ======= ===== ======= =======
</TABLE>

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

F-5
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income.................... $ 2,369 $ 15,870 $ 44,446 $ 5,184 $33,986
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and
amortization............... 190 346 1,239 178 607
ESOP compensation........... -- -- 5,627 1,353 1,434
(Income) losses from joint
venture.................... -- -- 6,248 345 (520)
Deferred income taxes....... 1,009 3,055 12,759 (422) 14,209
Changes in assets and
liabilities:
Accounts receivable, net.. (1,187) (25,992) (61,836) (11,465) (60,209)
Deferred subscriber
acquisition costs........ (3,594) (13,068) (51,413) (2,411) (27,576)
Accounts payable.......... 1,585 13,660 48,813 3,050 21,148
Commissions payable....... 772 3,417 16,169 2,946 11,569
Deferred management
services fees............ 637 4,608 15,802 714 8,290
Accrued liabilities....... (45) 4,397 8,932 (646) 6,271
Income taxes payable...... -- 3,061 2,171 1,350 1,479
Inventories and other..... (1,081) (413) (1,996) 352 (1,737)
------- -------- -------- ------- -------
Net cash provided by
operating activities....... 655 8,941 46,961 528 8,951
------- -------- -------- ------- -------
Investing activities:
Purchase of property and
equipment.................... (255) (811) (7,323) (616) (10,226)
Investment in joint venture... -- (245) (6,003) (735) --
------- -------- -------- ------- -------
Net cash used in investing
activities................. (255) (1,056) (13,326) (1,351) (10,226)
------- -------- -------- ------- -------
Financing activities:
(Payments of) advances on debt
and capital lease
obligations.................. (1) 2,010 (3,069) 14 (108)
Issuance of treasury stock.... 62 -- -- -- --
Purchase of treasury stock.... (100) (30) -- -- --
Payments of dividends......... -- (1,450) (3,000) (3,000) --
Advances to employee stock
ownership plan............... -- -- (6,000) -- --
------- -------- -------- ------- -------
Net cash (used in) provided
by financing activities.... (39) 530 (12,069) (2,986) (108)
------- -------- -------- ------- -------
Net increase (decrease) in cash. 361 8,415 21,566 (3,809) (1,383)
Cash, beginning of period..... 45 406 8,821 8,821 30,387
------- -------- -------- ------- -------
Cash, end of period........... $ 406 $ 8,821 $ 30,387 $5,012 $29,004
======= ======== ======== ======= =======
Supplemental disclosure:
Interest paid during the
period....................... $ 75 $ 295 $ 593 $ 188 $ 52
Income taxes paid during the
period....................... 375 4,469 13,046 2,401 5,928
Noncash financing activities:
Capital lease of property
and equipment.............. -- 1,349 -- -- --
</TABLE>

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

F-6
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1. ORGANIZATION AND PRESENTATION

DESCRIPTION OF BUSINESS AND OPERATIONS

EXCEL Communications, Inc. was incorporated in the State of Delaware in
December 1995. The Company's predecessor, EXCEL Telecommunications, Inc., was
incorporated in the state of Texas in December 1988. All references to the
"Company" or "EXCEL" refer to EXCEL Communications, Inc. and include its
subsidiaries and predecessors. EXCEL is a provider of long distance telephone
service. The Company primarily utilizes independent representatives to market
its long distance service to residential and small business subscribers
throughout the United States. The Company completes subscriber calls to all
directly dialable locations worldwide. Since its formation, the Company has
utilized network switching and transmission facilities provided by other
companies.

Substantially all of the Company's switching and transmission facilities
have been provided by one supplier in 1995 and prior periods. Under the
current agreement with the supplier, the Company purchases long distance
service at certain per-minute rates, which vary depending on the time,
distance, and type of call. The Company is required to utilize the facilities
of the supplier to carry 100 million minutes of long distance traffic per
month. The Company's obligation to utilize the facilities of the supplier is
subject to reductions under certain conditions. The supplier agreement expires
on April 30, 1998. The Company expects to meet all of its obligations under
the agreement.

