TELEPASSPORT INC, S-1, 1997-02-03

TELEPASSPORT INC
S-1, 1997-02-03

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

TELEPASSPORT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 4813 13-3923895
(STATE OR OTHER (PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER) IDENTIFICATION NO.)
</TABLE>

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

1212 AVENUE OF AMERICAS
NEW YORK, NEW YORK 10036-9998
TELEPHONE: (212) 302-3365
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

JAMES D. PEARSON, PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELEPASSPORT INC.
1212 AVENUE OF AMERICAS
NEW YORK, NEW YORK 10036-9998
TELEPHONE: (212) 302-3365
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

<TABLE>
<S> <C>
STANLEY E. BLOCH, ESQ. KRIS F. HEINZELMAN, ESQ.
BAER MARKS & UPHAM LLP CRAVATH, SWAINE & MOORE
805 THIRD AVENUE WORLDWIDE PLAZA
NEW YORK, NEW YORK 10022 825 EIGHTH AVENUE
TEL: (212) 702-5700 NEW YORK, NEW YORK 10019
FAX: (212) 702-5941 TEL: (212) 474-1000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------

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

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

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

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AGGREGATE OFFERING AMOUNT OF REGISTRATION
REGISTERED PRICE(1) FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Class B Common Stock, $.01 par value.... $75,000,000 $22,727.27
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
------------------------

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

EXPLANATORY NOTE

THIS REGISTRATION STATEMENT CONTAINS TWO FORMS OF PROSPECTUS: ONE TO BE
USED IN CONNECTION WITH AN UNDERWRITTEN OFFERING IN THE UNITED STATES AND CANADA
(THE "U.S. PROSPECTUS") AND ONE TO BE USED IN A CONCURRENT INTERNATIONAL
OFFERING (THE "INTERNATIONAL PROSPECTUS") OF THE CLASS B COMMON STOCK, PAR VALUE
$.01 PER SHARE, OF TELEPASSPORT INC. THE U.S. PROSPECTUS FOR THE OFFERING IN THE
UNITED STATES AND CANADA FOLLOWS IMMEDIATELY AFTER THIS EXPLANATORY NOTE. AFTER
THE U.S. PROSPECTUS ARE THE ALTERNATE PAGES FOR THE INTERNATIONAL PROSPECTUS: A
FRONT COVER PAGE, AN INSIDE FRONT COVER PAGE AND A "SUBSCRIPTION AND SALE"
SECTION. A COPY OF THE COMPLETE U.S. PROSPECTUS AND INTERNATIONAL PROSPECTUS IN
THE EXACT FORMS IN WHICH THEY ARE TO BE USED AFTER EFFECTIVENESS WILL BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 424(B).
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED FEBRUARY 3, 1997
Shares

TelePassport Inc.
[LOGO]

Class B Common Stock
($0.01 per share)
------------------

All the shares of Class B Common Stock, par value $0.01 per share (the "Class B
Common Stock"), of TelePassport Inc. ("TelePassport" or the "Company") offered
hereby are being sold by the Company. Of the shares of Class B Common
Stock being offered, shares (the "U.S. Shares") are initially being
offered by the U.S. Underwriters (as defined herein) in the United States and
Canada (the "U.S. Offering") and shares (the "International Shares" and
together with the U.S. Shares, the "Shares") are initially being concurrently
offered by the Managers (as defined herein) outside the United States and Canada
(the "International Offering" and together with the U.S. Offering, the
"Offering"). The initial price to public and the underwriting discounts and
commissions of the U.S. Offering and the International Offering are identical.
See "Underwriting."

The Company's common stock has been designated into two classes, consisting of
Class A Common Stock, par value $0.01 per share (the "Class A Common Stock") and
the Class B Common Stock (collectively, the "Common Stock"). The Class B Common
Stock and the Class A Common Stock are substantially identical, except for
disparity in voting power and convertibility. The Class B Common Stock is
entitled to one vote per share and is not convertible into Class A Common Stock.
The Class A Common Stock is entitled to ten votes per share and is convertible
at any time on a share-for-share basis into Class B Common Stock. Except as
otherwise required by law, under the Company's Amended Certificate of
Incorporation, shares of Class A Common Stock and Class B Common Stock will vote
together on all matters submitted to a vote of stockholders, including the
election of directors. Upon completion of the Offering, the Company's current
stockholders collectively will own 100% of the outstanding Class A Common Stock,
which will represent % of the combined voting power of the Company.
Accordingly, the holders of the Class A Common Stock will have the right to
elect a majority of the Company's Board of Directors. See "Description of
Capital Stock."

Prior to the Offering, there has been no public market for the Class B Common
Stock. It is anticipated that the initial public offering price will be between
$ and $ per share. For information relating to the factors to be
considered in determining the initial public offering price, see "Underwriting."

Application will be made for quotation of the shares of Class B Common Stock on
The Nasdaq Stock Market's National Market ("NNM") under the symbol " ."
------------------

THE CLASS B COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE CLASS B COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE 10
HEREIN.
------------------

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>
Underwriting
Price Discounts and Proceeds to
to Public Commissions Company(1)
---------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total (2)....................................... $ $ $
</TABLE>

(1) Before deduction of expenses payable by the Company estimated at $ .

(2) The Company has granted to the U.S. Underwriters and the Managers an option,
exercisable by Credit Suisse First Boston Corporation for 30 days from the
date of this Prospectus, to purchase a maximum of additional shares to
cover over-allotments of shares. If such option is exercised in full, the
total Price to Public will be $ , Underwriting Discounts and
Commissions will be $ and Proceeds to Company will be $ .

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

The U.S. Shares are offered by the several U.S. Underwriters when, as and if
issued by the Company, delivered to and accepted by the U.S. Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
the U.S. Shares will be ready for delivery on or about , 1997,
against payment in immediately available funds.

Credit Suisse First Boston Smith Barney Inc.
The date of this Prospectus is , 1997.
<PAGE> 4

[MAP TO BE INSERTED ON
INSIDE COVER FOLDOUT]
<PAGE> 5

[LARGE TELEPASSPORT LOGO]

IN CONNECTION WITH THIS OFFERING, CREDIT SUISSE FIRST BOSTON CORPORATION, ON
BEHALF OF THE U.S. UNDERWRITERS AND THE MANAGERS, MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF CLASS
B COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN
THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE CLASS B COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.

TelePassport(R) is a registered trademark of the Company. Certain other
trademarks of the Company and other companies, including MasterCall(TM), are
used in this Prospectus.

2
<PAGE> 6

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and Consolidated Financial
Statements and other financial data appearing elsewhere in this Prospectus.
Except as otherwise indicated, all information in this Prospectus (i) assumes no
exercise of the overallotment option and (ii) has been adjusted to give effect
to the Reorganization (as defined herein). As used herein unless the context
otherwise indicates, the terms "Company" and "TelePassport" refer to the
TelePassport Companies (as defined herein) as of dates and periods prior to the
closing of the Reorganization and, thereafter, collectively, TelePassport Inc.
and its subsidiaries. See "Business--Reorganization." See "Glossary of Terms"
for definitions of certain technical terms used in this Prospectus.

THE COMPANY
GENERAL

TelePassport is a provider of international telecommunications services.
The Company conducts business on a global basis with a principal focus on small
and medium-sized businesses and residential customers with significant
international long distance traffic in the United Kingdom, Germany, Austria,
Switzerland and other targeted areas of Europe, and in Japan and other targeted
Asian countries. The Company has also commenced efforts to sell national
telecommunications services in certain of these targeted areas.

The Company operates a digital switch-based telecommunications network
connected by leased fiber optic transmission facilities (the "TelePassport
Network"). The TelePassport Network currently has international gateway
switching centers in New York and Tokyo. In addition, the Company has switching
facilities in London, Frankfurt and Vienna. The Company intends to use a
significant portion of the net proceeds of the Offering to expand and upgrade
the TelePassport Network. A state-of-the-art international gateway switching
center and network management facility is under construction in New Jersey to
replace the New York international gateway switching center. The Company intends
to further develop the TelePassport Network by upgrading existing facilities and
by adding switching facilities in up to 30 additional cities over the next three
years. These switching facilities will be located principally in primary markets
where the Company has an established customer base or has existing key
contracts, as well as in secondary markets in proximity to the Company's primary
markets. In areas in which the Company believes it is not optimal to own network
facilities, the Company typically enters into agreements to resell the
facilities of other operators in order to enhance the TelePassport Network.

The Company provides international long distance services with value-added
features, primarily under the "TelePassport" brand. The Company believes its
services are typically competitively priced below those of the incumbent
telecommunications operators ("ITOs"), which are often government-owned or
protected telephone companies. Customer access to the TelePassport Network and
the Company's services may be obtained through customer-paid local access,
domestic and international toll-free access, direct digital access through
dedicated lines for high volume business users, equal access through automated
routing from the public switched telephone network ("PSTN"), or call
reorigination. The availability of a particular access method in any geographic
area is governed by local laws and regulations, customer size and the degree to
which the Company has infrastructure to support the access method in such area.
The Company's services include virtual private network ("VPN") services,
customized calling cards and prepaid debit cards. The Company also offers
value-added features such as itemized billing and multiple payment methods. In
addition, the Company provides application platform services and resells
switched minutes on a wholesale basis to other telecommunications providers and
carriers.

3
<PAGE> 7

a nationwide network and began offering one of Japan's first integrated national
and international long distance telecommunications services through its wholly
owned subsidiary, A.T. NET KK ("A.T. NET"). In an effort to enhance its presence
in the Japanese telecommunications market, in December 1996 the Company reached
an agreement in principle with Asahi Telecom to enter into a series of
agreements (the "A.T. NET Agreements") under which the Company will take the
place of the joint venture as the exclusive carrier of international long
distance traffic for A.T. NET and will receive preferential pricing as a
reseller of A.T. NET's national long distance services in Japan. To the extent
allowed by applicable regulations, the Company intends to resell A.T. NET's
national long distance services and offer, along with its own international long
distance services, an integrated TelePassport national and international long
distance service primarily to non-Japanese companies located in Japan, a
significant customer segment that A.T. NET does not currently target. The
Company believes that such arrangements will also provide it with an added
competitive advantage with respect to the Company's wholesale business by
allowing it to originate and terminate international traffic cost effectively
from and to major metropolitan areas of Japan. The Company will also be the
exclusive provider of national and international long distance customized
calling cards and prepaid debit cards to be marketed by A.T. NET. In addition,
A.T. NET will grant the Company an option, which the Company intends to
exercise, to acquire a 10% ownership interest in A.T. NET and which will entitle
the Company to appoint one representative to A.T. NET's board of directors. As
part of the A.T. NET Agreements, the Company is also negotiating an arrangement
that would allow the Company to take advantage of A.T. NET's Special Type II
registration, which would permit the Company to provide additional
telecommunications services in Japan. The A.T. NET Agreements are intended to
supersede the joint venture arrangement and, upon effectiveness of the
agreements, the joint venture will be liquidated. The Company believes that its
relationship with Asahi Telecom and an ownership interest in A.T. NET will
provide the Company with a greater opportunity to competitively penetrate the
Japanese market and advance the TelePassport brand. The Company intends to
utilize the TelePassport brand recognition that it is creating in Japan as a
platform from which to expand into other targeted Asian countries.

In addition to targeting small and medium-sized businesses and residential
customers, the Company markets its services to supra-national and governmental
organizations. The Company believes that contracts to provide services to such
entities are strategically important because they present the Company with the
opportunity to establish a high profile in the regions surrounding the locality
of each contract, enhancing opportunities for new customer development. In
addition, contracts of this type will usually require the Company to establish
switching facilities and other infrastructure which the Company can then utilize
to expand its customer base in the region. In May 1996, the Company was awarded
a contract to provide, on a ten-year basis, local exchange and national and
international telecommunications services to the temporary lodging facilities on
currently up to 16 United States Air Force--Europe ("USAFE") bases (the "USAFE
Contract"). Under the terms of the USAFE Contract, the Company, to date, has
received delivery orders for four bases in Germany and one base in Italy and has
received requests for pricing ("RFPs") for 10 bases: three in Germany, five in
the United Kingdom, one in Spain and one in Turkey. The Company has completed
the installation of a telecommunications system providing voice and data service
to temporary lodging facilities at the Ramstein Air Force Base in Germany. The
Company expects to complete the installation of systems at 10 additional bases
by the end of 1997. The Company believes that the USAFE Contract will also
provide an opportunity to expand its services to the permanent dormitories at
USAFE bases. In addition, pursuant to the terms of the USAFE Contract, certain
agencies within the other branches of the United States armed forces in Europe
have the option to designate the Company as a supplier of telecommunications
services and to present delivery orders for certain of their facilities. The
Company intends to take advantage of these contractual terms by actively
pursuing delivery orders from other United States military facilities in Europe.
Further, the Company is the preferred supplier of call reorigination services
for offices of certain United Nations ("UN") agencies and their affiliates in
over 100 countries and for other supra-national food, health, fiscal and labor
organizations (collectively, the "UN Arrangements"). The Company is using its
contacts from certain of these UN agencies to further develop its customer base
by establishing a high profile in local regions surrounding the UN field
offices.

4
<PAGE> 8

The Company typically relies on local independent sales agents for
distribution of its services. In locations the Company deems strategic, the
Company generally seeks to integrate distribution and interface directly with
its customers by acquiring independent agents, establishing country managers,
and/or creating direct sales organizations. The Company believes that the
integration of its distribution network will give it greater control over its
sales and marketing functions and provide a higher level of service to its
customers. Accordingly, in October 1996, the Company entered into a Memorandum
of Understanding to acquire all the capital stock of Telepassport GmbH
("TelePassport Germany"), its independent agent in Germany. Further, the Company
is in negotiations to purchase all the assets of MasterCall Switzerland AG
("TelePassport Switzerland"), its independent agent in Switzerland. The
acquisitions of TelePassport Germany and TelePassport Switzerland (the "Agent
Acquisitions") are expected to be consummated concurrently with the closing of
the Offering.

An important element of the Company's business plan is the pursuit of
strategic acquisitions, investments and alliances. In addition to its strategic
alliance with Asahi Telecom, the Company is currently negotiating with a
potential local partner to market TelePassport services in Saudi Arabia and
other Middle Eastern countries. Also in January 1997, the Company entered into
an agreement with Intelenet, Inc. ("Intelenet"), a reseller of
telecommunications services, pursuant to which Intelenet granted the Company an
option to purchase Intelenet's customer accounts as well as telecommunications
equipment in various locations in Italy (the "Intelenet Agreement").

The Company has achieved significant growth since its inception in 1993
with revenues increasing from $2.1 million in 1993 to $12.8 million in 1994,
$27.6 million in 1995 and $27.8 million during the nine months ended September
30, 1996. The number of customers (at the end of the period) and billable
minutes increased from 9,118 and 11.9 million in 1994 and 12,378 and 32.8
million in 1995 to 15,499 and 40.4 million during the nine months ended
September 30, 1996, respectively.

STRATEGY

The Company seeks to capitalize on the fundamental changes occurring in the
telecommunications industry as a result of increasing demand for international
telecommunications services, rapid advances in technology and a growing
worldwide trend toward deregulation. The Company believes that these factors
have created opportunities for alternative network operators to effectively
compete with ITOs and major global commercial carriers. The Company believes it
is strategically positioned to take advantage of these fundamental changes for
the following reasons:

- The Company's services are sold in over 100 countries, primarily under
the "TelePassport" brand, which the Company can leverage as it expands
into new locations and introduces additional services;

- The existence and planned expansion of the TelePassport Network in the
United Kingdom, Germany, Austria, Switzerland and other targeted areas of
Europe, and in Japan and other targeted Asian countries, will enable the
Company to take advantage of deregulation in these markets;

- The unique relationship with Asahi Telecom and A.T. NET provides the
Company with competitive advantages in accessing the Japanese market and
a platform from which to expand to other targeted Asian countries;

- Contracts and arrangements with governmental and supra-national
organizations, such as the USAFE Contract and the UN Arrangements,
present the Company with long-term revenue potential and opportunities to
enhance its reputation and profile in underserved areas;

- The Company's call reorigination business enables it to gain low-cost
entry into numerous markets, to establish distribution networks, to build
customer bases and to identify opportunities prior to significant
investment; and

- The Company's management team, with its substantial combined
telecommunications and related businesses experience and strong
entrepreneurial leadership, provides the Company with the managerial
skills to exploit available market opportunities.

5
<PAGE> 9

The Company's objective is to become a leading provider of switch-based
international and national telecommunications services in its target markets.
The Company's business strategy includes the following key elements: (i)
expanding the TelePassport Network in primary markets where the Company has an
established customer base or has existing key contracts and into secondary
markets in proximity to the Company's primary markets; (ii) maximizing operating
efficiency by achieving economies of scale in the operation of the TelePassport
Network and enhancing its information systems; (iii) integrating its
distribution and interfacing directly with customers by acquiring independent
agents, establishing country managers, and/or creating direct sales
organizations in strategic locations; (iv) focusing on small and medium-sized
businesses, and providing those customers with a wide range of services; (v)
expanding the government services and supra-national sectors; (vi) expanding
distribution, customer bases and brand recognition through the use of call
reorigination; (vii) expanding wholesale services to increase the utilization of
the TelePassport Network; and (viii) pursuing acquisitions, investments and
strategic alliances.

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

TelePassport was organized in Delaware on December 9, 1996 to acquire and
continue the various businesses conducted by USFI, Inc., USFI-Japan, L.L.C. and
TelePassport LLC and its operating subsidiaries (collectively, the "TelePassport
Companies"). USFI, Inc., the Company's principal operating subsidiary, was
organized in New York in February 1993. Concurrently with the consummation of
the Offering, the Company will complete the Reorganization pursuant to which
USFI, Inc. and the other TelePassport Companies will be contributed to, and
become wholly owned subsidiaries of, TelePassport. The Company's executive
offices are located at 1212 Avenue of the Americas, New York, New York,
10036-9998, and its telephone number is (212) 302-3365.

6
<PAGE> 10

THE OFFERING

<TABLE>
<S> <C>
Class B Common Stock offered hereby:
U.S. Offering...................... shares
International Offering............. ------ shares
Total Offering.................. ------ shares
------
Common Stock to be outstanding after
the Offering:
Class A Common Stock............... shares
Class B Common Stock............... shares(1)
Voting Rights........................ The Class A Common Stock and the Class B Common Stock
will vote together as a single class on all matters,
except as otherwise required by law, with each share
of Class B Common Stock having one vote and each share
of Class A Common Stock having ten votes. Upon
completion of the Offering, the Company's current
stockholders will own 100% of the outstanding Class A
Common Stock, which will represent % of the
combined voting power of the shares of Class A Common
Stock and Class B Common Stock. See "Principal
Stockholders" and "Description of Capital Stock."
Use of Proceeds...................... To upgrade and expand the TelePassport Network; to
integrate distribution through acquisitions (including
the Agent Acquisitions); to acquire businesses or
invest in joint ventures or strategic alliances
(including A.T. NET); for research and development and
general corporate and working capital purposes. See
"Risk Factors--Substantial Capital Requirements;
Uncertainty of Additional Financing; Broad Discretion
Over Use of Proceeds; A.T. NET's Future Capital
Requirements" and "Use of Proceeds."
Proposed NNM Symbol..................
</TABLE>

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

(1) Excludes an aggregate of shares of Class B Common Stock, consisting of
shares of Class B Common Stock reserved for issuance upon exercise of
options issued prior to the date of this Prospectus under the Company's 1996
Stock Option Plan (the "1996 Stock Option Plan"), and shares of Class B
Common Stock reserved for future issuance under the 1996 Stock Option Plan.
In the event the over-allotment option is exercised in full, the total
number of shares of Class B Common Stock to be outstanding after the
Offering would be . See "Management," "Shares Eligible for Future Sale"
and "Underwriting."

RISK FACTORS

Prospective investors should carefully consider all the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" before purchasing shares of Class B
Common Stock.

7
<PAGE> 11

SUMMARY FINANCIAL DATA

The summary Statement of Operations Data, Other Financial Data and Balance
Sheet Data as of and for the years ended December 31, 1994 and 1995 have been
derived from the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus, which were audited by Ernst & Young LLP,
independent auditors. Actual data as of and for the nine months ended September
30, 1995 and 1996 have been derived from the unaudited Consolidated Financial
Statements of the Company included elsewhere in this Prospectus, which, in the
opinion of management, include all adjustments necessary for a fair presentation
of the financial condition at such dates and results of operations of the
Company for such periods. The results of operations for interim periods are not
necessarily indicative of a full year's operations. The summary Statement of
Operations Data, Other Financial Data and Balance Sheet Data for the period from
February 12, 1993 (Inception) to December 31, 1993 have been derived from
unaudited Consolidated Financial Statements of the Company which are included
elsewhere in this Prospectus. This information should be read in conjunction
with "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FEBRUARY 12, 1993 FISCAL YEAR ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------------------- ---------------------------
1993 1994 1995 1995 1996
----------------- ----------- ------------ ----------- -----------
(in thousands, except share, per share and other operating data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Telecommunications revenue.............. $ 2,085 $ 12,775 $ 27,643 $ 19,722 $ 27,764
Costs and expenses:
Cost of telecommunications services... 1,367 8,907 20,075 14,179 22,302
Selling expenses...................... 349 1,687 2,579 1,808 2,683
General and administrative expenses... 2,848 5,173 5,349 3,737 6,046
Depreciation and amortization......... 32 100 395 308 502
-------- -------- -------- -------- --------
Total costs and expenses................ 4,596 15,867 28,398 20,032 31,533
-------- -------- -------- -------- --------
Loss from operations.................... (2,511) (3,092) (755) (310) (3,769)
Other income (expense) and minority
interest(1)........................... -- (315) 57 59 (11)
Equity in net loss of foreign joint
venture(2)............................ -- -- (703) (493) (1,034)
-------- -------- -------- -------- --------
Net loss................................ $ (2,511) $ (3,407) $ (1,401) $ (744) $ (4,814)
======== ======== ======== ======== ========
Pro forma net loss per common share..... $ $ $ $ $
Shares used in computing pro forma net
loss per common share.................

OTHER FINANCIAL DATA:
EBITDA(3)............................... $ (2,479) $ (3,307) $ (1,006) $ (436) $ (4,312)
Net cash provided by (used in) operating
activities............................ (1,529) (1,669) (74) 116 (1,445)
Net cash (used in) investing
activities............................ (293) (318) (2,219) (1,753) (1,842)
Net cash provided by financing
activities............................ 1,875 2,252 2,396 1,616 3,022
Capital expenditures and
investments(4)........................ 293 304 2,080 1,634 1,584

OTHER OPERATING DATA:
Billable minutes(5)..................... -- 11,930,671 32,758,910 22,756,712 40,353,520
Customers(6)............................ 4,107 9,118 12,378 12,090 15,499
Switching facilities.................... 1 1 3 3 5
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
AS OF ---------------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(7)
------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... $ (2,584) $ (4,690) $
Property and equipment, net............. 1,974 3,084
Total assets............................ 7,003 10,654
Stockholders' (deficit) equity.......... (1,838) (2,365)
</TABLE>

(footnotes on following page)

8
<PAGE> 12

NOTES TO SUMMARY FINANCIAL DATA

(1) The expense reported for the year ended December 31, 1994 is primarily the
result of an arbitration award paid by the Company in connection with a 1994
contract dispute. See note 5 to the Consolidated Financial Statements.

(2) This item represents the Company's equity in the net loss of its joint
venture with Asahi Telecom. Upon effectiveness of the A.T. NET Agreements,
it is anticipated that the joint venture will be liquidated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Japan and Asahi Telecom."

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

(4) Capital expenditures and investments consisted entirely of gross capital
expenditures for the applicable periods presented in 1993, 1994 and 1996.
For the nine months ended September 30, 1995 and the year ended December 31,
1995, capital expenditures and investments consisted of capital expenditures
of $1.2 million and $1.7 million, respectively, and investments of $0.4
million and $0.4 million, respectively.

(5) Billable minutes are those minutes of call traffic for which a customer of
record is billed by the Company. The number of billable minutes for the
period from February 12, 1993 (Inception) to December 31, 1993 is not
available.

(6) Information presented as of the end of the period indicated.

(7) As adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."

9
<PAGE> 13

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Class B Common Stock offered hereby. The discussion in this Prospectus
contains forward looking statements that involve risks and uncertainties.
Statements contained in this Prospectus that are not historical facts are
forward looking statements. A number of important factors could cause the
Company's actual results to differ materially from those expressed in any
forward looking statements made by, or on behalf of, the Company. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as those
discussed elsewhere in this Prospectus.

LIMITED OPERATING HISTORY; HISTORY OF NEGATIVE EBITDA; ACCUMULATED DEFICIT AND
OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY

The Company commenced operations in 1993 and has only a limited operating
history upon which potential investors may base an evaluation of its
performance. Accordingly, the Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
their early development. To date, the Company has incurred negative EBITDA and
substantial net losses. EBITDA for the nine months ended September 30, 1996 and
for the years ended December 31, 1995 and 1994 was negative $4.3 million,
negative $1.0 million and negative $3.3 million, respectively. The Company has
accumulated net losses from inception in February 1993 through September 30,
1996, of $12.1 million. Losses have resulted principally from operating losses
and from costs incurred in the development and expansion of the TelePassport
Network and the infrastructure necessary for the anticipated growth of the
Company's business. The Company expects to continue to incur operating losses
and development and expansion costs at least through the year 2000 while it
further develops the TelePassport Network. There can be no assurance that the
Company will ever achieve profitability. In addition, none of the operating
losses that have accumulated prior to the date of this Prospectus are available
to be carried forward to offset profits, if any, in future periods for Federal
income tax purposes.

The Company's future operating results will be subject to annual and
quarterly fluctuations due to several factors, certain of which are outside the
control of the Company. These factors include the effects of governmental
regulation and regulatory changes, the introduction of new products and services
by the Company and its competitors, the mix of products and services sold and
the mix of channels through which those products and services are sold, general
economic conditions, specific economic conditions in the telecommunications
industry, user demand, the cost of developing and expanding the TelePassport
Network (including any unanticipated costs associated therewith), pricing
strategies for competitive products and services and changes in technology. As a
result of the foregoing factors, the Company may in the future experience
materially adverse results. In such event, the price of the Company's Class B
Common Stock would likely be materially adversely affected. As a strategic
response to a changing competitive environment, the Company may elect from time
to time to make certain pricing, service or marketing decisions or enter into
acquisitions, investments and strategic alliances that could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Risks Associated with Acquisitions, Investments and Strategic
Alliances," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Services."

SUBSTANTIAL GOVERNMENT REGULATION

General

The international telecommunications industry is subject to international
treaties and agreements, and to laws and regulations which vary from country to
country. Enforcement and interpretation of these laws and regulations can be
unpredictable and are often subject to informal views of government officials
and ministries that regulate telecommunications in each country. In some cases,
such government officials and ministries are subject to influence by the ITO.

10
<PAGE> 14

In some countries where the Company operates or plans to operate, local
laws or regulations limit provision of basic international telecommunications
service in competition with state-authorized carriers. There can be no assurance
that future regulatory, judicial, legislative or political changes will permit
the Company to offer to residents of such countries all or any of its services
or will not have a material adverse effect on the Company, that regulators or
third parties will not raise material issues regarding the Company's compliance
with applicable laws or regulations, or that regulatory decisions will not have
a material adverse effect on the Company. If the Company is unable to provide
the services which it presently provides or intends to provide or to use its
existing or contemplated transmission methods due to its inability to obtain or
retain the requisite governmental approvals for such services or transmission
methods, or for any other reason related to regulatory compliance or lack
thereof, such developments could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company has pursued and expects to continue to pursue a strategy of
providing its services to the fullest extent it believes is permissible under
current applicable laws and regulations. For example, the Company provides call
reorigination services in certain countries based upon its interpretation that
such services are not specifically prohibited by the applicable laws and
regulations of such countries or that such laws and regulations are unclear or
are unenforced. If the Company's interpretation of a country's laws or
regulations is found to be incorrect, if a country's laws or regulations are
changed or if a country changes its policy regarding enforcement of laws and
regulations, the Company may seek to modify its operations in such country so as
to comply with its laws or regulations, or it may discontinue provision of
service in that country. There can be no assurance that the Company will not be
subject to fines or other sanctions as a result of previous violations of a
country's laws or regulations, even if such violations have been corrected. In
addition, an incorrect interpretation of a country's applicable laws or
regulations, or an incorrect assessment of the likelihood of enforcement of a
country's laws or regulations, could cause the Company to lose, or be unable to
obtain, regulatory approvals to provide certain of its services or to use
certain transmission methods in such country. There can be no assurance that the
Company has correctly interpreted or that it will correctly interpret applicable
laws and regulations, or that the Company has correctly assessed, or that it
will correctly assess in the future, the likelihood of enforcement of applicable
laws and regulations, in all countries in which it operates or plans to operate.
See "Regulation of the International Telecommunications Industry."

United States

The Company owns and operates an international gateway switching center in
New York. The London and Tokyo switching facilities are connected to the New
York international gateway switching center by international private line
circuits ("IPLC") leased from other carriers. In accordance with Federal
Communications Commission ("FCC") policy described below, the IPLCs between
London and New York are used to provide international switched
telecommunications services and the IPLCs between Tokyo and New York are limited
to the transmission of signalling information used to initiate call
reorigination. The Company's provision of international long distance service
between the United States and foreign points is subject to regulation by the
FCC. The Company was required to obtain authorizations from the FCC (the "FCC
214 Authorizations") under Section 214 ("Section 214") of the Communications Act
of 1934 (the "Communications Act"). The Company has been granted FCC 214
Authorizations to: (i) provide switched international telecommunications
services through the resale of switched services of United States carriers; (ii)
provide global facilities-based service between the United States and all
international points, except Cuba (currently excluded by the FCC); and (iii)
resell international private lines interconnected with the PSTNs in the United
States and those countries determined by the FCC to afford resale opportunities
equivalent to those available under United States law. To date, such
interconnected private line resale has been permitted by the FCC only to four
countries: Canada, the United Kingdom, Sweden and New Zealand. The FCC may
expand the number of countries to which the Company may provide such services if
the FCC determines that additional countries afford equivalent resale
opportunities to those available under United States law. The Company has no
control over when, or with respect to which countries, the FCC will make any
such determinations. The Company's business plan provides for the installation
of switching facilities in certain countries which are currently deemed
"non-equivalent" by the FCC. The Company plans to connect these facilities,
including the Frankfurt, Vienna and Japan switching facilities, via IPLCs to its
international gateway switching facility currently under construction in New
Jersey, interconnecting with PSTNs at both ends. The

11
<PAGE> 15

successful implementation of such a plan depends on the determination by the FCC
to classify these countries as equivalent countries. Until such time, the
Company will be able to provide service between the United States and those (and
all other) non-equivalent countries only through the resale of international
switched services or "switched hubbing." Switched hubbing would require the
Company to transmit that portion of the call between the non-equivalent country
(e.g., Germany) and an equivalent country (e.g., the United Kingdom) via a
resold, tariff-based switched service, rather than by IPLC. To the extent that
the Company is restricted from carrying traffic over private lines, it will not
be able to take advantage of the economies of scale achievable through
utilization of fixed-cost private lines. See "Regulation of the
Telecommunications Industry."

The grant of the Company's FCC 214 Authorization to resell international
switched services permits the Company to offer service by means of call
reorigination using uncompleted call signalling, subject to certain relevant FCC
decisions. The FCC has determined that call reorigination service using
uncompleted call signalling does not violate United States or international law,
but has held that United States companies providing such services must do so in
compliance with the laws of the countries in which they operate.

The FCC reserves the right to condition, modify or revoke any of the FCC
214 Authorizations and impose fines for violations of the Communications Act or
the FCC's regulations, rules or policies promulgated thereunder, or for
violations of the telecommunications laws of certain other countries. The
Company believes that it has obtained all authorizations from the FCC required
for the conduct of its current operations in the United States, but that it may
need additional FCC authorizations in the future. No assurance can be given that
the Company will be able to obtain or retain the authorizations necessary to
conduct its business in the future. The revocation of any authorization or the
denial of, or inability to obtain, additional authorizations could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Regulation of the International Telecommunications
Industry."

The Company is also required to file with the FCC a tariff containing the
rates, terms and conditions applicable to its international telecommunications
services. The Company has filed a tariff with the FCC. If the Company charges
rates other than those set forth in, or otherwise violates, its tariff, the FCC
or a third party could bring an action against the Company, which could result
in a fine, a judgment or other penalties against the Company.

The Company is subject to additional regulation under various federal and
state laws regarding, among other things, occupational safety, environmental
protection and hazardous substance control. The laws and regulations
administered by governmental agencies are subject to change and varying
interpretation. No assurance can be given that an agency might not assert a
claim of noncompliance against the Company. Unanticipated changes in laws or
adverse interpretations of regulations could have a material adverse effect on
the Company's business, financial condition and results of operations.

European Union

Historically, European countries have prohibited the provision of Voice
Telephony services except by the ITO. The regulation of the telecommunications
industry is governed at a supra-national level by the European Union ("EU"). The
EU has adopted several pro-competition directives requiring the liberalization
of Voice Telephony and the freedom to create alternative telecommunications
infrastructures within the EU member states (Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden, and the United Kingdom). The EU has set January 1, 1998, as the
deadline for such mandatory liberalization and each EU member state is required
to enact its own laws to implement such directives by such time, subject to
extensions granted to certain members. There can be no assurance that each EU
member state will enact laws that implement the EU directives within the
allotted time frame or at all. To the extent the directives are not implemented,
or not properly or fully implemented, in a particular member state, the Company
will not be able to offer its full range of services or utilize certain
transmission or access methods in that country. Each EU member state in which
the Company currently conducts business has a different national regulatory
scheme and regulatory variations among the member states are expected to
continue for the foreseeable future. The requirements for the Company to obtain
necessary approvals to offer the full range of telecommunications services,
including Voice Telephony, vary

12
<PAGE> 16

considerably from country to country and there can be no assurance that the
Company has received all necessary approvals, filed applications for such
approvals, received comfort letters or obtained all necessary licenses from the
applicable regulatory authorities, or that it will do so in the future. The
Company's failure to obtain necessary approvals could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Regulation of the International Telecommunications Industry."

United Kingdom

The Company owns and operates a switching facility in London that is
connected to the New York international gateway by IPLCs leased by the Company
from third parties. In the United Kingdom, the Company offers direct access,
call reorigination and services to closed user groups ("CUGs"), as well as
customized calling card and prepaid debit card services, and acts as a
wholesaler of switched minutes providing international call termination services
for other telecommunications carriers and resellers. The Company's services are
subject to the Telecommunications Act 1984 (the "UK Telecommunications Act").
The Secretary of State for Trade and Industry (the "TI Secretary") is
responsible for granting telecommunications licenses and the Director General of
Telecommunications ("DGT") and his staff, known as the Office of
Telecommunications ("Oftel"), the United Kingdom's telecommunications regulatory
authority, are responsible for enforcing the conditions of such licenses. In
October 1995, the TI Secretary granted to the Company an international simple
resale ("ISR") license which allows the Company to offer certain international
and national long distance services via connection to the PSTN by leased lines.
The loss of the Company's license or the placement of significant restrictions
thereon could have a material adverse effect on the Company's operations,
financial condition and results of operations. See "Business--Services" and
"Regulation of the International Telecommunications Industry."

To reduce transmission costs associated with leasing IPLCs owned by third
parties and to provide additional capacity between the United States and United
Kingdom, the Company is exploring the acquisition of one or more indefeasible
rights of use ("IRU") in digital undersea fiber optic cable for the transmission
of traffic between its London switching facility and its international gateway
switching center, which is currently under construction in New Jersey. The
Company is required to apply to the TI Secretary to obtain an International
Facilities License ("IF License") that would permit it to run international
facilities-based voice services over cables in which it has an IRU. The British
government has not placed any limit on the number of IF Licenses it will issue,
but there can be no assurance that the Company will be granted an IF License.
The Company's failure to obtain an IF License would prevent the Company from
providing facilities-based services to and from the United Kingdom through its
own facilities (e.g., by IRU), would adversely affect the Company's plans and
ability to expand its operations and could have a material adverse effect on the
Company's operations, financial condition and results of operations.

Germany

The Company presently owns and operates a switching facility in Frankfurt,
Germany, which the Company intends to connect by leased IPLCs to its
international gateway switching center currently under construction in New
Jersey, subject to FCC rules. The Company presently offers call reorigination
and services to CUGs in Germany, as well as customized calling card and prepaid
debit card services. Germany is an EU member state and is governed by the EU
directives mandating liberalization by January 1998. Upon full deregulation of
the German telecommunications market and subject to FCC rules, the Company
intends to install additional switching facilities in other metropolitan areas
in Germany, which the Company plans to connect by IPLCs to its New Jersey
international gateway switching center, to provide to the German public
international and national long distance telecommunications services, including
Voice Telephony, with switched and dedicated access. See "Business--Services."

The regulation of the telecommunications industry in Germany is governed by
Telekommunikations-gesetz, the Telecommunications Act of 1996 ("TKG"), which,
with respect to most of its provisions, became effective in August 1996. Under
the TKG, a license ("TKG License") is generally required by any person that: (i)
operates transmission facilities for the provision of telecommunications
services to the public; or (ii) offers Voice Telephony services to the public
through telecommunications networks operated by such provider. While the TKG
represents the final phase of the reform of the German telecommunications
industry,

13
<PAGE> 17

the law will continue to protect the monopoly rights of Deutsche Telecom AG
("DT") over the provision of Voice Telephony until January 1, 1998. In order to
provide the services to the public that the Company intends to provide and
expand its network switching facilities in Germany, the Company will be required
to obtain a TKG License. Under the TKG, an applicant is entitled to the grant of
a license subject to certain public policy considerations set forth in the
statute. A license may be revoked if, among other things, continued
effectiveness would be contrary to statutory public policy considerations. There
can be no assurance that the Company will be able to obtain, or, if granted,
thereafter maintain, a TKG License. The failure to obtain, or the loss of, a TKG
License or the placement of significant restrictions thereon could have a
material adverse effect on the Company's operations, financial condition and
results of operations. In addition, there can be no assurance that any future
changes in, or additions to, any existing or future German laws, regulations,
government policy, court or administrative rulings regarding telecommunications
will not have a material adverse effect on the Company's operations, financial
condition and results of operations. See "Regulation of the International
Telecommunications Industry."

Switzerland

The Company presently offers call reorigination, services to CUGs and
customized calling card and debit card services in Switzerland. The Company's
services are subject to the Federal Law on Telecommunications of June 21, 1991
("LTC"). Under the LTC, the Company is not required to obtain a permit to offer
telephone services for CUGs. Although Switzerland is not an EU member state, the
Swiss government has expressed its intention to maintain Swiss
telecommunications regulations in line with EU directed liberalization. Towards
that end, on October 1, 1996, the Swiss federal government published a draft law
(the "Draft Law") designed to increase competition in the telecommunications
industry and to guarantee "universal" services for the entire Swiss population
at reasonable prices. Upon deregulation of the Swiss telecommunications market
and subject to FCC rules, the Company plans to expand operations in Switzerland
through the installation of additional switching facilities in Zurich and other
metropolitan areas of Switzerland connected via IPLCs to its international
gateway switching center currently under construction in New Jersey to provide
international and national long distance services with switched and dedicated
access. Under the Draft Law, the Company would not be required to obtain a
license unless it controls the infrastructure over which its services are
carried. Accordingly, the Company's provision of its existing and intended
services would require the Company only to deliver notification of such services
to the government. If the Company were to "control" its own infrastructure, as
such term may be defined and interpreted, the Draft Law, should it become
effective in its current form, would require the Company to obtain a license.
The Draft Law requires the government to grant a license if the applicant
possesses the technical abilities to offer the services and is able to offer
sufficient guarantees that it will comply with Swiss law and regulations. It is
anticipated that licenses granted will have a perpetual duration but will be
revocable by the government based on a licensee's non-compliance with Swiss
telecommunications law. If the Company is required to obtain a license, there
can be no assurance it will be able to satisfy the required conditions. If the
Company does obtain a license, the loss of such license or the placement of
significant restrictions thereon due to the Company's failure to comply with
applicable law and regulations, could materially adversely affect the Company's
operations, financial condition and results of operations. There can be no
assurance that the Draft Law as currently proposed will be adopted. In addition,
there can be no assurance that any future changes in or additions to existing or
future Swiss laws, regulations, government policy or administrative rulings
regarding telecommunications will not have a material adverse effect on the
Company's operations, financial condition and results of operations. See
"Business--Services" and "Regulation of the International Telecommunications
Industry."

Austria

The Company owns and operates a switching facility in Vienna, Austria, and
presently offers call reorigination in Austria. The Company intends to connect
via IPLCs the switching facility in Vienna to the international switching
facility which is currently under construction in New Jersey. The provision of
telecommunications services in Austria is currently subject to the
Fernmeldegesetz of 1993, as amended (the "Austrian Telecommunications Act"). In
general, the Austrian Telecommunications Act requires a license for the
construction and operation of any telecommunications equipment. A license may be
refused on the

14
<PAGE> 18

basis of certain public policy rules. The Austrian ITO generally maintains a
monopoly over the fixed public telecommunications network and Voice Telephony.
Austria is an EU member state and is governed by EU directives mandating
liberalization by 1998. The government is currently considering a new statute
incorporating the EU directives to liberalize the provision of Voice Telephony
services and infrastructure by January 1998 (the "Austrian Proposed
Legislation"). Upon deregulation of the Austrian telecommunications market, the
Company intends to expand its switching facility in Vienna to provide
international long distance services with switched and dedicated access. Under
the Austrian Proposed Legislation, in order to provide the services that the
Company intends to provide, the Company would be required to obtain a license
(the "Austrian Telecommunications License"). No assurance can be given that the
Company would be able to obtain an Austrian Telecommunications License, or that
such license would not be revoked or modified. There can be no assurance that
the statute as currently proposed will be adopted. In addition, there can be no
assurance that any new statute or any future changes in or additions to existing
or future Austrian laws, regulations, government policy or administrative
rulings regarding telecommunications will not have a material adverse effect on
the Company's operations, financial condition and results of operations. See
"Business--Services" and "Regulation of the International Telecommunications
Industry."

Japan

The Company owns and operates an international gateway switching center in
Tokyo that is connected to the New York international gateway switching center
by IPLCs leased by the Company currently for the purpose of transmitting signals
from Japan to the United States to trigger call reorigination service. In Japan,
the Company offers direct access and call reorigination services, as well as
customized calling card and debit card services, and acts as a wholesaler of
switched minutes providing international call termination services to other
telecommunications carriers and resellers. The Company intends to install
switching facilities in additional metropolitan areas in Japan connected via
leased private lines to provide international and national long distance
services with switched and dedicated access. In addition, to reduce transmission
costs associated with leasing private lines and to provide additional capacity
between the United States and Japan, the Company is exploring the acquisition of
one or more IRUs for the transmission of international traffic between its Tokyo
switching facility and the Company's international gateway switching center
currently under construction in New Jersey, subject to FCC rules. The Company's
services in Japan are subject to regulation by the Ministry of Posts and
Telecommunications (the "Japanese Ministry") under the Telecommunications
Business Law (the "Japanese Law"). The Company, through its Japanese subsidiary,
has filed notice with the Japanese Ministry as a General Type II carrier which
permits it to provide its current international long distance services,
customized calling cards and debit cards and to act as a wholesaler. The Company
is in the process of seeking a Special Type II registration which will permit
the Company to provide additional services in Japan. The Company is also
negotiating an arrangement with A.T. NET that would allow the Company to take
advantage of A.T. NET's Special Type II registration. There can be no assurance
that the Company will be able to register with the Japanese Ministry as a
Special Type II carrier. The Company's failure to obtain registration as a
Special Type II carrier, or the loss of any rights it may obtain to utilize A.T.
NET's Special Type II registration, could have a material adverse effect on the
Company's ability to expand its operations in Japan and could materially
adversely affect the Company's operations, financial condition and results of
operations. See "Business--Services; and --Japan and Asahi Telecom" and
"Regulation of the International Telecommunications Industry."