MARKETING ACTIVITIES

EXCEL's long distance service is sold primarily by independent
representatives located throughout the United States. Except in certain
states, independent representatives are required to make an initial refundable
application deposit with EXCEL as an expression of commitment. There is no
additional cost to participate. Independent representatives have an option to
purchase a start-up package, which includes a training class and training
materials, a starter kit of forms, promotional and presentation materials, on-
going technical and administrative support services, and monthly reports. If
the start-up package is purchased, the deposit requirement is waived. In
addition, EXCEL offers training positions whereby trainers, certified by the
Company, may provide training to new representatives and training
coordinators.

Marketing services revenues are comprised of receipts from independent
representatives and training coordinators for training, business forms,
promotional and presentation materials, ongoing technical and administrative
support services, and monthly reports. The portions of the marketing services
revenues that relate to on-going technical and administrative support services
are deferred and reflected as deferred management services fees in the
accompanying consolidated balance sheets. The Company has adopted an
accounting convention of amortizing deferred management services fees over a
period of 12 months in order to match those revenues with the costs of
providing the related support services. Marketing services revenues include
the effect of the deferral of a portion of the cash received for management
services during a period, as well as the effect of the current period
amortization of amounts deferred in the current and prior periods. The net
effect of deferring and amortizing a portion of management services fees was a
reduction in revenues reflected in the Company's consolidated financial
statements by $637, $4,608, and $15,802 for the years ended December 31, 1993,
1994, and 1995, respectively.

F-7
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

subscribers. The Company also pays commissions for the training of independent
representatives and certain training coordinators. The portions of commissions
paid that directly relate to the acquisition of long distance subscribers are
capitalized. The Company has adopted an accounting convention of amortizing
capitalized subscriber acquisition costs to expense over a period of 12 months
in order to better match those costs with the revenues from subscribers' long
distance usage during the first 12 months of service to such subscribers.
Marketing services costs, as reflected in the Company's consolidated financial
statements, include the effect of the capitalization of the portion of
commissions paid for the acquisition of new subscribers during a period, as
well as the effect of the current period amortization of amounts capitalized
in the current and prior periods. The net effect of capitalizing and
amortizing a portion of commissions expense was a reduction in marketing
services costs reflected in the Company's consolidated financial statements by
$3,594, $13,068, and $51,413 for the years ended December 31, 1993, 1994, and
1995, respectively. These deferred costs solely comprise deferred subscriber
acquisition costs included in the accompanying consolidated balance sheets.
When the Company's marketing services costs are offset by its marketing
services revenue, the net expense represents the Company's net cost of
marketing its communications products. This net cost was $4.1 million in 1995,
$3.4 million in 1994 and $1.1 million in 1993.

INTERIM INFORMATION

The financial data for the three months ended March 31, 1995 and 1996 were
derived from unaudited financial statements of the Company, which in the
opinion of management of the Company contain all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation thereof.
The results of operations for the three months ended March 31, 1996, are not
necessarily indicative of the results to be expected for the full year.
Certain information and footnote disclosures related to the interim
information normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
omitted for the interim periods.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents.

ACCOUNTS RECEIVABLE

Accounts receivable are net of allowance for doubtful accounts and
anticipated revenue adjustments of approximately $1,700 and $5,881 as of
December 31, 1994 and 1995, respectively. The Company establishes an allowance
for doubtful accounts and anticipated revenue adjustments based upon factors
surrounding the credit risk of specific subscribers, historical trends, and
other information. During 1995, the Company recorded bad debt reserves of
approximately 4.0% of long distance revenues based on current trends and
information.

LONG DISTANCE REVENUE RECOGNITION

Long distance revenues are recognized as service is provided to subscribers.

CONCENTRATIONS OF CREDIT RISK

The Company's subscribers are primarily residential subscribers and are not
concentrated in any specific geographic region of the United States. The
Company has agreements with LECs, which provide billing and collection
services to the majority of the Company's subscribers. As of December 31, 1994
and 1995, approximately 79%, and 92% of the Company's accounts receivable were
due from LECs, respectively.