South Africa

The Company presently provides call reorigination and customized calling
card and debit card services in South Africa. The Company does not own any
switching facilities and does not intend in the near future to provide any
facilities-based services in South Africa. The telecommunications industry in
South Africa is principally regulated by the Post Office Act of 1958 (the "SA
Post Office Act") and the recently enacted Telecommunications Act of 1996 (the
"SA Telecommunications Act"). Section 78 of the Post Office Act confers a
statutory monopoly on Telkom SA Limited ("Telkom"), a state-owned company, for
the construction, maintenance and use of any telecommunications line ("fixed
line telephony"). It is anticipated that the government will promulgate
regulations during 1997 that will provide for the repeal of Section 78 of

15
<PAGE> 19

the Post Office Act pursuant to Section 106 of the SA Telecommunications Act.
Accordingly, while the SA Telecommunications Act ultimately envisages the
liberalization of telecommunications in South Africa, Telkom continues to
exercise at least a temporary monopoly over fixed line telephony. The Company
believes that the SA Post Office Act and the SA Telecommunications Act allow the
Company to provide its call reorigination services and that such laws do not
require the Company to obtain a license for the provision of such services. A
license to operate any telecommunications apparatus must, however, be obtained
from the Department of Posts and Telecommunications. The Company believes that
its agents in South Africa that supply customers with automatic dialing devices
for the provision of the Company's call reorigination services have obtained the
required licenses. The loss or limitation of such licenses by the Company's
agents could have a material adverse effect on the Company's operations,
financial condition and results of operations.

No assurance can be given that any future changes in or additions to laws,
regulations, government policy or administrative rulings will not have a
material adverse effect on the Company's operations, financial condition and
results of operations. In addition, if, after the repeal of Section 78 of the SA
Post Office Act becomes effective, the Company determines it is required to
obtain a license, there can be no assurance that the Minister of Posts,
Telecommunications and Broadcasting would take the required action of inviting
the Company to make a license application. In that case, the Company's failure
to obtain a license could have a material adverse effect on the Company's
ability to expand its operations in South Africa and could materially adversely
affect the Company's operations, financial condition and results of operations.
See "Business--Services" and "Regulation of the International Telecommunications
Industry."

SUBSTANTIAL CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FINANCING; BROAD
DISCRETION OVER USE OF PROCEEDS; A.T. NET'S FUTURE CAPITAL REQUIREMENTS

In the future, the Company will require capital significantly in excess of
historical levels to fund the upgrade and expansion of the TelePassport Network;
the acquisition of businesses or investment in joint ventures and strategic
alliances; and working capital and general corporate purpose requirements,
including general and administrative expenses and the funding of operating
losses. The exact amount of the Company's future capital requirements, however,
will depend upon many factors, including the cost, timing and extent of
upgrading and expanding the TelePassport Network, the expansion of existing
services and the development of new services, the Company's ability to penetrate
new markets, regulatory changes, the status of competing services, the magnitude
of potential acquisitions, investments and strategic alliances; and the
Company's results of operations. Individually or collectively, variances in
these and other factors could cause material changes in the Company's actual
capital requirements.

The Company currently estimates that the net proceeds of the Offering,
together with borrowing capacity under an expected working capital line of
credit and vendor lease financing, will be sufficient to finance its capital
requirements through the end of 1998. The Company has not initiated any formal
discussions with any financial institution to obtain a working capital facility
and there can be no assurance that the Company will be able to obtain a working
capital facility on acceptable terms or at all. Thereafter, or sooner if
conditions make it necessary, the Company anticipates it will be required to
seek additional debt or equity financing, potentially including equity financing
which may be dilutive to stockholders. It is likely that any debt financing
would restrict the Company's ability to make acquisitions, borrow from other
sources and pay dividends to stockholders, in certain cases. The Company does
not currently have any commitments for any additional equity or debt financing
and there can be no assurance that any financing will be available to the
Company or, if available, that it can be obtained on terms acceptable to the
Company. To the extent unexpected expenditures arise or the Company's estimates
of its capital requirements prove to be inaccurate, the Company may require such
additional financing sooner than anticipated and in amounts greater than current
expectations. Failure to obtain additional financing may require the Company to
delay, reduce the scope of, or stop the expansion of the TelePassport Network
and otherwise materially reduce its operations, and would likely have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

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<PAGE> 20

Approximately $ million, % of the estimated net proceeds of the
Offering, have been allocated for general corporate and working capital
purposes. Due to the number and variability of factors that will be analyzed
before the Company determines how to use such net proceeds, the Company will
have broad discretion in allocating a significant portion of the net proceeds
from the Offering without any action or approval of the Company's stockholders.
Accordingly, investors will not have the opportunity to evaluate the economic,
financial and other relevant information which will be considered by the Company
in determining the application of such net proceeds. See "Use of Proceeds."

Upon effectiveness of the A.T. NET Agreements, the Company will be entitled
to appoint one representative to A.T. NET's board of directors for as long as
the Company retains at least a 10% ownership interest in A.T. NET. The Company
will be granted preemptive rights, which will be triggered by the occurrence of
certain potentially dilutive events, to invest additional equity in A.T. NET in
order to maintain its equity position and retain its right to representation on
the A.T. NET board of directors. There can be no assurance that the Company will
have sufficient available capital to purchase any such additional equity in A.T.
NET necessary to retain its board representation. If the Company does not have
sufficient capital, it may need to raise additional funds through public or
private financings, and there can be no assurance that such financing will be
available to the Company on acceptable terms or at all. See "Business--Japan and
Asahi Telecom."

COMPETITION

The international telecommunications industry is highly competitive.
Competition for customers in the international telecommunications industry is
primarily based upon pricing, the type and quality of services offered and
customer relationships. Other providers of international long distance
telecommunications services include: (i) the ITO in each country; (ii) major
international carriers and their global alliances; (iii) secondary alliances
with nontraditional carriers which own infrastructure; and (iv) alternative
carriers. The Company believes that competition will continue to intensify as
the number of new service providers increases due to the overall growth in the
industry and the global trend toward deregulation. Other potential competitors
include cable television companies, wireless telephone companies, Internet
access providers and large end users which have dedicated circuits or private
networks. Many of the Company's current or potential competitors have
substantially greater financial, marketing and other resources than the Company.
If the Company's competitors were to devote significant additional resources to
the provision of international long distance telecommunications services to the
Company's target customer base of small and medium-sized businesses in the
Company's targeted geographic markets, the Company's business, financial
condition and results of operations could be materially adversely affected, and
there can be no assurance that the Company would be able to compete successfully
against such new or existing competitors.

The Company prices its services primarily by discounting against the prices
charged by the ITOs. The Company has no control over the prices set by the ITOs,
and some may be able to use their financial resources to cause severe price
competition in the geographic markets in which the Company operates. Further,
the Company has experienced, and expects to continue to experience, declining
revenue per billable minute in many product segments, in part as a result of
increasing worldwide competition within the telecommunications industry. If
price competition intensifies significantly, the Company's business, financial
condition and results of operations could be materially adversely affected.

The Company believes that the ITOs generally have certain competitive
advantages due to their control over local connectivity and because, in many
instances, the ITOs themselves are governmental entities. The Company believes
that from time to time it has encountered anti-competitive behavior on the part
of certain ITOs. If the Company encounters anti-competitive behavior in
countries in which it operates or if the ITO in any country in which the Company
operates uses its competitive advantages to the fullest extent, the Company's
business, financial condition and results of operations could be materially
adversely affected.

The major international carriers and the global alliances generally offer
their lowest rates and best services primarily to larger, higher-volume
businesses and less frequently to the small and medium-sized businesses targeted
by the Company's marketing strategy. Secondary alliances generally target their
services

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to compete directly with the global alliances and ITOs and not with the Company.
The Company's TelePassport Direct and TelePassport VPN services are targeted,
however, primarily at larger volume businesses which may also be targeted by the
global and secondary alliances. Furthermore, the Company's marketing efforts
toward supra-national and governmental organizations may also compete directly
with major international carriers. There can be no assurance that the Company
will be able to compete successfully against major international carriers and
global alliances and any significant direct competition with such carriers and
alliances could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Services."

In addition, the Company's pricing as a reseller is largely dependent upon
the pricing strategy of larger carriers, who supply the Company with switched
minutes. To the extent such larger carriers target customers similar to those
targeted by the Company, such carriers are also direct competitors of the
Company. Accordingly, the business success of a reseller is significantly tied
to the pricing policies established by potential competitors. There can be no
assurance that favorable pricing policies will be continued by these larger
carriers. See "--Reliance on Third Parties for Leased Capacity."

Many of the newly emerging competitors are smaller carriers, most of which
specialize in offering international telephone services utilizing call
reorigination and other alternative access methods. Some of these alternative
carriers have begun to build networks which are similar to, or more extensive
than, the TelePassport Network. Competition for customers among these small
carriers is primarily based on the carrier's reputation and the ability of a
carrier to provide quality service at low prices. There can be no assurance that
the Company will be able to successfully compete against its competitors in this
market segment. See "Business--Business Strategy; and --Competition."

POTENTIAL DIFFICULTIES ASSOCIATED WITH IMPLEMENTING TELEPASSPORT NETWORK
EXPANSION STRATEGY

The successful implementation of its switched access expansion strategy
will require the Company, among other things, to continue to expand and develop
the TelePassport Network. Expansion and development of the TelePassport Network
are necessary to enable the Company to meet customer requirements and to
increase the volume of traffic, which is fundamental to achieving economies of
scale on the TelePassport Network and to the Company's overall financial
success. The Company intends to use a significant portion of the net proceeds of
the Offering to upgrade and expand the TelePassport Network. See "Use of
Proceeds." There can be no assurance, however, that the Company will be able to
add services or expand its geographic markets, or that existing regulatory
barriers to its current or future operations will be reduced or eliminated and
that the Company will be able to expand and develop the TelePassport Network
successfully. See "--Substantial Government Regulation."

To originate and terminate calls on the TelePassport Network, the Company
requires "interconnection" with one or more carriers that provide access and
egress into and from the PSTN. Although the Company has been successful to date
in obtaining interconnect agreements, there can be no assurance that the Company
will be able to obtain or maintain such agreements. See "--Competition."

In addition, concurrently with its anticipated expansion, the Company may
from time to time experience general problems affecting the quality of the voice
and voice band data transmission of some calls transmitted over the TelePassport
Network, which could result in poor quality voice transmission and interruptions
in service. To provide redundancy in the event of technical difficulties with
the TelePassport Network, the Company relies upon other carriers' networks. To
the extent that such difficulties occur and calls are transmitted over other
carriers' networks rather than over the TelePassport Network, these calls will
be more costly to the Company.

Failure to implement successfully the Company's switched access expansion
strategy, which is a key element of its overall business strategy, or future
problems with interconnection, quality of service or redundancy, would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Substantial Government Regulation,"
"--Competition," "--Risks Associated with International Operations" and
"Business--Business Strategy; --The TelePassport Network; and --Competition."

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RAPID CHANGES IN TECHNOLOGY AND CUSTOMER REQUIREMENTS

The telecommunications industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to implement such new technologies at substantial cost. In addition,
competitors may implement new technologies before the Company is able to
implement such technologies, allowing such competitors to provide enhanced
services and quality, or services at more competitive costs, compared with that
which the Company is able to provide. There can be no assurance that the Company
will be able to respond to such competitive pressures and implement such
technologies on a timely basis or at an acceptable cost. One or more of the
technologies currently utilized by the Company, or which it may implement in the
future, may not be preferred by its customers or may become obsolete. If the
Company is unable to respond to competitive pressures, implement new
technologies on a timely basis, penetrate new markets in a timely manner in
response to changing market conditions or customer requirements, or if new or
enhanced services offered by the Company do not achieve a significant degree of
market acceptance, the Company's business, financial condition and results of
operations could be materially adversely affected.

RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND IMPLEMENTATION OF GROWTH STRATEGY

The Company's rapid growth has placed, and is expected to continue to
place, a significant strain on the Company's administrative, operational and
financial resources and has increased demands on its systems and controls. The
Company's strategy is to continue its growth by expanding its service offerings
and principal geographic markets in the United Kingdom, Germany, Austria,
Switzerland and other targeted areas of Europe, and in Japan and other targeted
Asian countries. If the Company is successful in increasing its services and
expanding its markets, there will be additional demands on the Company's
customer support, marketing, distribution and other operational and
administrative resources and systems and the Company's network infrastructure.
To accommodate its growth strategy, the Company will be required to invest
additional capital and resources to enhance its information systems by replacing
or upgrading certain existing systems and integrating new systems. There can be
no assurance that the Company's administrative, operational, infrastructure and
financial resources and systems will be adequate to maintain and effectively
monitor future growth. The failure to continue to upgrade the Company's
information services and infrastructure or the occurrence of unexpected
expansion difficulties could have a material adverse effect on the Company's
business, financial condition and results of operations. See "--Potential
Difficulties Associated With Implementing TelePassport Network Expansion
Strategy" and "--Dependence on Effective Information Systems."

RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES

As part of its growth strategy, the Company pursues acquisitions of
businesses, agents or customer bases, and investments in, and strategic
alliances with, entities that complement or expand the Company's current
operations or capabilities. In December 1996, the Company reached an agreement
in principle with Asahi Telecom and is currently negotiating the A.T. NET
Agreements governing its strategic relationship with Asahi Telecom and
investment in A.T. NET. There can be no assurance that the A.T. NET Agreements,
once effective, will result in increased sales or an expanded customer base for
the Company or enable the Company to effectively penetrate its targeted markets
in Asia. In addition, the Company has entered into a Memorandum of Understanding
with respect to the acquisition of TelePassport Germany and is in negotiations
to purchase all the assets of TelePassport Switzerland. The Agent Acquisitions
are expected to be consummated concurrently with the closing of the Offering.
The Company is also currently negotiating with a potential local partner to
market TelePassport services in Saudi Arabia and other Middle Eastern countries.
There can be no assurance that any of the preliminary understandings relating to
the Agent Acquisitions or such negotiations will ever evolve into binding
agreements or, if they do, that such relationships will result in increased
sales or an expanded customer base for the Company. Pursuant to the Intelenet
Agreement, the Company acquired an option to purchase the customer accounts and
certain telecommunications equipment from a reseller of telecommunications
services in Italy. Even if the option granted under the Intelenet

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<PAGE> 23

Agreement is exercised, there can be no assurance that such acquisition will
result in increased sales or enable the Company to effectively penetrate the
Italian market. Further, the Company is continuously evaluating other potential
investment opportunities but no assurance can be given that the Company will
enter into any additional understandings, commitments or agreements with respect
to any acquisition, investment, strategic alliance or related effort. Any
acquisitions, investments, strategic alliances or related efforts will be
accompanied by the risks commonly encountered in such transactions or efforts.
Such risks include, among others, the identification of appropriate candidates,
the assimilation of operations and personnel of the respective entities, the
potential disruption of the Company's ongoing business, the inability of
management to capitalize on the opportunities presented by acquisitions,
investments, strategic alliances or related efforts, the failure to successfully
incorporate licensed or acquired technology and rights into the Company's
services, the inability to maintain uniform standards, controls, procedures and
policies and the impairment of relationships with employees and customers as a
result of changes in management or otherwise. Further, to the extent that any
such transaction involves operations located outside the United States, the
transaction would involve the risks associated with international operations,
including regulatory obstacles. There can be no assurance that the Company would
be successful in overcoming these risks or any other difficulties encountered
with respect to such acquisitions, investments, strategic alliances or related
efforts. See "--Potential Difficulties Associated With Implementing TelePassport
Network Expansion Strategy," "--Risks Associated with International Operations"
and "Business--Business Strategy; and --Sales and Marketing."

RELIANCE ON THIRD PARTIES FOR LEASED CAPACITY

The Company does not currently own any telecommunications transmission
lines. As a result, the Company must lease its transmission facilities from
facilities-based carriers, all of which are potential competitors of the
Company. The Company currently leases transmission lines from, among others, MCI
Telecommunication Corporation ("MCI"), British Telecommunications plc ("BT"),
WorldCom, Inc. ("WorldCom"), Cable and Wireless International, Inc. ("CWI"),
Pacific Gateway Exchange, Inc. ("PGE") and the respective ITO in each country in
which the Company has a switching facility. The Company's profitability depends,
in part, on its ability to obtain and utilize leased capacity on a
cost-effective basis. Generally, the Company leases lines pursuant to one- to
three-year leases. Because rates for international transmission lines are
continuing to fall, the Company has not made, and has no current intention to
make, leases of longer duration with any providers. Although the Company
believes that it has and will continue to enjoy favorable arrangements with the
facilities-based carriers from which it leases transmission lines, there can be
no assurance that such arrangements will continue or that leased capacity will
continue to be available at cost-effective rates. See "Business--Services; and
- --The TelePassport Network."

FOREIGN EXCHANGE RATE RISKS

The Company currently bills primarily in United States Dollars and
generally is paid by customers outside of the United States either in United
States Dollars or in local currency at predetermined exchange rates. As the
Company's business develops and expands, the Company anticipates that in many
countries it may bill and receive payment in local currency at prevailing
exchange rates. Substantially all of the costs of acquisition and upgrade of the
Company's switching facilities and expansion of the TelePassport Network have
been, and will continue to be, denominated in United States Dollars. Any
appreciation of the value of the United States Dollar relative to the local
currency may place the Company at a competitive disadvantage by effectively
making its services more expensive as compared to those of its competitors
located in such country, including the ITO. Any depreciation of the value of the
United States Dollar relative to the local currency may adversely affect the
Company by effectively increasing the cost of the Company's capital expenditures
made in such local currency. While the Company monitors exposure to currency
fluctuations, and may, as appropriate, use certain financial hedging instruments
in the future, there can be no assurance that the use of financial hedging
instruments will successfully offset exchange rate risks, or that such
fluctuations will not have a material adverse effect on the Company's business,
results of operations and financial condition. See "--Risks Associated with
International Operations" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

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RISKS ASSOCIATED WITH IMPOSITION OF VAT ON COMPANY'S SERVICES

The Company believes it is not currently required to charge value-added
taxes ("VAT") on telecommunications services provided to its EU customers. VAT
is a tax on goods and services designed to be borne by the ultimate consumer end
user of such goods and services. The rate of VAT varies among EU member states
but is typically between 15% and 20% of the cost of the goods or services.
Pursuant to the Sixth EC VAT Directive adopted in 1977 (the "VAT Directive"),
providers of telecommunications services in the EU are liable for VAT in the EU
member state where the supplier of the services is established. The Company
believes that, as a supplier located in the United States, its services are not
currently subject to VAT. Many of the Company's EU based competitors, however,
including the ITOs, are required to charge VAT. As a result, the Company has had
a competitive price advantage over competitors in the EU who are required to
charge VAT for telecommunications services provided to residential customers and
to certain categories of businesses that are not permitted to offset VAT.

It is anticipated that the EU will issue a derogation in April 1997 which
will be followed by an amendment to the VAT Directive, to specifically impose
VAT on telecommunications services used within the EU, even if supplied by
non-EU based carriers. Germany has already begun to impose VAT on such services
effective January 1, 1997. After the amendment to the VAT Directive is adopted,
all EU member states will be required to adopt rules implementing the amended
VAT Directive. Under VAT rules, most businesses are permitted to offset the VAT
charged to them with the VAT that they charge to their customers. Residential
customers and certain categories of businesses, however, cannot offset the VAT
and bear the cost of the tax. Under the new rules as currently proposed, EU
based businesses that purchase telecommunications services from non-EU based
carriers will be required to self-account for VAT on such services. Services
provided to residential customers in Germany will not be subject to VAT. Those
EU based business customers that are not entitled to recover 100% of VAT, such
as banks and insurance companies, will be required to pay VAT directly to the
authorities. If the Company's services become subject to VAT, the Company's
competitive price advantage with respect to such businesses and residential
customers in EU countries other than Germany may be reduced. Such reduction
could have an adverse effect on the Company's business, financial condition and
results of operations. See "--Substantial Government Regulation" and "Regulation
of the International Telecommunications Industry."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

There are certain risks inherent in an international business, including
regulatory limitations restricting or prohibiting the offering of the Company's
services, unexpected changes in regulatory requirements, tariffs, customs,
duties and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political risks, fluctuations in currency exchange rates, foreign exchange
controls which restrict or prohibit repatriation of funds, technology export and
import restrictions or prohibitions, delays from customs brokers or government
agencies, seasonal reductions in business activity in certain parts of the world
and potentially adverse tax consequences resulting from operating in multiple
jurisdictions with differing tax laws. Depending on the countries involved, any
or all of the foregoing factors could have a material adverse effect on the
Company's business, financial condition and results of operations.

In addition, there can be no assurance that laws or administrative
practices relating to telecommunications, taxation, foreign exchange or other
matters in countries in which the Company operates will not change. Any such
change could have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Substantial Government Regulation,"
"--Competition," "--Risks Associated with Imposition of VAT on Company's
Services," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Regulation of the International Telecommunications
Industry."

DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS

While the Company believes that its information systems are sufficient for
its current operations, such systems will require enhancements, replacements and
additional investments to continue their effectiveness in

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<PAGE> 25

the future, particularly to enable the Company to manage an expanded
TelePassport Network. There can be no assurance that the Company will not
encounter difficulties in enhancing its systems or integrating new technology
into its systems. The inability of the Company to implement any required system
enhancement, to acquire new systems or to integrate new technology in a timely
and cost effective manner could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Business
Strategy; and --Information Systems."

PROTECTION OF PROPRIETARY TECHNOLOGY AND INFORMATION

The Company relies on trade secrets, know-how and continuing technological
advancements to maintain its competitive position. Although the Company has
entered into confidentiality and invention agreements with certain of its
employees and consultants, no assurance can be given that such agreements will
be honored or that the Company will be able to effectively protect its rights to
its unpatented trade secrets and know-how. Moreover, no assurance can be given
that others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to the Company's trade
secrets and know-how. See "Business--The TelePassport Network; and --Information
Systems."

DEPENDENCE ON QUALIFIED PERSONNEL

The success of the Company is dependent upon its ability to hire and retain
qualified management, technical, marketing, financial and other personnel. The
Company may compete for such personnel with companies that have greater
financial and other resources. Accordingly, no assurance can be given that the
Company will be successful in hiring additional or retaining qualified
personnel. Further, the Company's business is currently managed by a small
number of key management and operating personnel, the loss of certain of whom
could have a material adverse impact on the Company's business. The Company does
not maintain, nor is it currently contemplating obtaining, "key man" life
insurance policies on any of its employees. See "Management."

CHIEF EXECUTIVE OFFICER NOT FULL-TIME

Mr. James D. Pearson, the Company's President and Chief Executive Officer,
is also an officer and director of other companies. He is not expected to devote
to the Company's affairs more than such portion of his business time and
attention as he or the Company's Board of Directors may deem necessary to
fulfill his obligations to the Company. Depending upon the demands of the other
companies with which he is involved, conflicts of interest may arise relating to
the allocation of his time. See "Management."

CONTROL BY PRINCIPAL STOCKHOLDERS

The Company's Class A Common Stock is entitled to ten votes per share and
the Company's Class B Common Stock, which is being sold in the Offering, is
entitled to one vote per share. Upon completion of the Offering, the Company's
current stockholders collectively will own 100% of the outstanding Class A
Common Stock, which will represent % of the combined voting power of the
Company ( % if the over-allotment option is exercised in full). Accordingly,
the holders of the Class A Common Stock will have the ability to elect all of
the Company's directors and to control the outcome of substantially all other
issues submitted to the Company's stockholders. See "Principal Stockholders" and
"Description of Capital Stock."

IMMEDIATE SUBSTANTIAL DILUTION

The Company's present stockholders acquired their shares of the Company's
Common Stock at costs substantially below the anticipated offering price of the
Class B Common Stock to be sold in the Offering. Therefore, investors purchasing
Class B Common Stock in the Offering will incur an immediate and substantial
dilution in net tangible book value per share. See "Dilution."

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NO DIVIDENDS

The Company has not paid dividends on the Class A or the Class B Common
Stock since inception and does not anticipate paying any dividends to its
stockholders in the foreseeable future. The declaration and payment of any
dividends in the future will be determined by the Board of Directors, in its
discretion, and will depend upon the Company's earnings, capital requirements,
financial condition and other relevant factors. In addition, any future bank or
other financing may restrict the Company's ability to declare and pay dividends.
See "--Substantial Capital Requirements; Uncertainty of Additional Financing;
Broad Discretion Over Use of Proceeds; A.T. NET's Future Capital Requirements"
and "Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of shares of Common Stock by existing stockholders pursuant to
Rule 144 ("Rule 144") promulgated under the Securities Act of 1933 (the
"Securities Act"), or otherwise, could have an adverse effect on the price of
the shares of Class B Common Stock. Upon completion of the Offering, the Company
will have shares of Common Stock outstanding ( shares if the
over-allotment option is exercised in full). In addition, the Company has
reserved for issuance shares of Class B Common Stock upon exercise of
options granted under the 1996 Stock Option Plan.

The shares of Class B Common Stock offered in the Offering
( if the over-allotment option is exercised in full) will be freely
transferable without restriction or further registration under the Securities
Act except for any shares purchased by an "affiliate" of the Company within the
meaning of Rule 144. The outstanding shares of Class A Common Stock
will be "restricted securities," as that term is defined in Rule 144, and may
only be sold pursuant to a registration statement under the Securities Act or an
applicable exemption from registration thereunder, including exemptions provided
by Rule 144. No prediction can be made as to the effect that future sales of
Class A or Class B Common Stock, or the availability of shares of Class A or
Class B Common Stock for future sales, will have on the market price of the
Class B Common Stock prevailing from time to time. Sales of substantial amounts
of Class A or Class B Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Class B Common
Stock and could impair the Company's ability to raise capital through the future
sale of equity securities. The Company, its officers, directors and all existing
holders of Common Stock have agreed that, for a period of 180 days after the
date of this Prospectus, they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Securities Act relating to, any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
any shares of Common Stock, or disclose the intention to make any such offer,
sale, pledge, disposal or filing, without the prior written consent of Credit
Suisse First Boston Corporation, except, in the case of the Company, issuances
pursuant to the 1996 Stock Option Plan. See "Management," "Principal
Stockholders," "Shares Eligible for Future Sale" and "Underwriting."

ANTI-TAKEOVER CONSIDERATIONS

The voting rights contained in the Class A Common Stock, which grant the
holders thereof ten votes per share, are intended to enhance the likelihood of
continuity and stability in the composition of the Company's Board of Directors
and may have the effect of delaying, deterring or preventing a future takeover
or change in control of the Company unless such takeover or change in control is
approved by the Company's Board of Directors, even though such a transaction may
offer the holders of Class B Common Stock the opportunity to sell such shares of
Class B Common Stock at a price above the then prevailing market price. Such
voting rights may also render the removal of directors and management more
difficult.

In addition, the Company's Amended Articles of Incorporation authorize the
issuance of shares of undesignated preferred stock issuable by the
Board of Directors (the "Preferred Stock") in such series, and with such
designations, rights and preferences, as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without obtaining stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. The issuance of
such

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<PAGE> 27

Preferred Stock, depending upon the rights, designations, preferences,
qualifications, limitations and restrictions thereof, may have the effect of
delaying, deterring or preventing a change in control of the Company or may
otherwise adversely affect the interests of holders of Common Stock. The
issuance of Preferred Stock, for example, could decrease the amount of earnings
or assets available for distribution to holders of Common Stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the Common Stock.

In addition, certain provisions of the Delaware General Corporation Law
prevent certain stockholders from engaging in business combinations with the
Company, subject to certain exceptions. See "Description of Capital
Stock--Common Stock; --Preferred Stock; and --Delaware Law and Certain Charter
and By-Law Provisions."

Further, the new employment agreement to be executed with Mr. Pearson will
contain provisions which will require the Company to make certain payments to
Mr. Pearson in certain instances if his employment is terminated following a
"Change in Control" (as defined therein). In the event of a Change of Control of
the Company (as defined in the 1996 Stock Option Plan), all Incentive Awards (as
defined herein) under the 1996 Stock Option Plan will become immediately vested
and exercisable. See "Management--Employment Agreements; and --1996 Stock Option
Plan." The employment agreements and 1996 Stock Option Plan provisions may have
the effect of delaying, deterring or preventing a change of control of the
Company, may discourage bids for outstanding shares of Common Stock and may
adversely affect the market price of the Class B Common Stock.

ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public trading market for the
Class B Common Stock and there can be no assurance that an active public market
for the Class B Common Stock will develop or continue following the Offering.
The initial public offering price of the Class B Common Stock will be determined
by negotiation between the Company and Credit Suisse First Boston Corporation
and may not necessarily bear any relationship to the Company's assets, book
value, revenues or other established criteria of value, and should not be
considered indicative of the price at which the Class B Common Stock will trade
after completion of the Offering. There can be no assurance that the market
price of the Class B Common Stock will not decline below the initial public
offering price. See "Underwriting."

Trading volume and prices for the Class B Common Stock could be subject to
wide fluctuations in response to quarterly variations in operations, financial
results, announcements with respect to sales and earnings, technological
innovations, new product developments, the sale or attempted sale of a large
amount of securities in the public market, regulatory developments and other
events or factors which cannot be foreseen or predicted by the Company. In
addition, various factors affecting companies in the international
telecommunications industry generally may have a significant impact on the
market price of the Class B Common Stock, as well as price and volume volatility
affecting such companies, in general, and not necessarily related to the
operating performance of such companies.

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USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be
approximately $ million ($ million if the over-allotment option is
exercised in full) after deducting underwriting discounts and commissions and
estimated expenses of the Offering payable by the Company.

The Company intends to use approximately $ million of the net proceeds
for network upgrade and expansion, including investments in fiber optic cable,
$ million for integration of distribution through acquisitions (including
$ for the Agent Acquisitions) and $ million for acquisitions of
businesses or for investments in joint ventures or strategic alliances
(including $3.2 million for the acquisition of a 10% interest in A.T. NET).
Although the Company is continuously evaluating other potential investment
opportunities, it does not have, nor can any assurance be given that it will
have, any understanding, commitment or agreement with respect to any other
acquisition, investment, strategic alliance or related effort. In addition, $1.0
million of the net proceeds will be used for research and development, and the
balance of the net proceeds will be used to fund working capital requirements
and for other general corporate purposes including general and administrative
expenses and the funding of operating losses. If the over-allotment option is
exercised in full, additional net proceeds will be added to the Company's
working capital. Pending application of the net proceeds described herein, such
amounts will be invested in short-term investment grade securities. See "Risk
Factors--Substantial Capital Requirements; Uncertainty of Additional Financing;
Broad Discretion Over Use of Proceeds; A.T. NET's Future Capital Requirements"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Class A or
Class B Common Stock and currently intends to retain future earnings, if any, to
finance the development and continued expansion of its business. Accordingly,
the Company does not anticipate paying any cash dividends in the foreseeable
future. Any future determination with respect to the payment of dividends will
be within the sole discretion of the Company's Board of Directors and will
depend upon, among other things, the Company's financial condition, results of
operations and such other factors as the Board of Directors deems relevant. In
addition, any future bank or other financing may restrict the Company's ability
to declare and pay dividends.

25
<PAGE> 29

DILUTION

Dilution is the amount by which the initial public offering price paid by
the purchasers of shares of Class B Common Stock in the Offering exceeds the net
tangible book value per share of Common Stock after the Offering. The net
tangible book value per share of Common Stock is determined by subtracting the
total liabilities of the Company from the total book value of the tangible
assets of the Company and dividing the difference by the number of shares of
Common Stock deemed to be outstanding on the date as of which such book value is
determined.

As of September 30, 1996, the Company had a (deficit in) net tangible book
value of $ million, or $ per share of Common Stock. Assuming that
the sale of the shares of Class B Common Stock hereunder had occurred on
September 30, 1996 and without taking into account any change in net tangible
book value after September 30, 1996, other than the sale of the shares of Class
B Common Stock in the Offering, the pro forma (deficit in) net tangible book
value of the Company as of September 30, 1996 would have been approximately
$ million or $ per share of Common Stock. See "Capitalization."
This represents an immediate increase in tangible book value of $ per
share of Common Stock held by existing holders of shares of Common Stock and an
immediate dilution of $ per share of Class B Common Stock to new
investors. The following table illustrates this dilution per share of Common
Stock:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Class
B Common Stock........................................ $
(Deficit in) net tangible book value per share of Common
Stock at September 30, 1996........................... $
Increase in net tangible book value per share of Class B
Common Stock attributable to the Offering.............
-------
Pro forma (deficit in) net tangible book value per share
of Common Stock after the Offering....................
-------
Dilution per share of Common Stock to new investors..... $
=======
</TABLE>

If the over-allotment option is exercised in full, the pro forma net
tangible book value per share of Common Stock after giving effect to the
Offering would be $ per share, the increase in net tangible book value
per share would be $ and the dilution to persons who purchase shares of
Class B Common Stock in the Offering would be $ per share.

The following table sets forth, on a pro forma basis as of September 30,
1996, the differences between the existing stockholders and the new investors
with respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price per share
paid, and the percentage of equity interest in the Company represented thereby:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ % $ % $
New investors................
--------- ------ --------- ------
Total...................... 100.0% $ 100.0%
========= ====== ========= ======
</TABLE>

The foregoing table excludes the exercise of all stock options issued prior
to the date of this Prospectus under the 1996 Stock Option Plan. To the extent
that any options granted or to be granted are exercised in the future at prices
which are below the offering price, there will be further dilution to new
investors. See "Management--1996 Stock Option Plan."

26
<PAGE> 30

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of September 30, 1996, and as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom. See "Use of Proceeds." The
information set forth below should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------
ACTUAL AS ADJUSTED
----------------- -----------------
(dollars in thousands)
<S> <C> <C>
Cash.................................... $ 159 $
======= =======
Stockholders' equity (deficit):
Preferred stock
$.01 par value, zero and
shares authorized; zero
and zero issued and outstanding,
respectively(1).................... $ -- $ --
Class A Common Stock
$.01 par value, shares
authorized; and
issued and outstanding,
respectively(1).................... --
Class B Common Stock
$.01 par value, shares
authorized; and
issued and outstanding,
respectively(1)(2)................. --
Additional paid-in-capital............ 9,767
Accumulated deficit................... (12,133) (12,133)
Foreign currency translation
adjustment......................... 1 1
------- -------
Total stockholders' equity (deficit).... (2,365)
------- -------
Total capitalization............... $ (2,365) $
======= =======
</TABLE>

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

(1) See "Description of Capital Stock."

(2) Excludes an aggregate of shares of Class B Common Stock,
consisting of shares of Class B Common Stock reserved for issuance
upon exercise of options issued prior to the date of this Prospectus under
the 1996 Stock Option Plan and shares of Class B Common Stock
reserved for future issuance under the 1996 Stock Option Plan.

27
<PAGE> 31

SELECTED FINANCIAL DATA

The selected Statement of Operations Data, Other Financial Data and Balance
Sheet Data as of and for the fiscal years ended December 31, 1994 and 1995 have
been derived from the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus, which were audited by Ernst & Young LLP,
independent auditors. Actual data as of and for the nine months ended September
30, 1995 and 1996 have been derived from the unaudited Consolidated Financial
Statements of the Company included elsewhere in this Prospectus, which, in the
opinion of management, include all adjustments necessary for a fair presentation
of the financial condition at such dates and results of operations of the
Company for such periods. The results of operations for interim periods are not
necessarily indicative of a full year's operations. The selected Statement of
Operations Data, Other Financial Data and Balance Sheet Data for the period from
February 12, 1993 (Inception) to December 31, 1993 have been derived from
unaudited Consolidated Financial Statements of the Company which are included
elsewhere in this Prospectus. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER NINE MONTHS ENDED
FEBRUARY 12, 1993 31, SEPTEMBER 30,
(INCEPTION) TO --------------------------- -------------------------
DECEMBER 31, 1993 1994 1995 1995 1996
----------------- ---------- ------------ ---------- ----------
(in thousands, except share, per share and other operating data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Telecommunications revenue............... $ 2,085 $ 12,775 $ 27,643 $ 19,722 $ 27,764
Costs and expenses:
Cost of telecommunications services.... 1,367 8,907 20,075 14,179 22,302
Selling expenses....................... 349 1,687 2,579 1,808 2,683
General and administrative expenses.... 2,848 5,173 5,349 3,737 6,046
Depreciation and amortization.......... 32 100 395 308 502
------- ------- ------- ------- -------
Total costs and expenses................. 4,596 15,867 28,398 20,032 31,533
------- ------- ------- ------- -------
Loss from operations..................... (2,511) (3,092) (755) (310) (3,769)
Other income (expense) and minority
interest(1)............................ -- (315) 57 59 (11)
Equity in net loss of foreign joint
venture(2)............................. -- -- (703) (493) (1,034)
------- ------- ------- ------- -------
Net loss................................. $ (2,511) $ (3,407) $ (1,401) $ (744) $ (4,814)
======= ======= ======= ======= =======
Pro forma net loss per common share...... $ $ $ $ $
Shares used in computing pro forma net
loss per common share..................

OTHER FINANCIAL DATA:
EBITDA(3)................................ $ (2,479) $ (3,307) $ (1,006) $ (436) $ (4,312)
Net cash provided by (used in) operating
activities............................. (1,529) (1,669) (74) 116 (1,445)
Net cash (used in) investing
activities............................. (293) (318) (2,219) (1,753) (1,842)
Net cash provided by financing
activities............................. 1,875 2,252 2,396 1,616 3,022
Capital expenditures and
investments(4)......................... 293 304 2,080 1,634 1,584

OTHER OPERATING DATA:
Billable minutes(5)...................... -- 11,930,671 32,758,910 22,756,712 40,353,520
Customers(6)............................. 4,107 9,118 12,378 12,090 15,499
Switching facilities..................... 1 1 3 3 5
</TABLE>

<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
AS OF -------------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(7)
------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................ $ (2,584) $ (4,690) $
Property and equipment, net.............. 1,974 3,084
Total assets............................. 7,003 10,654
Stockholders' (deficit) equity........... (1,838) (2,365)
</TABLE>

(footnotes on following page)

28
<PAGE> 32

NOTES TO SELECTED FINANCIAL DATA

(4) Capital expenditures and investments consisted entirely of gross capital
expenditures for the applicable periods presented in 1993, 1994 and 1996.
For the nine months ended September 30, 1995 and the year ended December 31,
1995, capital expenditures and investments consisted of capital expenditures
of $1.2 million and $1.7 million and investments of $0.4 million and $0.4
million, respectively.

(6) Information presented as of the end of the period indicated.

(7) As adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."

29
<PAGE> 33

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

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and the other financial data included
elsewhere in this Prospectus.

OVERVIEW

The Company is a provider of international telecommunications services. The
Company conducts business on a global basis with a principal focus on small and
medium-sized businesses and residential customers with significant international
long distance traffic in the United Kingdom, Germany, Austria, Switzerland and
other targeted areas of Europe, and in Japan and other targeted Asian countries.
The Company has also commenced efforts to sell national telecommunications
services in certain of these targeted areas.

The Company's principal operating subsidiary, USFI, Inc., was founded in
February 1993. The Company has been principally funded to date by an aggregate
of $12.5 million in equity capital contributed by the founders of the Company,
Stephen E. Myers, Michael C. Anderson and James D. Pearson (the "Principals").
The Company has incurred losses from operating activities in each year of
operations since its inception, and expects to continue to incur operating
losses for the next several years.

In connection with the Reorganization, USFI, Inc. and certain other
TelePassport Companies will become subsidiaries of the Company and the assets of
TelePassport LLC and USFI-Japan, L.L.C. will become assets of the Company.
Currently, USFI, Inc. and certain other TelePassport Companies are taxed as "S"
corporations and, as such, any income or loss of such companies has been taxed
directly to their equity owners. After completion of the Reorganization, such
companies will no longer be taxed as "S" corporations and deferred taxes will be
recorded in the Company's consolidated financial statements. In addition,
TelePassport Inc. will be the common parent of a consolidated group for Federal
income tax purposes that includes the TelePassport Companies, and each member of
such group will be subject to corporate level tax on its share of the
consolidated group's income. Any net operating losses, as defined in Section
172(c) of the Internal Revenue Code of 1986, as amended (the "Code"), incurred
by the TelePassport Companies prior to the completion of the Reorganization will
be unavailable to the Company to offset taxable income earned, if any, after the
closing of the Offering for Federal income tax purposes.

Since its inception in 1993, the Company has invested substantial resources
in developing the TelePassport Network and related business operations. In
February 1993, the Company installed its international gateway switching center
in New York, commenced offering TelePassport call reorigination services and
began marketing TelePassport international long distance calling cards. The
Company installed its international gateway switching center in Tokyo in April
1995 and in December 1995 installed the London switching facility. The Company
began selling TelePassport services on a wholesale basis to other carriers in
late 1994. In 1995, the Company introduced several additional TelePassport
services, including prepaid debit cards for the European market in early 1995,
TelePassport VPN in August 1995 and TelePassport direct access services for the
London market in November 1995. The Company has also established strategic
relationships with several supra-national and governmental organizations, as
well as with leading telecommunications service providers in Japan. In June
1993, the Company became the preferred supplier of call reorigination services
for the offices of certain United Nations agencies and their affiliates in over
100 countries and has since entered into service contracts with other
supra-national organizations. In May 1996, the Company was awarded the USAFE
Contract in Germany. In March 1995, the Company formed a joint venture with
Asahi Telecom to provide international long distance services in Japan. In
December 1996, the Company and Asahi Telecom reached an agreement in principle
to enter into the A.T. NET Agreements, which are intended to supersede the joint
venture. The Company intends to exercise the option to acquire a 10% ownership
interest in A.T. NET for approximately $3.2 million. The Company's ownership
interest in A.T. NET will be accounted for under the cost method. Once the A.T.
NET agreements become effective, it is anticipated that the joint venture will
be liquidated. Upon liquidation of the joint venture and exercise of the option,
the Company's

30
<PAGE> 34

equity in the accumulated net loss of the joint venture, net of investment and
long term advances ($1.0 million as of September 30, 1996), will be recorded as
a reduction of its investment in A.T. NET.

The Company's telecommunications revenue is derived from the number of
minutes of use billed by the Company and is recorded upon completion of calls.
The Company believes its services are typically competitively priced below those
of the ITO in each country in which the Company offers its services. Customer
access to the TelePassport Network and the Company's services may be obtained
through customer-paid local access, domestic and international toll-free access,
direct digital access through dedicated lines for high volume business users,
equal access through automated routing from the PSTN, or call reorigination. The
Company's services include VPN services, customized calling cards and prepaid
debit cards. The Company also offers value-added features such as itemized
billing and multiple payment methods. In addition, the Company provides
application platform services and resells switched minutes on a wholesale basis
to other telecommunications providers and carriers.

For the nine months ended September 30, 1996, call reorigination revenue
represented $18.3 million, or 65.8%, of the Company's telecommunications revenue
and wholesale services represented $9.1 million, or 32.7%, of telecommunications
revenue. The remainder of the Company's telecommunications revenue during the
period, $0.4, million or 1.5%, was derived from a VPN contract with certain UN
organizations which is expected to terminate in the first quarter of 1997.
During the nine months ended September 30, 1996, telecommunications revenue was
derived from services provided in the following locations: Europe 48.6%; North
America 25.2%; South Africa 18.7%; Japan 6.1%; and South America 1.4%.
Predominantly all of the revenue generated in North America was derived from
wholesale services. Telecommunications revenue in all other areas was derived
primarily from services accessed through call reorigination.