F-8
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

INVENTORIES

Inventory consists primarily of sales aids, which include marketing
materials and promotional items and is valued at the lower of cost (determined
on a first-in, first-out basis) or market.

PROPERTY AND EQUIPMENT

Property and equipment, including items financed through capital leases, are
stated at cost and depreciated using the straight-line method over the
estimated useful lives of the assets, as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
<S> <C>
Furniture and equipment..................................... 5 years
Leasehold improvements...................................... Life of lease
</TABLE>

INVESTMENTS

During 1994, the Company made an initial capital contribution of $245 to
obtain a 49% interest in a joint venture. During 1995, the Company made
additional capital contributions of $6,003. The joint venture was formed for
the purpose of obtaining and operating switches to provide telecommunications
services to the Company and other long distance providers. During 1995, the
venture's net losses exceeded total capital contributions to the venture. The
Company recorded equity in net losses of $6,248 for the year ended December
31, 1995, to reduce the carrying value of the investment in the joint venture
to zero. The venture's operations for 1994 were insignificant.

Subsequent to December 31, 1995, the Company sold its entire 49% interest in
its joint venture (SSC) for a sales price of $6,248, which will be paid to the
Company during 1996 and be recorded as income when received. Contemporaneously
with such sale, the Company agreed to purchase a minimum of 70 million minutes
of long distance usage per month from SSC. This minimum commitment must be met
beginning no later than October 1996 and continues through the earlier of (a)
the date on which the Company has routed 4.2 billion minutes over the SSC
network, (b) five years from the beginning of the month during which the
Company first routes 70 million minutes over the SSC network, or (c) the date
on which certain other conditions are met. The Company has guaranteed certain
of the joint venture's obligations under capitalized leases. These guarantees
totaled approximately $4,412 at December 31, 1995.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" which requires that deferred income tax expenses
be provided based upon estimated future tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes calculated based upon provisions
of enacted tax laws.

USE OF ESTIMATES

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

NET INCOME PER SHARE

Net income per share is based on the weighted average number of shares of
common stock outstanding excluding employee stock ownership plan shares that
have not been committed to be released. Common share

F-9
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

equivalents represent the effect, using the treasury stock method, of the
assumed purchase of common shares under the Company's stock option plan.

RESTATEMENTS

The accompanying consolidated financial statements have been restated to
reflect changes in accounting for management services fees and subscriber
acquisition costs. These changes were made to appropriately match revenues and
expenses. These restatements resulted in a net change in net income of $1,945,
$5,082, and $22,720 for the years ended December 31, 1993, 1994, and 1995,
respectively.

Certain reclassifications to the prior year financial statements have been
made to conform to the current year presentation.

3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations consisted of the following at
December 31, 1994 and 1995:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
<S> <C> <C>
Revolving credit line......................................... $ 2,500 $ --
Capital lease obligations (see Note 7)........................ 1,387 818
------- -----
3,887 818
Less current maturities....................................... 518 473
------- -----
$ 3,369 $ 345
======= =====
</TABLE>

As of December 31, 1994 and 1995, the Company had a revolving credit line
agreement with a bank. The amount available under the agreement is limited to
the lesser of $10,000 or the borrowing base minus any letters of credit
outstanding. The Company had available borrowing capacity of $10,000 at
December 31, 1995.

Interest is payable monthly at an annual rate of prime plus one-half percent
(9.0% at December 31, 1995). The facility will mature on May 26, 1997, with a
one-year renewal option, and is secured by accounts receivable, inventories,
and property and equipment. The agreement contains limitations on incurring
additional indebtedness and payment of dividends and requires the maintenance
of certain financial ratios and covenants.