The Company intends to generate telecommunications revenue through
expansion of the TelePassport Network, as well as through continued use of call
reorigination in markets that do not justify the capital commitments associated
with establishing switching facilities or where the Company is prohibited from
providing switched services. As additional markets deregulate and the Company
expands the TelePassport Network to those markets, the Company will seek to
transfer its customers to facilities-based services, and, as a result, the
Company anticipates that the percentage of telecommunications revenue derived
from dedicated or switched access services will increase and the percentage of
telecommunications revenue from call reorigination services will decrease. The
Company believes, however, that call reorigination services will continue to be
a significant source of revenue. The Company intends to continue to focus on
providing telecommunications services to small and medium-sized businesses and
residential customers with significant international long distance traffic, as
well as expanding the resale of switched minutes to other telecommunications
carriers and resellers on a wholesale basis. In addition, the Company intends to
continue targeting supra-national and governmental organizations.

Prices in the international long distance telecommunications industry in
many of the countries in which the Company provides its services have declined
in recent years due to increased competition and deregulation, and the Company
believes that prices are likely to continue to decrease. Additionally, if EU
member states impose VAT on telecommunications services provided to EU
residential customers or certain categories of businesses by telecommunications
providers located outside of the EU, such as the Company, the Company may need
to further reduce prices of services offered to these customer segments in order
to remain competitive. See "Risk Factors--Risks Associated with Imposition of
VAT on Company's Services." In addition, the Company believes that the
deregulatory trends in many foreign markets will result in greater competition
which could reduce telecommunications revenue per minute and the Company's
operating margins. The Company believes, however, that such decreases in prices
will be at least partially offset by increased telecommunications usage and
decreased costs that the Company anticipates will be realized as the percentage
of traffic transmitted over the TelePassport Network increases.

Cost of telecommunications services is comprised of costs associated with
the origination, transmission and termination of voice and voice band data
telecommunications services, and with owning and maintaining switching
facilities. Currently, a substantial portion of the Company's telecommunications
revenue is derived from services that are accessed through call reorigination or
otherwise are not transmitted over the

31
<PAGE> 35

TelePassport Network. Accordingly, a significant portion of the Company's cost
of telecommunications services is variable, based on the number of minutes of
use, with transmission and termination costs being the Company's most
significant expense. The Company is seeking to originate, transport and
terminate a larger portion of traffic over the TelePassport Network in order to
bypass, to the greatest extent possible, the higher costs associated with
traditional international settlement policies. As the Company increases the
percentage of traffic transmitted over the Telepassport Network, cost of
telecommunications services will increasingly consist of fixed costs associated
with leased lines and the ownership and maintenance of the TelePassport Network,
and the Company expects that the cost of telecommunications services as a
percent of telecommunications revenue will decline. The Company seeks to lower
cost of telecommunications services through: (i) increasing volume on the
TelePassport Network, thereby allocating fixed costs over a larger number of
minutes; (ii) continuing to negotiate favorable rates with the ITOs; and (iii)
optimizing the routing of calls over the TelePassport Network. See
"Business--Business Strategy."

As is typical in the long distance telecommunications industry, the Company
generally realizes higher margins from its retail services than from its
wholesale services. Wholesale services, however, provide a source of additional
revenue and add significant minutes originating and terminating on the
TelePassport Network, thus enhancing the Company's purchasing power for leased
lines and switched minutes. The Company also generally realizes higher margins
from direct access services than from services accessed through call
reorigination. The Company's overall margins may fluctuate in the future based
on its mix of wholesale and retail long distance services and the percentage of
calls using direct access as compared to call reorigination.

Selling expenses are primarily derived from commissions paid to independent
agents, and payroll and other benefit costs. Selling expenses have increased
over the past three years as the Company's business has expanded and the number
of agents and the size of the direct sales and marketing forces have increased.
The Company expects that selling expenses will continue to increase as the
business grows and the TelePassport Network expands. In addition, as the Company
begins to integrate its distribution network in selected strategic locations by
acquiring independent agents or establishing country managers or direct sales
organizations, it will incur added selling expenses associated with the
transition which is likely to result, initially, in an increase in selling
expenses as a percent of telecommunications revenue. The Company anticipates,
however, that as sales networks become fully integrated and economies of scale
are realized, selling expenses ultimately will decline as a percent of
telecommunications revenue. The Company also believes that the integration of
its distribution network will give it greater control over its sales and
marketing functions, which would enable it to provide a higher level of service
to its customers. See "Business--Market Opportunity" and "Business Strategy."

General and administrative expenses includes salary and benefits and other
overhead costs associated with headquarters and network operations. These costs
have increased due to the development and expansion of the TelePassport Network
and corporate infrastructure. The Company expects that general and
administrative expenses will, initially, continue to increase as a percentage of
revenue as the Company puts into place the infrastructure necessary to support
the continued growth of the Company and expansion of the TelePassport Network.
Once the infrastructure has been installed and the traffic routed over the
TelePassport Network grows, the Company expects to realize economies of scale
and anticipates that general and administrative expenses will decrease as a
percentage of revenues.

Inflation is not a material factor affecting the Company's business and has
not had a significant effect on the Company's operations to date. The Company
has historically experienced, and expects to continue to

32
<PAGE> 36

experience, decreases in revenues in the months of August and December due to
extended vacation time typically taken by Europeans during these months.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995

Telecommunications revenue. Telecommunications revenue increased $8.0
million, or 40.8%, to $27.8 million for the nine months ended September 30, 1996
from $19.7 million for the nine months ended September 30, 1995. This increase
was attributable primarily to the increase in billable minutes which increased
17.6 million, or 77.3%, to 40.4 million billable minutes for the nine months
ended September 30, 1996 from 22.8 million billable minutes for the nine months
ended September 30, 1995. Telecommunications revenue derived from retail
customers increased $3.6 million, or 24.5%, to $18.3 million for the nine months
ended September 30, 1996 from $14.7 million for the nine months ended September
30, 1995, while telecommunications revenue derived from wholesale customers
increased $4.1 million, or 82.0%, to $9.1 million for the nine months ended
September 30, 1996 from $5.0 million for the nine months ended September 30,
1995. The remainder of the Company's telecommunications revenue during the nine
months ended September 30, 1996, $0.4 million, was derived from a VPN contract
with certain UN organizations. The increase in telecommunications revenue during
the nine months ended September 30, 1996 was achieved despite declining prices
in both the retail and wholesale sectors as a result of increased competition
and deregulation of certain foreign markets.

Cost of telecommunications services. Cost of telecommunications services
increased $8.1 million, or 57.3%, to $22.3 million for the nine months ended
September 30, 1996 from $14.2 million for the nine months ended September 30,
1995, and, as a percent of telecommunications revenue, increased to 80.3% for
the nine months ended September 30, 1996 from 71.9% for the corresponding period
in 1995. The increase in cost of telecommunications services was attributable
primarily to increased traffic being handled by the Company and increased costs
associated with the expansion of the TelePassport Network. The increase in cost
of telecommunications services as a percent of telecommunications revenue was
attributable primarily to the greater increase in the wholesale business, as
compared to the increase in the retail business. Although the wholesale business
generates lower margins than those derived from retail business, it provides a
source of additional revenue and adds significant minutes originating and
terminating on the TelePassport Network, thus enhancing the Company's purchasing
power for leased lines and switched minutes.

Selling expenses. Selling expenses increased $0.9 million, or 48.4%, to
$2.7 million for the nine months ended September 30, 1996 from $1.8 million for
the nine months ended September 30, 1995, and, as a percent of
telecommunications revenue, increased to 9.7% for the nine months ended
September 30, 1996 from 9.2% for the corresponding period in 1995. The increase
in selling expenses was attributable primarily to increased commissions of $0.8
million associated with the increase in telecommunications revenue for the nine
months ended September 30, 1996, as compared to the nine months ended September
30, 1995. The increase in selling expenses as a percent of telecommunications
revenue during 1996 was attributable to increased commission rates payable to
certain agents upon increases in telecommunications revenue generated by those
agents.

General and administrative expenses. General and administrative expenses
increased $2.3 million, or 61.8%, to $6.0 million for the nine months ended
September 30, 1996 from $3.7 million for the nine months ended September 30,
1995, and, as a percentage of telecommunications revenue, increased to 21.8% for
the nine months ended September 30, 1996 from 18.9% for the corresponding period
in 1995. The increase in general and administrative expenses (both actual and as
a percentage of revenue) was attributable primarily to an increase in personnel
costs associated with servicing a larger number of customers and increases in
business development expenses required to prepare for expansion of the
TelePassport Network and evaluation of prospective new markets.

Depreciation and amortization. Depreciation and amortization increased to
$0.5 million for the nine months ended September 30, 1996 from $0.3 million for
the nine months ended September 30, 1995. The

33
<PAGE> 37

increase was due primarily to depreciation of switched equipment and computers
and other equipment placed in service during the beginning of fiscal year 1996.

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

Telecommunications revenue. Telecommunications revenue increased $14.9
million, or 116.4%, to $27.6 million for the year ended December 31, 1995 from
$12.8 million for the year ended December 31, 1994. This increase was
attributable primarily to the increase in billable minutes which increased 20.9
million, or 175.6%, to 32.8 million billable minutes for the year ended December
31, 1995 from 11.9 million billable minutes for the year ended December 31,
1994. Telecommunications revenue derived from retail customers increased $10.2
million, or 98.1%, to $20.8 million for the year ended December 31, 1995 from
$10.5 million for the year ended December 31, 1994, while telecommunications
revenue derived from wholesale customers increased $4.6 million, or 200.0%, to
$6.9 million for the year ended December 31, 1995 from $2.3 million for the year
ended December 31, 1994. The increase in telecommunications revenue for the year
ended December 31, 1995 was achieved despite declining prices in both the retail
and wholesale sectors as a result of increased competition and deregulation of
certain foreign markets.

Cost of telecommunications services. Cost of telecommunications services
increased $11.2 million, or 125.4%, to $20.1 million for the year ended December
31, 1995 from $8.9 million for the year ended December 31, 1994, and, as a
percent of telecommunications revenue, increased to 72.6% for the year ended
December 31, 1995 from 69.7% for the year ended December 31, 1994. The increase
in cost of telecommunications services was attributable primarily to increased
traffic being handled by the Company and increased costs associated with the
expansion of the TelePassport Network. The increase in cost of
telecommunications services as a percent of telecommunications revenue was
attributable primarily to the greater increase in the wholesale business as
compared to the retail business. The wholesale business generates lower margins
than those derived from retail business.

Selling expenses. Selling expenses increased $0.9 million, or 52.9%, to
$2.6 million for the year ended December 31, 1995 from $1.7 million for year
ended December 31, 1994, and, as a percent of telecommunications revenue,
decreased to 9.3% for the year ended December 31, 1995 from 13.2% for the year
ended December 31, 1994. The increase in selling expenses was attributable
primarily to increased commissions of $1.0 million associated with the increase
in telecommunications revenue for the year ended December 31, 1995, as compared
to the year ended December 31, 1994. The decrease in selling expenses as a
percent of telecommunications revenue was primarily the result of the increase
in the wholesale business in 1995 on which the Company does not pay commissions.

General and administrative expenses. General and administrative expenses
increased to $5.3 million for the year ended December 31, 1995 from $5.2 million
for the year ended December 31, 1994, and as a percent of telecommunications
revenue, decreased to 19.4% for the year ended December 31, 1995 from 40.5% for
the year ended December 31, 1994. The increase in general and administrative
expenses was due primarily to increased salary expense associated with the
increase in number of employees. The significant decrease in general and
administrative expenses as a percent of telecommunications revenue in 1995, as
compared to 1994, was attributable primarily to the increase in
telecommunications revenue to $27.7 million in 1995 from $12.8 million in 1994.

Depreciation and amortization. Depreciation and amortization increased to
$0.4 million for the year ended December 31, 1995 from $0.1 million for the year
ended December 31, 1994. The increase resulted primarily from additions to
switching equipment in 1995 associated with the expansion of the TelePassport
Network.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred operating losses in each year since its inception
and expects that such losses will increase as the Company continues to build the
TelePassport Network and increase its customer base. Through September 30, 1996,
losses since inception totaled $12.1 million, and were $2.5 million, $3.4
million

34
<PAGE> 38

and $1.4 million in 1993, 1994 and 1995, respectively, and $4.8 million for the
nine months ended September 30, 1996.

Since inception, the Company has financed its working capital, operating
losses and capital expenditures primarily through capital contributions from its
founding stockholders, vendor lease financing and a bank line of credit in its
Japanese joint venture. Contributions from stockholders totaled $9.8 million at
September 30, 1996 and are $12.5 million to date. In June 1995, a consortium of
five Japanese banks extended a $5 million line of credit to TelePassport Japan
Co., Ltd. ("TelePassport Japan") which is secured by a guaranty from Asahi
Telecom (the "Joint Venture Loan"). The Joint Venture Loan is without recourse
to the Company, bears interest at the Japanese prime rate and is payable on
demand. As of September 30, 1996, the outstanding principal balance of the Joint
Venture Loan was $2.7 million and the applicable interest rate was 1.65%. In the
fourth quarter of 1996, the Company acquired PBXs and related equipment from a
major European equipment distributor. In connection therewith, such distributor
provided $0.4 million (based on the foreign currency exchange rate from the
Deutsche Mark to the United States Dollar in effect on December 31, 1996) of
lease financing which is repayable in 60 equal monthly payments terminating in
2001 and incurs interest at an effective annual rate equal to 6.45%.

Net cash (used in) operating activities was ($1.5) million in 1993, ($1.7)
million in 1994, ($0.1) million in 1995 and ($1.5) million for the nine months
ended September 30, 1996. Net cash provided by financing totaled $1.9 million in
1993, $2.3 million in 1994, $2.4 million in 1995, and $3.0 million for the nine
months ended September 30, 1996. Net cash used in investing activities was $0.3
million in each of 1993 and 1994, all of which was for capital expenditures,
$2.2 million in 1995, of which $1.7 million was for capital expenditures, and
$1.8 million for the nine months ended September 30, 1996, of which $1.6 million
was for capital expenditures. A substantial portion of the investing activity to
date has consisted of the purchase and deployment of switching equipment and the
cost of developing management information systems. The significant increase in
capital expenditures from 1994 to 1995 was attributable primarily to the
increase in expenditures associated with the expansion of the TelePassport
Network in 1995. During 1996, investment activity also included the cost of the
development of infrastructure for services to be provided under the USAFE
Contract.

As of September 30, 1996, the Company had $0.2 million in cash, although
the Company had a working capital deficit of $4.7 million.

The Company estimates that it will require approximately $ million
to fund its anticipated capital requirements until the end of 1999. This amount
includes an estimated $ million in capital expenditures, $
million for the acquisition of businesses or for investment in joint ventures
and strategic alliances (including $ for the Agent Acquisitions and
$3.2 million for the acquisition of a 10% interest in A.T. NET) and $
million for working capital requirements and general corporate purposes
including general and administrative expenses and funding operating losses. The
exact amount of the Company's future capital requirements, however, will depend
upon many factors, including the cost, timing and extent of upgrading and
expanding the TelePassport Network, the expansion of existing services and the
development of new services, the Company's ability to penetrate new markets,
regulatory changes, the status of competing services, the magnitude of potential
acquisitions, investments and strategic alliances and the Company's results of
operations. Variances in these and other factors could cause material changes in
the Company's actual capital requirements.

Of the $ million of capital required, approximately
$ million ($ million if the overallotment option is exercised
in full) will be funded by the Offering, assuming an offering price of
$ per share; approximately $ million is expected to be funded
by vendor lease financing; and approximately $ million is expected to
be funded through a working capital line of credit. The Company has not
initiated any formal discussions with any financial institution to obtain a
working capital facility and there can be no assurance that the Company will be
able to obtain a working capital facility on acceptable terms or at all. The
Company currently estimates that the net proceeds of the Offering, together with
borrowing capacity under an expected working capital line of credit and vendor
lease financing, will be sufficient to finance its capital requirements through
the end of 1998. For the balance of the capital required,

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the Company will be required to seek additional debt or equity financing. The
Company does not currently have any commitments for any additional debt or
equity financing and there can be no assurance that any financing will be
available to the Company or, if available, that it can be obtained on terms
acceptable to the Company. To the extent unexpected expenditures arise or the
Company's estimates of its capital requirements prove to be inaccurate, the
Company may require such additional financing sooner than anticipated and in
amounts greater than current expectations. See "Risk Factors--Substantial
Capital Requirements; Uncertainty of Additional Financing; Broad Discretion Over
Use of Proceeds; A.T. NET's Future Capital Requirements; and --Potential
Difficulties Associated with Implementing TelePassport Network Expansion
Strategy."

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THE INTERNATIONAL TELECOMMUNICATIONS INDUSTRY

OVERVIEW

The international telecommunications industry provides voice and data
transmission from one national telephone network to another. The industry has
experienced dramatic changes during the past decade that have resulted in
significant growth in the use of services and in enhancements to technology.
Whether in terms of revenue or traffic volume, the industry is expecting similar
growth in the foreseeable future. According to the International
Telecommunications Union ("ITU"), a worldwide telecommunications organization
under the auspices of the United Nations, the international telecommunications
industry accounted for $55 billion in revenues and 60.3 billion minutes of use
in 1995, up from $21.7 billion in revenues and 16.7 billion minutes of use in
1986, representing compound annual growth rates of 11% and 15%, respectively.
The ITU projects that revenues will approach $76 billion by the year 2000 with
the volume of traffic expanding to 107 billion minutes of use, representing
compound annual growth rates of 12% from 1995. The market for telecommunications
services is highly concentrated, with Europe and the United States accounting
for approximately 43% and 26%, respectively, of the industry's worldwide minutes
of use in 1995. AT&T Corp. ("AT&T"), DT, MCI, France Telecom S.A. ("France
Telecom") and BT generated approximately 40% of the aggregate international long
distance outgoing traffic minutes in 1995. Austria, Germany, Switzerland, the
United Kingdom and Japan, the Company's core target markets, accounted for
approximately 1.5%, 8.7%, 2.9%, 6.7% and 2.7%, respectively, of the
international long distance outgoing traffic minutes in 1995.

Growth and change in the international telecommunications industry have
been fueled by a number of factors, including greater consumer demand,
globalization of the industry, increases in international business travel,
privatization of ITOs, and growth of computerized transmission of voice and data
information. These trends have sharply increased the use of, and reliance upon,
telecommunications services throughout the world. The Company believes that at
the same time, businesses and residential customers have encountered higher
prices with poorer quality and service which were, and in some cases still are,
characteristic of many ITOs. Demand for improved service has created
opportunities for private industry to compete in the international
telecommunications market. Increased competition, in turn, has spurred a
broadening of products and services, and new technologies have contributed to
improved quality and increased transmission capacity and speed.

Consumer demand and competitive initiatives have also acted as a catalyst
for government deregulation, especially in developed countries. Deregulation
began in the United States in 1984 with the divestiture of AT&T and the spin-off
of the Regional Bell Operating Companies ("RBOCs"). Equal access to customers
followed thereafter for all United States carriers. Deregulation began in the
United Kingdom with the privatization of BT, also in 1984. Deregulation spread
to Europe with the adoption of the EU "Directive on Competition in the Markets
for Telecommunication Services" in 1990. A series of subsequent EU directives,
reports and actions are expected to result in substantial deregulation of the
telecommunications industries in most EU countries by 1998. A similar movement
toward deregulation is taking place in Japan. Other governments have begun to
allow competition for value-added and selected other telecommunications services
and features, including data and facsimile services and certain restricted voice
services. In many countries, however, the rate of change and emergence of
competition remain slow and the timing and extent of future deregulation is
uncertain. See "Regulation of the International Telecommunications Industry."

TRADITIONAL INTERNATIONAL LONG DISTANCE SETTLEMENT MECHANICS

An international long distance telephone call consists of three parts:
origination, transport and termination. Generally, an international long
distance call originates on a local exchange and is transported to the network
of an international long distance carrier in the originating country and then to
an international long distance carrier in the terminating country. The first
international long distance carrier transports the call from the country of
origination, and the second international long distance carrier transports the
call to a local exchange in the country of termination.

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Traditionally, international long distance traffic is exchanged pursuant to
bilateral correspondent agreements among international carriers. Correspondent
agreements provide for the termination of traffic in, and return traffic to, the
carriers' respective countries at a negotiated rate per minute referred to as
the Total Accounting Rate ("TAR"). Correspondent agreements typically provide
that a carrier will return to its correspondent a percentage of the minutes
received from such correspondent ("return traffic"). In the United States, the
FCC's International Settlement Policy states that United States carriers must
receive inbound return traffic in exchange for each outbound minute sent to a
correspondent carrier. The proportionate return traffic that a United States
carrier receives is based upon the carrier's market share. Typically, a United
States carrier's market share, for the purpose of calculating proportionate
inbound return traffic, is derived by comparing the carrier's volume of outbound
minutes sent to a correspondent with the total volume of outbound minutes sent
by all United States carriers to the same correspondent over a period of time.
For example, if during a particular month United States carrier A sends 100,000
minutes of outbound traffic to a correspondent and all United States carriers as
a group send 1,000,000 minutes of outbound traffic to the same correspondent,
then carrier A's market share is said to be 10%. Carrier A would then expect to
receive, as proportionate return inbound traffic, 10% of the total volume of
minutes that the correspondent has to send to all United States carriers for
termination in the United States. A call made from the United States to a
foreign country is referred to as outbound traffic for the United States carrier
and inbound traffic for the foreign carrier. Outbound traffic from the United
States is significantly higher than inbound return traffic. In the United
States, inbound return traffic is generally more profitable than outbound
traffic because the margin between the inbound settlement rate per minute and
the carrier's cost to terminate calls in the United States is higher than the
margin between the collection rate (the rate charged by the carrier to its
customer) and the outbound settlement rate per minute.

Correspondent agreements also provide for network coordination and
accounting and settlement procedures between carriers. Settlement costs, which
typically equal one-half of the TAR, are the fees owed to another international
carrier for transporting traffic on its network. Settlement costs are reciprocal
between each party to a correspondent agreement at a negotiated rate. The FCC
mandates that United States based carriers must charge the foreign carrier the
same rate to terminate a call in the United States as that foreign carrier
charges the United States carrier to terminate a call in the foreign country.
Further, while all United States carriers must have the same TAR with a given
carrier, the TAR varies from country to country. As a result, a United States
carrier could have a different TAR than a United Kingdom carrier for exchanging
similar traffic into a third country. Settlement costs arise because carriers
pay each other on a net basis determined by the difference between the inbound
and outbound traffic between them. Under the settlement process, a carrier which
originates more traffic than it receives will make net payments to the
corresponding carrier, while a carrier which receives more traffic than it
originates will receive payments from the corresponding carrier. If the incoming
and outgoing flows of traffic are equal in the number of minutes, there is no
net settlement payment.

The profitability of an international long distance company with
correspondent agreements that provide for return traffic will be a function of
the volume of its outbound traffic and its end user billing rates, as well as
the relative volume of its outbound and inbound traffic minutes. Thus, an
important factor that can influence the profitability of an international
carrier is the proportion of high margin inbound minutes. A carrier which does
not have a correspondent agreement with a carrier in a particular country is
able to provide international service to that country by leasing transmission
facilities or reselling switched minutes from a carrier which does. The
profitability of these calls for such a carrier is determined by the difference
between the carrier's end user billing rates and the rates it must pay another
carrier to transport and terminate such traffic.

The Company currently has no correspondent agreements with any country.
Rather, it both leases transmission facilities and resells switched minutes from
carriers that have correspondent agreements. By aggressively negotiating resale
agreements, the Company exploits the economic incentive of a carrier with a
correspondent agreement to increase incoming traffic. The resold call volume
increases the market share for the correspondent agreement carrier to a
particular country, thereby increasing such carrier's proportionate return
traffic under the TAR settlement process. The Company may in the future,
however, enter into correspondent agreements if such agreements would improve
the Company's profitability over these routes.

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COMPETITIVE OPPORTUNITIES AND ADVANCES IN TECHNOLOGY

The combination of a continually expanding global telecommunications
market, consumer demand for lower prices with improved quality and service and
ongoing deregulation has created competitive opportunities in many countries.
Further, as more small and medium-sized businesses and residential customers
have come to rely on international telecommunications services for their
business and personal needs, an increasingly diverse and sophisticated customer
base has generated demand for a far greater variety of products and services.
Increased competition has also resulted in improved quality of service at lower
prices. Similarly, new technologies, including fiber optic cable and
improvements in digital compression, have improved quality and increased
transmission capacities and speed, with transmission costs decreasing as a
result. Overall, these changes have resulted in a trend towards bypassing
traditional international long distance settlement mechanics as international
long distance companies seek to operate more efficiently.

Advances in technology have created multiple ways for telecommunications
carriers to provide customer access to their networks and services. These
include customer-paid local access, domestic and international toll-free access,
direct digital access through a dedicated line, equal access through automated
routing from the PSTN and call reorigination. The type of access offered depends
on the proximity of switching facilities to the customer, the needs of the
customer, and the regulatory environment in which the carrier competes. In a
deregulated country such as the United States, carriers can establish switching
facilities, own or lease fiber optic cable, enter into operating agreements with
foreign carriers and, accordingly, provide direct access service. In markets
that have not deregulated or are slow in implementing deregulation, such as
South Africa, international long distance carriers have used advances in
technology to develop innovative alternative access methods, such as call
reorigination. In other countries, such as Japan and most EU member states,
where deregulation is imminent but not complete, carriers are permitted to offer
facilities-based data and facsimile services, as well as limited voice services
including those to CUGs, but are as yet precluded from offering full Voice
Telephony. As countries deregulate, the demand for alternative access methods
typically decreases as carriers are permitted to offer a wider range of
facilities-based services.

The most common form of alternative access, call reorigination, avoids the
high international rates offered by the ITO in a particular regulated country by
providing dial tone from a deregulated country, typically the United States. To
place a call using call reorigination, a user dials a unique phone number to an
international carrier's switching center and then hangs up after it rings. The
user then receives an automated callback to a pre-programmed number providing
dial tone which enables the user to place a call. Technical innovations, ranging
from inexpensive dialers to sophisticated in-country switching platforms, have
enabled telecommunications carriers to offer a "transparent" form of call
reorigination. The customer dials the international number in the usual fashion,
without the "hang-up" and "callback," and the international call is
automatically and swiftly processed.

The fundamental changes occurring in the worldwide telecommunications
market and the related growth in the worldwide customer base have created a
large and diverse international telecommunications market. The market is
increasingly served by a wide range of telecommunications providers, many of
which seek to focus on only a limited segment of the overall market. ITOs and
major global carriers typically concentrate their efforts on multinational
companies and other high volume long distance telephone users that demand high
quality and service and which are often less cost sensitive. These providers
typically invest substantial capital to construct and operate high quality
networks throughout the world. Given the scale of their operations, these large
carriers are economically discouraged from effectively serving small or
medium-sized businesses. Many smaller entrepreneurial carriers, such as the
Company, concentrate on serving the international long distance needs of small
and medium-sized business and residential customers who have significant
international long distance traffic. Many of these smaller carriers work in
cooperation with, and/or rely upon facilities and services provided by, larger
carriers, but do not generally compete directly against them in their primary
markets.

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BUSINESS
OVERVIEW

The Company operates the TelePassport Network, a digital switch-based
telecommunications network connected by leased fiber optic transmission
facilities. The TelePassport Network currently has international gateway
switching centers in New York and Tokyo. In addition, the Company has switching
facilities in London, Frankfurt and Vienna. The Company intends to use a
significant portion of the net proceeds of the Offering to expand and upgrade
the TelePassport Network. A state-of-the-art central switching center and
network management facility is under construction in New Jersey to replace the
New York international gateway switching center. The Company intends to further
develop the TelePassport Network by upgrading existing facilities and by adding
switching facilities in up to 30 additional cities over the next three years.
These switching facilities will be located principally in primary markets where
the Company has an established customer base or has existing key contracts, as
well as in secondary markets in proximity to the Company's primary markets. In
areas in which the Company believes it is not optimal to own network facilities,
the Company typically enters into agreements to resell the facilities of other
operators to enhance the TelePassport Network. See "--The TelePassport Network."

The Company provides international long distance services with value-added
features primarily under the "TelePassport" brand. The Company believes its
services are typically competitively priced below those of the ITOs. Customer
access to the TelePassport Network and the Company's services may be obtained
through customer-paid local access, domestic and international toll-free access,
direct digital access through dedicated lines for high volume business users,
equal access through automated routing from the PSTN, or call reorigination. The
availability of a particular access method in any geographic area is governed by
local laws and regulations, customer size and the degree to which the Company
has infrastructure to support the access method in such area. The Company's
services include VPN services, customized calling cards and prepaid debit cards.
The Company also offers value-added features such as itemized billing and
multiple payment methods. In addition, the Company provides application platform
services and resells switched minutes on a wholesale basis to other
telecommunications providers and carriers. See "--Services."

The Company believes that Japan and certain other Asian countries provide
the Company with significant opportunities for growth. In order to facilitate
entry into the Japanese telecommunications market, the Company has established
strategic relationships with certain Japanese telecommunications providers.
Since March 1995, the Company and Asahi Telecom have operated a joint venture
providing international long distance services in Japan. Asahi Telecom is owned
approximately 30% by Japan Telecom and 10% by NEC, and is a leading long
distance reseller and NEC PBX distributor in Japan. Asahi Telecom recently
commenced the construction of a nationwide network and began offering one of
Japan's first integrated national and international long distance
telecommunications services through its wholly owned subsidiary, A.T. NET. In an
effort to enhance its presence in the Japanese telecommunications market, in
December 1996 the Company and Asahi Telecom reached an agreement in principle to
enter into the A.T. NET Agreements under which the Company will take the place
of the joint venture as the exclusive carrier of international long distance
traffic for A.T. NET and will receive preferential pricing as a reseller of A.T.
NET's national long distance services in Japan. To the extent allowed by
applicable regulations, the Company intends to resell A.T. NET's national long
distance services and offer, along with its own international long distance
services, an integrated TelePassport national and international long distance
service primarily to non-Japanese companies located in Japan, a significant
customer segment that A.T. NET does not currently target. The Company believes
that such arrangements will also provide it with an added competitive advantage
with respect to the Company's wholesale business by allowing it to originate and
terminate international traffic cost effectively from and to major metropolitan
areas of Japan. The Company will also be the exclusive provider of national and
international long distance customized calling cards and prepaid debit cards to
be

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marketed by A.T. NET. In addition, A.T. NET will grant the Company an option,
which the Company intends to exercise, to acquire a 10% ownership interest in
A.T. NET and which will entitle the Company to appoint one representative to
A.T. NET's board of directors. As part of the A.T. NET Agreements, the Company
is also negotiating an arrangement that would allow the Company to take
advantage of A.T. NET's Special Type II registration, which would permit the
Company to provide additional telecommunications services in Japan. The A.T. NET
Agreements are intended to supersede the joint venture arrangement and, upon
effectiveness of the agreements, the joint venture will be liquidated. The
Company believes that its relationship with Asahi Telecom and an ownership
interest in A.T. NET will provide the Company with a greater opportunity to
competitively penetrate the Japanese market and advance the TelePassport brand.
The Company intends to utilize the TelePassport brand recognition that it is
creating in Japan as a platform from which to expand into other targeted Asian
countries. See "--Japan and Asahi Telecom" and "Regulation of the International
Telecommunications Industry."

In addition to targeting small and medium-sized businesses and residential
customers, the Company markets its services to supra-national and governmental
organizations. The Company believes that contracts to provide services to such
entities are strategically important because they present the Company with the
opportunity to establish a high profile in the regions surrounding the locality
of each contract, enhancing opportunities for new customer development. In
addition, contracts of this type will usually require the Company to establish
switching facilities and other infrastructure which the Company can also utilize
to expand its customer base in the region. In May 1996, the Company was awarded
the USAFE Contract to provide, on a ten-year basis, local exchange and national
and international telecommunications services to the temporary lodging
facilities on currently up to 16 USAFE bases. Under the terms of the USAFE
Contract, the Company, to date, has received delivery orders for four bases in
Germany and one base in Italy and has received RFPs for 10 bases: three in
Germany, five in the United Kingdom, one in Spain and one in Turkey. The Company
has completed the installation of a telecommunications system providing voice
and data service to the temporary lodging facilities at the Ramstein Air Force
Base in Germany. The Company expects to complete the installation of systems at
10 additional bases by the end of 1997. The Company believes that the USAFE
Contract will also provide an opportunity to expand its services to the
permanent dormitories at USAFE bases. In addition, pursuant to the terms of the
USAFE Contract, certain agencies within the other branches of the United States
armed forces in Europe have the option to designate the Company as a supplier of
telecommunications services and to present delivery orders for certain of their
facilities. The Company intends to take advantage of this provision by actively
pursuing delivery orders from other United States military facilities in Europe.
Further, the Company is the preferred supplier of call reorigination services
for offices of certain UN agencies and their affiliates in over 100 countries
and for other supra-national food, health, fiscal and labor organizations. The
Company is using its contacts from certain of these UN agencies to further
develop its customer base by establishing a high profile in local regions
surrounding the UN field offices. See "--The USAFE Contract; and --The UN
Arrangements."

The Company typically relies on local independent sales agents for
distribution of its services. In locations the Company deems strategic, the
Company generally seeks to integrate distribution and interface directly with
its customers by acquiring independent agents, establishing country managers,
and/or creating direct sales organizations. The Company believes that the
integration of its distribution network will give it greater control over its
sales and marketing functions and provide a higher level of service to its
customers. Accordingly, in October 1996, the Company entered into a Memorandum
of Understanding to acquire all the capital stock of TelePassport Germany, its
independent agent in Germany. Further, the Company is in negotiations to
purchase all the assets of TelePassport Switzerland, its independent agent in
Switzerland. The Agent Acquisitions are expected to be consummated concurrently
with the closing of the Offering.

An important element of the Company's business plan is the pursuit of
strategic acquisitions, investments and alliances. In addition to its strategic
alliance with Asahi Telecom, the Company is currently negotiating with a
potential local partner to market TelePassport services in Saudi Arabia and
other Middle Eastern Countries. Also in January 1997, the Company entered into
the Intelenet Agreement pursuant to which Intelenet granted the Company an
option to purchase Intelenet's customer accounts and telecommunications
equipment in various locations in Italy.

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MARKET OPPORTUNITY

The Company seeks to capitalize on the fundamental changes occurring in the
telecommunications industry. The Company believes it is strategically positioned
to take advantage of these fundamental changes for the following reasons:

- The Company's services are sold in over 100 countries, primarily under
the "TelePassport" brand, which the Company can leverage as it expands
into new locations and introduces additional services;

- Contracts and arrangements with governmental and supra-national
organizations, such as the USAFE Contract and the UN Arrangements,
present the Company with long-term revenue potential, and opportunities
to enhance its reputation and profile in underserved areas;

BUSINESS STRATEGY

- Expanding the TelePassport Network. The Company seeks to deliver high
quality, reliable telecommunications services using its state-of-the-art
TelePassport Network. The Company is constructing an advanced central
switching center and network management facility in New Jersey to replace
its international gateway in New York. The Company intends to further
develop the TelePassport Network by upgrading existing facilities and by
adding switching facilities in up to 30 additional cities over the next
three years. These will be located principally in primary markets where
the Company has an established customer base or has existing key
contracts, as well as in secondary markets in proximity to the Company's
primary markets. The Company believes that competition will be slower to
develop in the regional secondary markets as other larger carriers will
likely concentrate on larger metropolitan areas. The Company also plans
to invest in digital undersea fiber optic cable and lease IPLCs in order
to cost effectively interconnect the expanding TelePassport Network
switching facilities. See "Risk Factors--Rapid Changes in Technology and
Customer Requirements," "Use of Proceeds" and "--The TelePassport
Network."

- Maximizing Operating Efficiencies and Enhancing Information Systems. The
Company intends to continue its attempts to reduce the costs of providing
its services by achieving economies of scale in the use of the
TelePassport Network. By integrating its current and proposed switching
facilities, the Company believes that it will ultimately be able to
originate, transport and terminate a larger proportion of its traffic
over the TelePassport Network, thereby bypassing the higher costs
associated with use of other carriers' switched networks. Integration is
expected to significantly reduce the cost structure for calls originating
and terminating in markets in which the Company has switching facilities.
In order to reduce the cost structure for calls not carried on the
TelePassport Network, the Company will continue to attempt to
aggressively negotiate favorable reseller contracts with major

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carriers. The TelePassport Network's utilization of least cost routing
("LCR") is designed to route traffic to minimize the cost per call. In
addition, the Company seeks to optimize its leased line utilization by
balancing telecommunications traffic during business hours with night and
weekend off-peak traffic from alternative sources such as the USAFE
Contract and residential customers. Furthermore, the Company plans to
continue to invest substantial capital and resources to enhance its
information systems to rapidly and economically enter orders and activate
new customers, improve customer service, and improve sales tracking and
forecasting. See "Risk Factors--Dependence on Effective Information
Systems," "Use of Proceeds," "--The USAFE Contract; --The TelePassport
Network; and --Information Systems."

- Integrating its Distribution Network. In locations the Company deems
strategic, the Company generally intends to integrate its distribution
and interface directly with customers by acquiring independent sales
agents, establishing country managers and/or creating direct sales
organizations. The Company anticipates that the integration of its
distribution network will give it greater control over its sales and
marketing functions and provide a higher level of service to its
customers. See "Risk Factors--Risks Associated With Acquisitions,
Investments and Strategic Alliances" and "--Sales and Marketing."

- Targeting Small and Medium-Sized Businesses with a Wide Range of
Services. The Company intends to continue to focus on small and
medium-sized businesses and residential customers with significant
international long distance traffic. The Company believes that these
customers tend to be focused principally on quality service at low prices
and have traditionally been underserved by the ITOs and the major global
telecommunications carriers. In order to attract such customers, who
typically require a full-service telecommunications provider, the Company
intends to continue to provide a wide range of services. The Company will
seek to bundle its international long distance services with the national
long distance services of other carriers to provide its customers with an
integrated "one-stop shop" long distance service. In addition, the
Company offers a variety of other services such as customized calling
cards and prepaid debit cards, and plans to introduce additional
customer-driven services in the future. See "Risk Factors--Rapid Changes
in Technology and Customer Requirements," "--Sales and Marketing; and
--Services."

- Expanding the Government Services and Supra-National Sectors. The Company
intends to continue targeting governmental and supra-national
organizations. It has established a specialty marketing group to seek
additional military and government contracts. The Company believes that
contracts to provide services to such entities present the Company with
the opportunity to establish a high profile in the regions surrounding
the locality of each contract, enhancing opportunities for new customer
development. Further, major contracts of this type will usually require
the Company to establish switching facilities and other infrastructure
which the Company can then utilize to expand its customer base in the
region. In addition, the Company seeks to identify other specialty
markets which may provide the Company with similar benefits. See "--Sales
and Marketing; and --Services."

- Expanding Distribution, Customer Bases and Brand Recognition through the
Use of Call Reorigination. By relying on a network of local independent
agents, the Company intends to continue to use call reorigination, which
does not require significant resource and capital investment, to expand
the TelePassport brand worldwide in existing and new markets. The Company
believes that call reorigination has an extended product life in markets
that are not deregulating, are slow in implementing deregulation or are
outside of major cities. The Company intends to leverage the customer
base, distribution, experience and knowledge gained from its call
reorigination efforts to identify private contract opportunities and
markets in which it believes it can make profitable investments in
infrastructure. As such markets move toward deregulation, the Company
intends to migrate its call reorigination customers to facilities-based
services. See "--Sales and Marketing; and --Services."

- Expanding Wholesale Services. The Company intends to expand the resale of
switched minutes to other telecommunications carriers and resellers on a
wholesale basis. Although this category of traffic realizes lower margins
than other services provided by the Company, it provides a source of
additional

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revenue and adds significant minutes originating and terminating on the
TelePassport Network, thereby enhancing the Company's purchasing power
for leased lines and switched minutes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

- Pursuing Acquisitions, Investments and Strategic Alliances. The Company
intends to enter new markets and expand its current operations through
selective acquisitions, investments or strategic alliances of businesses
or customer bases that complement the Company's current operations or
capabilities. The Company is continuously reviewing opportunities and
believes that such acquisitions, investments and strategic alliances are
an important means of increasing network traffic volume and achieving
economies of scale. The Company believes that its management's extensive
entrepreneurial, operational, technical and financial expertise will
enable the Company to identify and rapidly address such opportunities.
See "Risk Factors--Risks Associated With Acquisitions, Investments and
Strategic Alliances."

SALES AND MARKETING

The Company provides its services on a retail basis in more than 100
countries, primarily under the "TelePassport" brand, at prices that it believes
are typically competitively priced below those of the ITOs. The Company also
sells its services under the name MasterCall as an "off brand" service
principally designed to address distributor conflicts and to permit experimental
services without risking the TelePassport brand. The Company's retail services
are generally marketed toward medium-sized businesses with international long
distance telecommunication charges in excess of $1,500 per month, small-sized
businesses with charges in excess of $250 per month and residential users with
charges in excess of $50 per month. In addition to targeting small and
medium-sized businesses and residential customers with significant international
long distance traffic, the Company markets its services to supra-national and
governmental organizations. The Company also provides application platform
services and resells switched minutes on a wholesale basis to other
telecommunications providers and carriers. Currently, no customer of the Company
individually accounts for more than 10% of the Company's telecommunications
revenue. The Company markets its retail, governmental and supra-national
organizations and wholesale services through a variety of distribution channels,
including independent agents, direct sales forces and joint ventures and other
strategic relationships. The Company's use of these distribution channels varies
from market to market.

The Company intends to support the planned expansion of the TelePassport
Network with the recruitment and training of additional marketing and sales
personnel, including regional distribution managers. Further, the Company
intends to enhance its marketing efforts by expanding its product management
department, which currently consists of two full-time employees in New York.

Retail Services

For distribution of TelePassport retail services, the Company generally
relies on independent local sales agents. In locations the Company deems
strategic, the Company seeks to integrate its distribution by either acquiring
independent sales agents, establishing country managers and/or creating direct
sales organizations. As the Company integrates its distribution in selected
locations and replaces or integrates local agents with its own sales
organization, employees of the Company, rather than the independent agents and
their personnel, will interface directly with its customers. The Company has
entered into a Memorandum of Understanding to acquire all the capital stock of
TelePassport Germany and is in negotiations to purchase all the assets of
TelePassport Switzerland. The Agent Acquisitions are expected to be consummated
concurrently with the closing of the Offering. In addition, in January 1997, the
Company entered into the Intelenet Agreement pursuant to which, for $35,000, the
Company acquired an option to purchase Intelenet's customer accounts and
telecommunications equipment in various locations in Italy. The option is
exercisable until 30 days after the consummation of this Offering for an
aggregate price equal to (i) the cost of Intelenet's equipment, less $10,000,
which is payable in cash upon exercise of the option, and (ii) an amount,
payable in three installments, equal to a percentage of the revenues generated
by Intelenet's customers in three of the nine months following the installment
of new switching facilities. The Company has also agreed to enter into a one-

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year employment agreement with the President of an affiliate of Intelenet. See
"Risk Factors--Risks Associated With Acquisitions, Investments and Strategic
Alliances."

Independent local sales agents are paid a variable percentage of collected
revenue and, in general, are only granted nonexclusive sales rights, are not
required to meet minimum sales quotas and are selectively authorized to sell
competitors' services. The Company currently has a total of approximately 200
independent sales agents serving its worldwide market in over 100 countries.
Customers of TelePassport Southern Africa (Pty.) Ltd. and TelePassport Germany,
two independent agents of the Company, and MasterCall, Ltd., an agent in which
the Company acquired a controlling interest in May 1995, generated 4.4%, 13.6%
and 22.0%, respectively, of the Company's telecommunications revenues for the
year ended December 31, 1994, 9.6%, 15.1% and 8.9% for the year ended December
31, 1995, and 12.2%, 17.1% and 5.1% for the nine months ended September 30,
1996.