F-10
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 1994 and
1995:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
<S> <C> <C>
Furniture and equipment..................................... $2,610 $ 9,933
Leasehold improvements...................................... 611 611
------ -------
Total..................................................... 3,221 10,544
Less--Accumulated depreciation and amortization............. (745) (1,984)
------ -------
Net property and equipment.................................. $2,476 $ 8,560
====== =======
</TABLE>

Depreciation and amortization expense was $190, $346, and $1,239 for the
years ended December 31, 1993, 1994, and 1995, respectively.

5. INCOME TAXES

The components of the provision for income taxes are as follows for the
years ended December 31, 1993, 1994 and 1995:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1993 1994 1995
<S> <C> <C> <C>
Current........................................... $ 117 $ 7,593 $ 14,134
Deferred.......................................... 1,009 3,055 12,759
------- -------- --------
Provision for income taxes...................... $ 1,126 $ 10,648 $ 26,893
======= ======== ========
</TABLE>

Temporary differences which give rise to the net deferred income tax
liability at December 31, 1994 and 1995 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
<S> <C> <C>
Deferred income tax asset:
Allowance for doubtful accounts........................ $ 581 $ 2,100
Deferred management services fees...................... 2,196 7,729
Deferred income tax liability:
Depreciation........................................... (140) (358)
Deferred subscriber acquisition costs.................. (6,498) (24,817)
Other.................................................. (246) (1,520)
------- --------
Net deferred tax liability............................... (4,107) (16,866)
Less--current deferred income tax asset.................. (581) (2,100)
------- --------
Long-term deferred income taxes payable.................. $(4,688) $(18,966)
======= ========
</TABLE>

F-11
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The provision for income taxes was different than the amount computed using
the statutory income tax rate for the reasons set forth in the following table
(in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1994 1995
<S> <C> <C> <C>
Tax computed at statutory rate................... $ 1,223 $ 9,281 $ 24,969
State income taxes and other..................... (97) 1,367 1,924
------- -------- --------
Provision for income taxes..................... $ 1,126 $ 10,648 $ 26,893
======= ======== ========
</TABLE>

6. STOCKHOLDERS' EQUITY

Effective January 1, 1996, the Company issued 99,000,000 shares of its
common stock to stockholders at a conversion rate of 1,000 shares of newly
issued common stock for each share of common stock previously held. These new
shares were issued pursuant to a reorganization, which included a statutory
merger whereby the Company was formed as a holding company. In addition,
500,000,000 shares were authorized. All common stock and per share amounts in
the accompanying consolidated financial statements have been adjusted
retroactively to give effect to the stock conversion and the change in
authorized shares.

Subsequent to the reorganization completed in January 1996, the Company has
10,000,000 shares of Preferred Stock authorized, which can be issued in one or
more series with fixed designations, relative powers, preferences, rights,
qualifications, limitations, and restrictions of all shares of each series,
including without limitation dividend rates, preemptive rights, conversion
rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, and the number of shares constituting each such series, without
any further vote or action by the stockholders.

During December 1995, the Company declared a dividend of $20,000. The
portion of the dividend related to unallocated employee stock ownership plan
("ESOP") shares totaled $216 and was charged to general and administrative
expense. The portion of the dividend related to allocated ESOP shares was
charged to retained earnings.

7. COMMITMENTS AND CONTINGENCIES

The Company leases certain office equipment and office space under operating
leases. Total rental expense for the years ended December 31, 1993, 1994 and
1995 was approximately $329, $762, and $1,101, respectively.

Future minimum rents due under operating leases with initial or remaining
terms greater than 12 months as of December 31, 1995 are as follows:

<TABLE>
<S> <C>
1996................................................................... 1,611
1997................................................................... 1,350
1998................................................................... 1,105
1999................................................................... 165
2000 and thereafter.................................................... 7
</TABLE>

F-12
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The Company has also entered into various capital lease agreements for
certain equipment. Future minimum payments for these leases at December 31,
1995, are as follows:

<TABLE>
<S> <C>
1996................................................................... $600
1997................................................................... 272
1998................................................................... 70
1999................................................................... 34
2000 and thereafter.................................................... --
----
Total minimum lease payments......................................... 976
Less amount representing interest...................................... 158
----
Present value of net minimum lease payments.......................... $818
====
</TABLE>

The Company has entered into various construction contracts which include
capital commitments totaling $17.8 million.

The Company's long distance and marketing activities are subject to certain
federal and state regulations. The Company is involved in various regulatory
matters as well as lawsuits incidental to its business. In the opinion of
management, these regulatory matters and lawsuits in the aggregate will not
have a material adverse effect on the Company's financial position or the
results of operations of future periods.

8. RELATED PARTY TRANSACTIONS

The Company had three outstanding notes receivable from stockholders
totaling $6,000, all of which were paid in 1995, and accrued interest at
7.25%.

9. EMPLOYEE BENEFIT PLANS

The Company provides a 401(k) plan to substantially all eligible employees
of the Company, as defined. Discretionary profit sharing contributions may be
made by the Company to employees in an amount equal to or less than 4% of
their respective compensation. Company contributions to the plan for the years
ended December 31, 1993, 1994, and 1995 were not significant.

Effective January 1, 1995, the Company amended the 401(k) plan to
incorporate an ESOP for substantially all employees of EXCEL. On November 1,
1995, the ESOP borrowed $6,000 from the Company to purchase 3,000,000 shares
of common stock. The shares are held in a trust and are allocated to
employees' accounts in the ESOP during the same calendar year in which debt
repayments are made. Company contributions will total the amount required by
the ESOP to pay the principal and interest due under the ESOP loan agreement.
Compensation expense is recognized as employees render service and is based on
the fair market value of the shares to be allocated at the date the debt
repayment is made or the date the employees render the service, whichever is
earlier. During 1995, the Company recognized compensation expense of $5,627
related to the ESOP. During 1995, 1,707,000 shares were released and 1,660,000
shares were allocated to ESOP participants. The remaining 1,340,000 shares
will be allocated to ESOP participants in 1996. There were 47,000 shares in
suspense as of December 31, 1995.

Effective October 30, 1995, the Company established a stock option plan
which permits the issuance of either incentive stock options or non-statutory
options to selected employees of and consultants to the Company and its
affiliates. The plan reserves 8,910,000 shares of common stock for grant. As
of February 8, 1996, options for 4,853,475 shares have been granted at a price
of $4.55 per share, and these options vest over a five-year period beginning
in 1997. Options issued expire October 30, 2005.

F-13
<PAGE>

EXCEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
10. SUBSEQUENT EVENT (UNAUDITED)

On May 3, 1996, a group of independent representatives, including one
independent representative who has been one of the Company's top ten highest
earning representatives for the last six months, sued the Company and others,
claiming defamation, unfair competition, and interference with contractual
relationships for which such group seeks actual and punitive damages of $405
million. The Company denies the allegations, is vigorously defending the
litigation, and believes the ultimate outcome thereof will not have a material
adverse effect upon the Company's results of operations or financial position.
The Company believes that its actions with respect to the independent
representatives, including the plaintiffs, have been reasonable and in
compliance with the Company's contractual agreements with the independent
representatives. However, an unfavorable outcome in this matter could have a
material adverse effect upon the Company's results of operations or financial
position. Even if the Company and other defendants ultimately prevail, the
defense effort could involve considerable cost and a diversion of management
efforts. In the past, the Company has had independent representatives with
significant downlines reduce their efforts and in some cases quit the business
completely, and such actions have not had a material adverse impact upon the
Company's results of operations or financial position. As a result, the
Company believes that these issues with the plaintiffs will not have a
material adverse effect upon the Company's results of operations or financial
position. However, regardless of the outcome of the litigation, the mere
existence of this dispute with these plaintiffs could lead to a decline in
revenues generated from or through the efforts of the plaintiffs and their
respective downlines as well as an adverse impact on the Company's
relationship with independent representatives and the Company's ability to
attract potential independent representatives generally, all of which could
have a material adverse effect on the Company.