New agents are recruited through local advertising by the Company and
referrals from existing agents and customers. Distribution managers screen
prospective agents based on their prior experience in telecommunications or
related industries and their distribution strategies, business plans,
credit-worthiness and ability to finance their operations. The Company provides
training for new agents, focusing particularly on the TelePassport services and
provisioning new customers. In addition, agents are provided informational
updates and training materials on an ongoing basis. Agents are required to
prepare periodic revenue forecasts.

The Company utilizes its independent local sales agents to provide the
first line of customer service, enabling the Company to deliver such service
cost effectively, in local languages and during local business hours. Agents are
currently supported by one full-time international distribution manager located
in New York and a department of 11 agent support representatives also based in
New York. Each new agent is assigned to a dedicated agent support
representative. The Company's agent support representatives enter orders,
activate new customer accounts and provide product, billing inquiry and
resolution assistance to agents and to customers referred by agents. In support
of the multilingual requirements of an international distribution network, agent
support representatives are fluent in many languages including English, Chinese,
French, German, Italian and Japanese. The Company plans to increase the number
of agent support representatives and to establish regional customer service
support centers in Germany, the United Kingdom and Japan. The Company also
provides extensive marketing support to its agents including design, production
and distribution of corporate brochures and product and market-specific
materials, planning and promotion for, and participation in, trade show and
special events, targeted advertising, promotional campaigns and direct mail
programs.

Governmental and Supra-National Organizations Services

The Company currently employs two full-time employees based in Germany
responsible for direct sales to, and support of, government and supra-national
contracts such as the USAFE Contract. In addition, the Company employs a
full-time sales manager located in New York and a full-time support
representative also located in New York to coordinate sales and maintenance
activities for the UN Arrangements. The Company supports its sales efforts by
leveraging existing customer relationships and through marketing initiatives
that include targeted direct mail campaigns, advertising in publications that
serve government and supra-national organizations, follow-up telephone sales,
and participation in seminars and conferences sponsored by government and
supra-national organizations. In addition, the Company publishes
industry-related articles on technology and trends in relevant publications to
increase exposure and build its corporate image.

Wholesale Services

The Company employs one full-time director of international carrier
relations located in New York to manage the Company's developing relationships
with ITOs and alternative international telecommunications providers, and one
full-time sales representative based in New York to manage the Company's United
States carrier relationships. In addition, the Company employs one full-time
sales representative and one dedicated support representative in New York for
its wholesale platform services business. The Company's strategy with respect to
its wholesale services is to pursue bilateral buy/sell arrangements wherever
practicable. Toward that end, the Company participates in domestic and
international carrier membership organizations and related

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forums and seminars. The Company also submits position papers on industry topics
to various industry forums and is frequently invited to participate on panels at
industry-sponsored events. Resellers of the Company's platform services are
provided training with respect to service applications, maintenance procedures
and the automated provisioning process.

Strategic Relationships

The Company will continue to pursue joint ventures and strategic
relationships in order to sell its telecommunications services in selected
markets. The Company believes that these relationships may expedite or expand
penetration into a particular market. For example, the Company's relationship
with Asahi Telecom has provided the Company with a telecommunications partner
with access to established distribution in the Japanese market. In addition, the
Company is currently negotiating with a potential local partner to market
TelePassport services in Saudi Arabia and other Middle Eastern countries. The
Company has also entered into a relationship with a vendor of PBX and related
equipment in Austria whereby such vendor promotes the Company's services to its
customers and prospects as part of an integrated package. Such relationships are
also being pursued with organizations offering similar services in the United
Kingdom and other European countries. In addition, the Company is currently
developing an affinity program with a hospitality services organization located
in Europe that provides on-line reservation services to hotels, their business
and private traveler customers, and travel agencies. The Company is pursuing
independent agent relationships with franchisees of such organization to
facilitate entry into the hotel/travel services market. The Company intends to
market its travel calling card and prepaid debit card services through
associated traveler membership organizations, providing value-added services and
premium promotional offerings such as frequent hotel guest discounts and related
travel packages, including rail, air and car rentals. See "--Japan and Asahi
Telecom."

Corporate Communications

The Company employs a full-time manager for its corporate communications
department based in its New York headquarters to promote the Company's corporate
image and the TelePassport brand. The Company's corporate communications efforts
include public relations, web site development, advertising, direct mail and
promotional campaigns. The Company also plans, sponsors and participates in
trade shows, seminars and special events, designs and develops product packaging
and designs market-specific promotional programs and materials. The Company
expects to expand its corporate communications department to three full-time
employees in New York and expects to recruit an analyst and specialist in global
regulatory trends and requirements.

SERVICES

The Company provides international long distance services with value-added
features on a retail basis to small and medium-sized businesses and residential
customers, and also provides such services to supra-national and governmental
organizations. Customer access to the TelePassport Network and the Company's
services may be obtained through customer-paid local access, domestic and
international toll-free access, direct digital access through a dedicated line
for high volume business users, equal access through automated routing from the
PSTN, or call reorigination. The availability of a particular access method in
any geographic area is governed by local laws and regulations, the volume of a
customer's international long distance traffic and the degree to which the
Company has infrastructure to support the access method in such area. The
Company's services include VPN services, customized calling cards and prepaid
debit cards. The Company offers value-added features such as itemized billing
and multiple payment methods. The Company also provides application platform
services and resells switched minutes on a wholesale basis to other
telecommunications providers and carriers. See "Risk Factors--Substantial
Government Regulation" and "Regulation of the International Telecommunications
Industry."

TelePassport retail services accounted for $18.3 million, or 65.8%, of the
Company's telecommunications revenue for the nine months ended September 30,
1996, as compared to $14.7 million, or 74.6%, for the corresponding period in
1995. Historically, the majority of the Company's telecommunications revenue has
been derived from the sale of call reorigination services. As additional markets
deregulate and the Company

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expands the TelePassport Network within those markets, the Company anticipates
that the percentage of telecommunications revenue derived from dedicated or
switched access services will increase and the percentage of telecommunications
revenue from call reorigination services will decrease. Sales to supra-national
and governmental agencies accounted for $1.2 million, or 4.3%, of the Company's
telecommunications revenue for the nine months ended September 30, 1996, which
included sales of $0.4 million derived from a VPN contract with certain UN
organizations and sales of retail services of $0.8 million (also included in the
$18.3 million above). The Company did not have any such sales during the
corresponding period in 1995. Wholesale services accounted for $9.1 million, or
32.7%, of the Company's telecommunications revenue for the nine months ended
September 30, 1996, as compared to $5.0 million, or 25.4%, for the corresponding
period in 1995. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

Retail Services

TELEPASSPORT WORLD Call reorigination service for voice and fax calling.
The TelePassport New York international gateway "reoriginates" the call, causing
the call to be placed from the United States rather than from the foreign
country. The Company is able to take advantage of competitive United States
rates, the Company's volume buying power and the LCR utilized in the
TelePassport Network, to reduce its costs and offer lower prices to the
customer. In addition to the price savings to the customer, the Company believes
that, compared to many foreign telephone companies, TelePassport World also
provides an improvement in the quality of the communication because of the
Company's access to fiber optic routes out of the United States. TelePassport
World offers many enhanced features including personalized voice prompts, which
permit call back at a specified extension in a choice of eight languages, remote
programmable service, which allows the flexibility of selecting the call back
number, real time rating for remaining credit for prepaid debit cards and
prepaid accounts and fraud protection for billed accounts, and comprehensive
billing reports detailing each call. TelePassport World can technically be used
from any country in the world to make a call to any country in the world.

TELEPASSPORT VPN Virtual private network services for voice, fax and data
communications between and among various sites on a private network, and voice
and fax communications from any site on the virtual private network to any
worldwide destination. TelePassport VPN services provide dedicated access to a
TelePassport Network switching facility and then to a pre-defined group of
locations within a CUG that can be modified as required, subject to regulatory
limitations. This service entails some degree of customization to meet the needs
of the customer, including specialized dialing plans, requires individual
proposals and contract negotiations, and some installation of equipment at
customer locations. The service can be designed so that all costs are translated
to per minute charges in the same format as the local ITO, or so that the
customer pays a monthly access fee and a lower per minute cost. TelePassport VPN
is targeted at large businesses with significant international long distance
telecommunication charges.

TELEPASSPORT DIRECT Dedicated access service for voice and fax calling
from a single site to any destination worldwide. TelePassport Direct supports a
dedicated connection from the customer's PBX to the TelePassport switch. Due to
the higher costs associated with the dedicated connection, the Company only
markets TelePassport Direct to business customers with significant international
long distance telecommunication charges.

TELEPASSPORT CONNECT Local, customer-paid or domestic toll-free access
services for voice and fax calling. TelePassport Connect is offered in countries
where existing or imminent deregulation has made possible the installation of
switching facilities and has opened the market for competitive switched access.
The Company currently sells TelePassport Connect in the United States, the
United Kingdom and Japan.

TELEPASSPORT ONE Direct outbound telecommunications service for voice and
fax. Switched or dedicated access permits the customer to use TelePassport
through the automatic routing from the PSTN to TelePassport switching facilities
("Equal Access"), after dialing a four or five number code where Equal Access is
unavailable, or through a dedicated connection to the Company's switching
facilities. The Company

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currently offers this service in New York, and plans to introduce this service
in the United Kingdom during the first quarter of 1997.

TELEPASSPORT EXPRESS An international calling card enabling a customer to
place phone calls and send faxes from approximately 40 countries worldwide to
any destination without incurring long distance charges to the phone used.
TelePassport Express utilizes international toll-free numbers to access the
TelePassport Network. The Company targets TelePassport Express to frequent
business travelers and vacationers.

TELEPASSPORT POWER CARD An international prepaid calling card. Similar to
TelePassport Express, the TelePassport Power Card enables the customer to make
phone calls and send faxes from approximately 40 countries worldwide to any
country in the world, offering savings and convenience for international
calling. It is sold in various denominations and currencies. The Company broadly
targets the TelePassport Power Card to small and medium-sized businesses, as
well as to specific groups of residential customers, including migrant
population markets, students, collectors, and vacationers and other occasional
travelers. The Company also markets the TelePassport Power Card to organizations
for promotions and other private label opportunities, offering card design,
production and promotional services.

TELEPASSPORT POWER LINE Voice and fax communications from any phone in an
origination country to a single, predetermined phone or fax machine anywhere in
the world, through local customer-paid access or national or international
toll-free numbers. The Company targets the TelePassport Power Line to businesses
receiving significant calls per month at the same telephone or fax number from,
for example, foreign-based customers calling a customer service or information
hotline or traveling and foreign-based employees.

Wholesale Services

To increase utilization of the TelePassport Network, the Company sells
switched minutes providing international call termination services to other
telecommunications carriers and resellers on a wholesale basis in the United
States, the United Kingdom and Japan. Frequently, the Company's wholesale
services are reciprocal in that the Company sells such services to carriers who
are also suppliers of the Company. Although wholesale traffic generally realizes
lower margins than the Company's retail services, it provides a source of
additional revenue and adds significant minutes originating and terminating on
the TelePassport Network. The additional traffic enhances the Company's
purchasing power with the underlying carriers for both switched minutes and
leased lines.

The Company also sells a turnkey system platform which performs call
reorigination for other resellers. The Company recently introduced to potential
resellers turnkey debit card platform services in New York, London and Tokyo.
The wholesale platform may include, at the election of the customer, the
integration of toll-free, call reorigination and direct access features. In
addition to wholesale pricing, services offered to call reorigination and debit
card platform resellers include end user retail rating and billing where
applicable, authorization and PIN number inventories, the provision of call
detail records for invoicing and audit purposes, comprehensive management
reports, dedicated customer support and on-line customer activation through the
Company's proprietary customer care system. See "--Information Systems."

JAPAN AND ASAHI TELECOM

Since 1995, the Company has had a series of strategic relationships with
Asahi Telecom. In March 1995, the Company and Asahi Telecom established
TelePassport Japan Co., Ltd., a Japanese company, as a joint venture to sell
international long distance services in Japan. The Company has installed an
international gateway switching center at its Tokyo office which provides
TelePassport Japan with international long distance services for a fee. The
switching facility uses innovative call reorigination technology designed to
provide the high quality and functionality required for the Japanese market
while complying with existing regulatory requirements. Asahi Telecom, a leading
Japanese long distance reseller and NEC PBX distributor, performs all sales and
marketing for TelePassport Japan. The joint venture, which is owned 51% by the
Company and 49% by Asahi Telecom, has approximately 800 customers, consisting
principally of small and medium-sized businesses, and has generated an aggregate
of $4.6 million of revenues since its inception. Japan Telecom owns 30% and NEC
owns 10% of Asahi Telecom.

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In February 1996, Asahi Telecom entered into an agreement with Japan
Telecom, its network provider, under which Asahi Telecom is installing switches
at Japan Telecom node sites, enabling Asahi Telecom to provide, through A.T.
NET, its wholly owned subsidiary, one of Japan's first integrated national and
international long distance services. A.T. NET primarily targets small and
medium-sized Japanese companies located in Tokyo, Osaka, Nagoya and other
Japanese cities and supplies national and international long distance services
at prices which the Company believes are typically below those of Japan's
dominant national and international long distance carriers. TelePassport Japan
provides all international long distance services to A.T. NET.

In an effort to enhance its presence in the Japanese telecommunications
market and strengthen its relationship with Asahi Telecom, in December 1996 the
Company and Asahi Telecom reached an agreement in principle to enter into the
A.T. NET Agreements under which the Company will take the place of the joint
venture as the exclusive provider of international long distance services to
A.T. NET and A.T. NET will market the Company's services under the TelePassport
brand. Under a reciprocal reselling arrangement, the Company will also be
entitled to receive preferential pricing to resell A.T. NET's national long
distance services in Japan. To the extent allowed by applicable regulation, the
Company intends to resell A.T. NET's national long distance services and offer,
along with its own international long distance services, an integrated
TelePassport national and international long distance service primarily to
non-Japanese companies located in Japan, a significant customer segment that
A.T. NET does not currently target. The Company believes that such arrangements
will also provide it with an added competitive advantage with respect to the
Company's wholesale business by allowing it to cost effectively originate and
terminate international traffic from and to major metropolitan areas of Japan.
In addition, the A.T. NET Agreements will provide that the Company will be the
exclusive provider of national and international customized calling cards and
prepaid debit cards to be marketed by A.T. NET. See "Regulation of the
International Telecommunications Industry."

As part of the A.T. NET Agreements, A.T. NET will grant the Company an
option (the "A.T. NET Option") to purchase for $3.2 million shares representing,
in the aggregate, a 10% ownership interest in A.T. NET, which will entitle the
Company to appoint one representative to A.T. NET's board of directors. The A.T.
NET Option will be exercisable until March 31, 1997 and the purchase price will
be payable at any time prior to May 31, 1997. The Company intends to exercise
the A.T. NET Option and pay the purchase price from the net proceeds of the
Offering. The Company is also negotiating an arrangement that would allow the
Company to take advantage of A.T. NET's Special Type II registration, which
would permit the Company to provide additional telecommunications services in
Japan. The Company's right to membership on A.T. NET's board of directors will
be conditioned upon the Company's retention of a 10% ownership interest in A.T.
NET. The Company will be granted certain preemptive rights under the A.T. NET
Agreements and may be required to make additional investments in A.T. NET from
time to time in order to maintain its equity position. See "Risk
Factors--Substantial Capital Requirements; Uncertainty of Additional Financing;
Broad Discretion Over Use of Proceeds; A.T. NET's Future Capital Requirements,"
"Use of Proceeds" and "Regulation of the International Telecommunications
Industry."

The A.T. NET Agreements are intended to supersede the joint venture and,
upon effectiveness of the agreements, the joint venture will be liquidated. As
part of the liquidation, Asahi Telecom will assume TelePassport Japan's
outstanding debt, which was $4.5 million as of September 30, 1996. In addition,
the right to continue to provide services to TelePassport Japan's foreign and
private line customers, which comprise approximately 10% of TelePassport Japan's
existing customer base, will be distributed to the Company, and the right to
continue to provide services to TelePassport Japan's remaining customers will be
distributed to Asahi Telecom, which, in turn, will contribute those rights to
A.T. NET.

The Company believes that its relationship with Asahi Telecom and an
ownership interest in A.T. NET will provide the Company with a unique
opportunity to competitively penetrate the Japanese market and advance the
TelePassport brand. The Company intends to utilize the TelePassport brand
recognition that it is creating in Japan as a platform from which to expand into
other targeted Asian countries.

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THE USAFE CONTRACT

In May 1996, the United States Air Force Nonappropriated Fund ("AF NAF")
Purchasing Office awarded the Company the USAFE Contract to install and maintain
state-of-the-art digital PBX systems and telephones at the temporary lodging
facilities on certain USAFE bases in Europe. The USAFE maintains such facilities
on its military bases primarily for military and Department of Defense ("DoD")
personnel performing temporary duty in Europe, for visiting military and United
States government officials and for personnel awaiting new assignments or
permanent housing. USAFE lodging facilities currently have no in-room telephone
services and guests must use public phone booths in the lobbies where they are
customarily restricted to five-minute calls. Under the USAFE Contract, the
Company is required to provide local exchange and national and international
long distance telecommunications services to each room for a period of ten years
from the installation and acceptance of each system. Under the terms of the
USAFE Contract, the Air Force will receive up to 10% of all long distance
revenue depending upon the amount of revenue. The USAFE Contract contains a
standard government "termination for convenience" clause pursuant to which the
contracting officer may terminate the contract if the officer determines that
such action would be in the best interest of the United States government,
provided that the Company may be entitled to recover certain costs upon
termination.

To date, the Company has received delivery orders for the temporary lodging
facilities at four bases in Germany and one base in Italy and has received RFPs
for 10 bases: three in Germany, five in the United Kingdom, one in Spain and one
in Turkey. The temporary lodging facilities on the 16 bases covered by the USAFE
Contract house an aggregate of 3,733 rooms. The Company has completed the
installation of a telecommunications system providing service to the temporary
lodging facilities at the Ramstein Air Force Base in Germany. The Company
expects to complete the installation of systems at 10 additional bases by the
end of 1997.

The Company believes that the opportunity exists to expand the provision of
TelePassport services under the USAFE Contract to the permanent dormitories
within USAFE and into other areas of the United States armed forces in Europe.
The USAFE Contract contains a provision that permits certain other DoD agencies
in Europe to use the purchasing power of the AF NAF Purchasing Office under the
terms of the USAFE Contract and present the Company with delivery orders for
certain of their facilities in Europe. The Company intends to take advantage of
this provision by actively pursuing delivery orders from other United States
military facilities in Europe. Further, it is currently anticipated that in
October 1997 the United States military will begin to privatize the provision of
non-classified telecommunications services, which will result in the
solicitation by individual bases of competitive bids for such services. The
Company intends to aggressively pursue such additional contracting
opportunities. No assurance can be given that the Company will successfully
expand its services or successfully bid on any additional United States military
contracts.

The Company believes its presence on the USAFE bases will also present it
with an opportunity to market TelePassport services to the residents of the
local communities surrounding the bases. Many of the USAFE bases are situated
outside of clusters of small towns which are home to significant foreign
populations. For example, the Rohr Valley, an area approximately 70 miles
outside of Frankfurt, houses a group of five USAFE bases, including the Ramstein
Air Force Base, and contains an off-base population of more than 50,000
Americans.

The Company believes that the USAFE Contract will significantly improve the
TelePassport Network economies of scale for other service segments of the
Company. The Company expects that the occupants of the temporary lodging
facilities will generate significant phone traffic at night when there tends to
be less phone usage from other customers. Accordingly, the Company can expand
its total minutes of calls without an equivalent increase in capacity of leased
lines.

THE UN ARRANGEMENTS

The Company provides its services to the field offices of several UN and
other supra-national and humanitarian organizations and non-governmental
agencies. Since June 1993, the Company has been the preferred supplier of call
reorigination services for certain UN agencies and their affiliates in over 100

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countries and has entered into service contracts with the field offices of other
supra-national food, health, fiscal and labor organizations. In certain cases,
the umbrella organization or agency agrees to guarantee payment to the Company
from the individual foreign offices, internally promote the Company's
TelePassport services and distribute TelePassport invoices through its own
internal mail service. In general, the service contracts are terminable upon 30
days notice to the Company from either the agency on behalf of all of the
covered field offices or an individual field office. The Company also typically
agrees to offer the same services and discounted rates to the employees of the
field offices and their family members. Charges for such services are billed
directly to each individual's personal credit card.

The Company believes that contracts to provide services to such entities
are strategically important because they present the Company with the
opportunity to establish a high profile in the regions surrounding the field
offices, enhancing opportunities for new customer development. See "--Sales and
Marketing."

THE TELEPASSPORT NETWORK

The TelePassport Network is a digital, advanced switch-based
telecommunications network connected by leased fiber optic transmission
facilities. The TelePassport Network currently has international gateway
switching centers in New York and Tokyo. In addition, the Company has switching
facilities in Frankfurt, London and Vienna. The Company intends to use a
significant portion of the net proceeds of the Offering to expand and upgrade
the TelePassport Network. A state-of-the-art international gateway switching
center and network management facility is currently under construction in New
Jersey to replace the New York gateway. The Company intends to further develop
the TelePassport Network by upgrading existing facilities and by adding
switching facilities in up to 30 additional cities over the next three years.
These will be located, principally, in primary markets where the Company already
has an established customer base or has existing key contracts, as well as in
secondary markets in proximity to the Company's primary markets. The Company
also plans to invest in digital undersea fiber optic cable and to lease IPLCs in
order to cost effectively interconnect the expanding TelePassport Network
switching facilities. See "Use of Proceeds" and "--Information Systems."