F-14
<PAGE>

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

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE U.S. UNDERWRITERS, OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RE-
LATES OR AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLI-
CATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information.................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Dilution.................................................................. 17
Capitalization............................................................ 18
Selected Consolidated Financial Data...................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 32
Management................................................................ 54
Recent Developments and Certain Transactions.............................. 63
Principal and Selling Stockholders........................................ 65
Description of Capital Stock.............................................. 67
Shares Eligible for Future Sale........................................... 69
Certain United States Federal Tax Considerations for Non-U.S.
Stockholders............................................................. 70
Underwriting.............................................................. 73
Legal Matters............................................................. 76
Experts................................................................... 76
Accountants............................................................... 77
Index to Consolidated Financial Statements................................ F-1
</TABLE>

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

UNTIL JUNE 3, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

10,000,000 SHARES

LOGO
[LOGO OF EXCEL COMMUNICATIONS, INC. APPEARS HERE]

COMMON STOCK

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

PROSPECTUS

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

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MAY 9, 1996

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PROSPECTUS
MAY 9, 1996

10,000,000 SHARES

LOGO
[LOGO OF EXCEL COMMUNICATIONS, INC. APPEARS HERE]
COMMON STOCK

Of the 10,000,000 shares of Common Stock offered hereby, 8,300,000 shares are
being sold by EXCEL Communications, Inc. ("EXCEL" or the "Company") and
1,700,000 shares are being sold by the Selling Stockholders. Of the 10,000,000
shares being offered hereby, 2,000,000 shares are initially being offered for
sale outside of the United States and Canada by the International Managers (the
"International Offering") and 8,000,000 shares are initially being offered for
sale in the United States and Canada in a concurrent offering by the U.S.
Underwriters (the "U.S. Offering" and, together with the International
Offering, the "Offering"), subject to transfers between the International
Managers and the U.S. Underwriters. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
See "Principal and Selling Stockholders."

The Common Stock has been approved for listing on the New York Stock Exchange
(the "NYSE") under the symbol "ECI," subject to notice of issuance.

SEE "RISK FACTORS," BEGINNING ON PAGE 8, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.

The shares offered hereby are being offered by the several International
Managers, subject to prior sale, when, as, and if delivered to and accepted by
them and subject to various prior conditions, including their right to reject
any order in whole or in part. It is expected that delivery of the shares will
be made in New York, New York, on or about May 15, 1996.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE>

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

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE INTERNATIONAL MANAGERS, OR ANY
OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLIC-
ITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK TO WHICH
IT RELATES OR AN OFFER OR SOLICITATION IN ANY JURISDICTION IN WHICH IT IS UN-
LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY SINCE SUCH DATE.

THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE COMMON STOCK OFFERED
HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE PUBLIC OFFERS
OF SECURITIES REGULATIONS 1995 AND THE FINANCIAL SERVICES ACT 1986 WITH
RESPECT TO ANYTHING DONE BY ANY PERSON IN RELATION TO THE COMMON STOCK IN,
FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM MUST BE COMPLIED WITH. SEE
"UNDERWRITING."

-----------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information.................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Dilution.................................................................. 17
Capitalization............................................................ 18
Selected Consolidated Financial Data...................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 32
Management................................................................ 54
Recent Developments and Certain Transactions.............................. 63
Principal and Selling Stockholders........................................ 65
Description of Capital Stock.............................................. 67
Shares Eligible for Future Sale........................................... 69
Certain United States Federal Tax Considerations for Non-U.S.
Stockholders............................................................. 70
Underwriting.............................................................. 73
Legal Matters............................................................. 76
Experts................................................................... 76
Accountants............................................................... 77
Index to Consolidated Financial Statements................................ F-1
</TABLE>

-----------

UNTIL JUNE 3, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

10,000,000 SHARES

LOGO
[LOGO OF EXCEL COMMUNICATIONS, INC. APPEARS HERE]

COMMON STOCK

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

PROSPECTUS

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

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MAY 9, 1996

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