In areas in which the Company believes it is not optimal to own network
facilities, the Company typically enters into agreements to resell the
facilities of other operators in order to enhance the TelePassport Network. The
Company purchases switched minute capacity from various carriers and depends on
such agreements for termination of traffic from the TelePassport Network. For
the years ended December 31, 1994 and 1995, and the nine months ended September
30, 1996, MCI supplied 45.5%, 36.1% and 20.6%, respectively, WorldCom supplied
46.8%, 28.2% and 8.1%, respectively, CWI supplied 5.1%, 32.6% and 28.5%,
respectively, and PGE supplied 18% for the nine months ended September 30, 1996,
of the Company's aggregate purchased switched minute capacity. The Company
believes that the loss of any one supplier would not have a material adverse
effect on the Company's business, financial condition or results of operations.
The Company is also a reseller of other carriers' national long distance. In
Japan, as a result of the Company's strategic relationship with Asahi Telecom,
the Company will be a reseller, at preferred rates, of A.T. NET's national long
distance service. The Company plans to use the preferential pricing it will
receive as a reseller of A.T. NET's national long distance to offer an
integrated TelePassport national and international long distance service in
Japan. In other markets, the Company works with multiple national long distance
carriers to ensure that the pricing and service on each route are the best
available and that the Company can provide an integrated long distance service
to its customers. See "Risk Factors--Reliance on Third Parties for Leased
Capacity" and "--Japan and Asahi Telecom."

The economic benefits to the Company of owning and operating the
TelePassport Network, in contrast to being a reseller of switched minute
capacity, arise principally from reduced transmission costs. The transmission
cost for a call that is not routed through the TelePassport Network is dependent
upon the variable per minute cost that is paid to the underlying carrier. In
contrast, the cost of a call routed over the TelePassport Network is dependent
upon the total fixed costs associated with owning and operating the TelePassport
Network. Accordingly, the reduction of transmission costs per call is a function
of increasing the call volume over the TelePassport Network and maximizing the
TelePassport Network's capacity. One method of increasing the capacity of the
TelePassport Network is to optimize bandwidth usage by utilizing

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compression technology. Compression reduces transmission costs by completing
multiple calls over a single circuit. As traffic volume through the TelePassport
Network increases, transmission costs are expected to decline as a percentage of
revenue. This economic benefit, however, is generally limited to traffic that
can be originated or terminated in a city where the Company has a switching
facility. If a Company-owned switching facility does not exist in an origination
or destination city, the Company must transport the call over another carrier's
facilities, at higher transmission costs and reduced margins. Accordingly, as
the TelePassport Network is expanded, the Company anticipates being able to
provide telecommunications services on a more cost-effective basis.

The TelePassport Network utilizes "intelligent routing facilities" which
incorporate proprietary software designed to maximize network routing efficiency
and provide resiliency to the TelePassport Network. The Company's intelligent
routing facilities route traffic over the Company's transmission facilities,
other carriers' transmission facilities or a combination of such facilities, at
the lowest cost to the Company. The LCR software is used to assist the Company
in analyzing traffic patterns and determining network usage. If traffic cannot
be handled over the least cost route due to overflow, the LCR system is designed
to transmit the traffic over the next least cost route. To optimize utilization
of the TelePassport Network, the capacity is engineered to accommodate 80% of
busy hour traffic, allowing the overflow to route to alternative carriers. See
"--Information Systems."

In general, the Company relies upon other carriers' networks to provide
redundancy in the event of technical difficulties on the TelePassport Network.
The Company believes that the strategy of using other carriers' networks for
redundancy is currently more cost-effective than purchasing or leasing its own
redundant capacity. To the extent that the traffic over the TelePassport Network
exceeds the Company's transmission capacity, the Company may elect or be
required to route overflow traffic over other carriers' networks, which may
result in reduced margins on such calls. The Company has developed and
implemented the TelePassport Network Management System (the "Network Management
System") to monitor the TelePassport Network, provide traffic flow statistics
and identify capacity issues in real time. This information is analyzed for
capacity planning and to allow additional throughput to be engineered to
maximize utilization of the TelePassport Network.

The Company has taken measures to protect the TelePassport Network from
unforeseen disasters. The Company's back office operations, billing and
switching systems are hardware redundant to prevent a single point of failure
from bringing down the entire network. In addition, multiple power sources,
surge protection equipment and universal power saver and battery backup provide
emergency backup for all systems in the TelePassport Network.

The TelePassport Network currently utilizes Summa Four SDS and Excel
LNX2000 programmable switches, Network Equipment Technology's IDNX intelligent
multiplexers, and Siemens HICOM switches. As future growth dictates, carrier
grade switches will be incorporated into the major switching sites. The Company
intends to deploy the first of these switches as early as June 1997. The Company
is in the process of selecting other network hardware that will best support its
use of advanced transport technologies. The TelePassport Network supports
various signaling protocols and uses SS7, the industry standard signaling
protocol. As upgraded, the TelePassport Network will support advanced
technologies such as frame relay, ATM, X.25 packet switching and ISDN. These
technologies assist in optimizing the use of bandwidth, which can effectively
lower operational costs. See "Risk Factors--Potential Difficulties Associated
with Implementing TelePassport Network Expansion Strategy."

The Company's switching facilities are connected by IPLCs. Generally, the
Company leases lines pursuant to one- to three-year leases. Because rates for
international transmission lines are continuing to fall, the Company has not
made, and has no current intention to make, leases of longer duration with any
providers. The Company believes that the opportunities for resale will become
increasingly attractive as countries deregulate and grant additional carrier
licenses, and competitive pressures force carriers to find alternative sources
of distribution. See "Risk Factors--Reliance on Third Parties for Leased
Capacity."

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INFORMATION SYSTEMS

The Company has invested substantial resources to implement sophisticated
information systems, which it believes are integral to being competitive and to
effectively managing its business. The Company plans to continue to invest
substantial capital and resources to enhance its information systems by
replacing or upgrading certain existing systems and integrating new systems. The
Company's information systems enable it to: (i) rapidly and economically
integrate new customers; (ii) provide high quality customer service; (iii)
provide customized billing information; (iv) provide sales tracking and traffic
forecasting; (v) detect and minimize fraud; (vi) provide network security; (vii)
provide network trouble shooting, maintenance and engineering modeling; and
(viii) generate administrative, financial and marketing reports. See "Risk
Factors--Dependence on Effective Information Systems" and " --Business
Strategy."

The Company's proprietary Communications Order Maintenance System ("COMS")
is a remote order entry and customer activation system, which allows sales
agents to process orders electronically without the need for human intervention
and the cost associated with manual processing and confirmation. COMS validates
a customer's information at the agent location before the order is
electronically transferred to the Company's proprietary Customer Records System
("CRS") at the Company's central back office operations. CRS automatically
checks an incoming COMS order for creditworthiness and sets up the customer
account in the CRS database and the switch database. During the next COMS
transfer session, COMS is automatically updated by the CRS with the new customer
information and status. COMS provides E-mail and trouble reporting that
replicates the information held by the back office operations relating to the
agent's customers, including financial transactions, billing information and
account status. Substantially all of the Company's agents use the software,
which is updated via new releases regularly. CRS is integrated with other
operational support systems, including billing, credit card processing,
provisioning, agent commissioning and trouble reporting. The CRS system provides
user friendly, validated order entry and maintenance of all of the Company's
accounts, agents, and wholesalers, including those set up remotely by COMS. The
CRS provides authorized staff with complete customer and agent information
including up-to-the-minute financial status, and real time call detail
associated with the customer's usage. The Company plans to develop multiple
language capability for the CRS and COMS systems and is presently developing a
Japanese language interface. Non-English interfaces will provide the ability to
hire non-English speaking staff at generally lower costs and to directly service
non-English speaking customers, while still providing integration into the
Company's systems.

The Company's proprietary billing system utilizes real time worldwide call
detail data collection allowing the Company to process credit cards several
times per month and to set credit and fraud limits for customers, limiting
exposure to bad debts. The Company generates approximately 16,000 invoices per
month in multiple presentation formats. The Company is presently developing
Japanese language billing.

The Company's proprietary Accounts Receivable system provides fully
automated handling of customer payments and collections activity, including
automatic credit card processing, automatic international direct bank debiting
and international wire transfers. The Accounts Receivable system is integrated
into the CRS and the billing system.

The Company plans to upgrade its existing information systems to include
larger and faster servers to accommodate planned growth, to allow for the
development of fully integrated international service centers, to allow full
utilization of the intranet/Internet paradigm and to take advantage of
developments in data warehousing, integrity and security.

COMPETITION

The international telecommunications industry is highly competitive. The
Company believes that competition will continue to intensify as the number of
new service providers of various sizes increases due to the overall growth in
the industry and the global trend toward deregulation. The Company's success
depends upon its ability to compete with a variety of telecommunications
providers in each of its markets.

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Competition for customers is primarily based upon price, the type and
quality of services offered and customer relationships. Other providers of long
distance telecommunications services include: (i) the ITO in each country; (ii)
major carriers and their global alliances, such as Global One, a consortium
which consists of Sprint Corp., DT and France Telecom; Unisource, a consortium
which consists of Telia AB, PTT Telecom BV, Swiss Telecom PTT and Telefonica de
Espana S.A.; Concert, a consortium which consists of BT and MCI; and World
Partners, which consists of AT&T, Kokusai Denshin and Denwa Co., Ltd. ("KDD"),
Singapore Telecommunications Ltd. and Unisource; (iii) secondary alliances of
nontraditional carriers which own infrastructure, such as the consortium of
Mannesmann AG and Deutsche Bahn AG; VEBA Telecom GmbH, a joint venture between
Veba AG, RWE Energie AG and Cable and Wireless plc; and VIAG InterKom GmbH, a
joint venture between VIAG AG and BT; and (iv) alternative carriers, such as
WorldCom; Viatel, Inc.; RSL Communications plc; and ACC Corp. Other potential
competitors include cable television companies, wireless telephone companies,
Internet access providers and large end users which have dedicated circuits or
private networks. Many of the Company's current or potential competitors have
substantially greater financial, marketing and other resources than the Company.
The Company believes, however, that it will face less competition when it enters
secondary regional markets because competitors will be concentrating on the
larger metropolitan areas. See "Risk Factors--Competition" and " --Business
Strategy."

The Company prices its services primarily by discounting against the ITOs
in the geographic markets in which the Company operates. The Company has no
control over the prices set by these ITOs, and some may be able to use their
financial resources to cause severe price competition. Although the Company does
not believe that there is an economic incentive for an ITO to pursue such a
pricing strategy, there can be no assurance that severe price competition will
not occur.

The Company's marketing strategy is generally to focus on small and
medium-sized businesses and residential customers that generate significant
international long distance traffic. Thus, the Company tends not to compete with
the major international carriers and the global alliances, which generally offer
their lowest rates and best services primarily to larger, higher-volume
businesses and less frequently to small and medium-sized businesses. Secondary
alliances generally target their services to compete directly with the global
alliances and ITOs and not with the Company. The Company's TelePassport Direct
and TelePassport VPN services are targeted, however, at larger volume businesses
which may also be targeted by the global and secondary alliances. Furthermore,
the Company's marketing efforts toward supra-national and governmental
organizations may also compete directly with major international carriers.

In addition, the Company's pricing as a reseller is dependent upon the
pricing strategy of larger carriers who supply the Company with switched
minutes. To the extent such carriers target customers similar to those targeted
by the Company, such carriers are also direct competitors of the Company.
Accordingly, the business success of a reseller is significantly tied to the
pricing policies established by potential competitors.

Many of the newly emerging competitors are smaller carriers, most of which
specialize in offering international telephone services utilizing call
reorigination and other alternative access methods. Some of these alternative
carriers have begun to build networks which are similar to, or more extensive
than, the TelePassport Network. Competition for customers among these small
carriers is primarily based on the carrier's reputation and the ability of a
carrier to provide quality service at low prices. See "Risk Factors --
Competition" and " --Business Strategy."

In general, the degree of deregulation in a particular country impacts the
Company's ability to compete. In a deregulated country such as the United
States, carriers can establish switching facilities, own or lease fiber optic
cable, enter into operating agreements with foreign carriers and accordingly
provide direct access service. In markets that have not deregulated or are slow
in implementing deregulation, such as South Africa, international long distance
carriers have used advances in technology to develop innovative alternative
access methods, such as call reorigination. In other countries, such as Japan
and most EU member states, where deregulation is imminent but not complete,
carriers are permitted to offer facilities-based data and facsimile services, as
well as limited voice services including those to CUGs, but are as yet precluded
from offering full

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Voice Telephony. As countries deregulate, the demand for alternative access
methods typically decreases as carriers are permitted to offer a wider range of
facilities-based services.

TRADEMARKS AND PROPRIETARY INFORMATION

Trademarks. The Company protects the names of certain of its products and
services by registration of its trademarks, where appropriate, both in the
United States and in foreign countries.

The Company has filed applications in the United States Patent and
Trademark Office to register the word mark TelePassport and its stylized "globe"
logo on the Principal Register for telephone communications services. The
applications have been allowed, subject to the continued commercial use of the
marks. The Company has also applied to register the word mark and logo for
telephone communications services in up to 12 foreign countries. The Company
intends to register its marks in countries where it plans to establish switching
facilities. It is possible that prior registrations and/or uses of one or both
marks (or a confusingly similar mark) may exist in one or more of such
countries, in which case the Company might be precluded from registering and/or
using the TelePassport mark and/or logo in such countries.

Proprietary Information. Much of the Company's technology is dependent upon
the knowledge, experience and skills of key scientific and technical personnel.
To protect rights to its proprietary know-how and technology, Company policy
requires certain of its employees and consultants to execute confidentiality
agreements that prohibit the disclosure of confidential information to anyone
outside the Company. These agreements also require disclosure and assignment to
the Company of discoveries and inventions made by such persons while employed by
the Company. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any such breach or
that the Company's confidential information will not otherwise become known or
be independently developed by competitors or others.

PROPERTIES

The Company currently subleases approximately 12,710 square feet of office
space at its corporate headquarters in New York, New York. The sublease has an
annual rental obligation of approximately $283,000, subject to adjustment, and
expires on June 29, 2000. The Company entered into a license agreement to use
and occupy an additional 954 square feet of office space at the same location on
a temporary basis until the construction of the New Jersey international gateway
switching center and network management facility is completed. The license fee
for the temporary space is $3,835 per month and the license expires on February
28, 1997, subject to extension by the Company upon 30 days' notice to the
licensor.

The Company rents additional facilities in the United States to house its
switching facilities and additional corporate offices. In Piscataway, New
Jersey, the Company leases a 7,681 square foot facility to house its
under-construction international gateway switching center and network management
facility, as well as additional office space. The Piscataway lease has an annual
rental obligation ranging from approximately $84,000 in the first year to
$116,000 in the fifth year, and expires on January 31, 2002. The Company leases
160 square feet of space in New York City to house its current international
gateway switching center, which will be replaced by the Piscataway facility upon
its completion. Such lease has an annual rental obligation of approximately
$48,000 and is currently on a month-to-month basis.

The Company rents facilities in various foreign cities to house its
switching facilities and office space primarily for the Company's overseas sales
offices. In London, the Company's switching facility is located at the offices
of a local telecommunications provider under the terms of a co-location
agreement in consideration of a monthly fee in the amount of $1,500, subject to
adjustment. In Tokyo, the Company leases space for offices and its switching
facility for an annual rent of approximately $193,000, and in Germany, the
Company rents 996 square feet near the Ramstein Air Force Base for an annual
rent of approximately $10,500. The rental amounts set forth above in United
States Dollars are based on foreign currency exchange rates in effect as of
December 31, 1996.

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EMPLOYEES

As of December 31, 1996, the Company had 75 full-time and five part-time
employees, approximately eight of whom were engaged in management, 30 of whom
were engaged in sales and marketing, 14 of whom were engaged in network
engineering, seven of whom were engaged in managing information systems and 21
of whom were engaged in administration. None of the Company's employees is
covered by a collective bargaining agreement. Management believes that the
Company's relationship with its employees is satisfactory.

LEGAL MATTERS

The Company is a party to routine filings and customary regulatory
proceedings with the FCC relating to its operations. See "Regulation of the
International Telecommunications Industry." The Company is not currently a party
to any material litigation other than as set forth below.

In December 1996, Cherry Communications Incorporated, a supplier of
telecommunications services to the Company, filed a complaint in the United
States District Court for the Northern District of Illinois Eastern Division
against USFI, Inc., alleging breach of a carrier service agreement between the
parties and seeking damages of at least $613,461. The Company is reviewing the
complaint and is currently preparing a response. Toward that end, the Company is
evaluating its options and is devoting appropriate resources and personnel to
this matter. The Company believes that the outcome of this litigation will not
have a material adverse effect on the Company's cash flow, financial condition
or results of operations.

THE REORGANIZATION

USFI, Inc., the principal operating subsidiary of the Company, was founded
in February 1993 by Stephen E. Myers, Michael C. Anderson and James D. Pearson
(the "Principals"), to exploit opportunities in the international long distance
market. In February 1995, the Principals formed USFI-Japan, L.L.C. to hold its
interest in TelePassport Japan. In May 1996, the Principals formed TelePassport
LLC to act as a holding company for its operating subsidiaries formed in Japan,
Switzerland, Austria and Germany and for the subsidiary operating the USAFE
Contract. In December 1996, the Principals formed TelePassport Inc., the issuer
of the Class B Common Stock offered hereby. Prior to the date of this
Prospectus, TelePassport LLC will be merged with TelePassport Inc. and the
Principals will contribute to TelePassport Inc. all the outstanding shares and
interests in USFI, Inc. and USFI-Japan, L.L.C. From and after the closing date
of the Offering, all the assets and business of USFI, Inc. and USFI-Japan,
L.L.C. will be owned and conducted by TelePassport Inc. As consideration for the
contribution of their interests in USFI, Inc. and USFI-Japan, L.L.C., the
Principals will receive an aggregate of shares of Class A Common
Stock, which combined with their current stockholdings will constitute 100% of
the outstanding Class A Common Stock, which will represent % of the
combined voting power of the Company upon completion of the Offering. See
"Description of Capital Stock."

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REGULATION OF THE INTERNATIONAL TELECOMMUNICATIONS INDUSTRY

OVERVIEW

International telecommunications services are subject to the laws and
regulations of the countries in which those services are provided. Applicable
laws and regulations differ significantly in the countries in which the Company
operates or plans to operate. Some of those countries prohibit or limit the
services which the Company provides or plans to provide as well as the
transmission and access methods used to provide those services. In consultation
with local counsel in countries where the Company operates or plans to operate,
the Company has pursued a strategy of providing its services to the fullest
extent believed permissible under each country's laws and regulatory policies.
Based upon those consultations, the Company may aggressively interpret local
laws and regulations with respect to services that require relatively little
resource and capital expenditures, such as call reorigination. The Company's
policies are to make significant resource and capital investments, however, only
in countries whose laws and regulations clearly allow it to provide such
services using the Company's preferred transmission and access methods, and to
pursue the highest form of licensing available. See "Risk Factors--Substantial
Government Regulation."

If the Company's interpretation of a country's laws or regulations is found
to be incorrect, the Company may seek to modify its operations so as to comply
with such laws or regulations, or alternatively may be required to cease
operations in that country. To date, the Company has not been subject to any
fines, penalties or other sanctions, nor has it been the subject of any legal or
regulatory action or inquiry as a result of any alleged violations of
telecommunications laws or regulations.

REGULATORY FRAMEWORK

The regulatory frameworks of the United States and those jurisdictions
which the Company considers its core target markets are briefly set forth below.
This discussion is intended to provide a general outline of key applicable laws
and regulations of those countries and is not intended to be a comprehensive
description of the laws or regulatory policies of each country.

United States

The Company's provision of international telecommunications service between
the United States and foreign points is subject to regulation by the FCC. The
Company was required to obtain FCC 214 Authorizations to provide international
long distance services. The Company believes that it has obtained all
authorizations from the FCC required for the conduct of its current operations,
but that it may need additional FCC authorizations in the future.

The Company has been authorized by the FCC pursuant to Section 214 to
provide international service by the resale of switched services of United
States carriers, and to provide international switched service by the resale of
international private lines interconnected with the public switched networks of
the United States and those countries determined by the FCC to afford resale
opportunities equivalent to those available under United States law. To date,
such interconnected private line resale has been permitted by the FCC only to
four countries: Canada, the United Kingdom, Sweden and New Zealand. It is
possible that interconnected private line resale to additional countries may be
allowed in the future. Pursuant to FCC rules and policies, the Company's
authorization to provide service via the resale of interconnected international
private lines will be expanded to include countries subsequently determined by
the FCC to afford equivalent resale opportunities to those available under
United States law, if any. See "Risk Factors--Substantial Government
Regulation." In addition, the Company has been authorized by the FCC pursuant to
Section 214 to provide global facilities-based service between the United States
and all international points which are not "Ineligible Destination Countries"
under the FCC's exclusion list, which list currently excludes only Cuba.

With respect to the Company's authorization to provide service between the
United States and countries determined by the FCC to afford equivalent resale
opportunities, the FCC allows the Company to forward such traffic from the
equivalent country to non-equivalent countries by acquiring at published rates
and reselling the international switched service of a carrier in the equivalent
country. Similarly, the FCC allows the

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Company to terminate inbound traffic in the United States over interconnected
private lines which originates in a non-equivalent country and which is routed
from that country to the equivalent country using the originating country's
international switched service, as opposed to private lines. These
configurations are referred to by the FCC as "switched hubbing." See "Risk
Factors--Substantial Government Regulation."

The FCC's grant of the Company's FCC 214 Authorization to resell
international switched services also permits the Company to offer service by
means of call reorigination using uncompleted call signaling. That authorization
is subject, however, to several FCC rulings addressing call reorigination. The
FCC has determined that call reorigination service using uncompleted call
signalling does not violate United States or international law but has held that
United States companies providing such services must do so in compliance with
the laws of the countries in which they operate.

The FCC may condition, modify or revoke any of the Section 214
authorizations awarded to the Company for violations of the Communications Act,
the FCC's rules and policies or the conditions of those authorizations. In
addition, the FCC has held that it would consider enforcement action against
United States companies engaged in call reorigination by means of uncompleted
call signaling in countries where such services are expressly prohibited.

Under revised rules established by the FCC in 1996, the Company must offer
its international services pursuant to tariff schedules containing the rates,
terms and conditions applicable to its international telecommunications services
and filed with the FCC on not less than one day's prior notice. This is in lieu
of the 14-day notice period previously required by the FCC. The Company has
filed a tariff with the FCC. Other FCC requirements applicable to the Company
include the filing of contracts with other carriers, including operating
agreements, and the periodic filing of certain reports regarding the Company's
international traffic and revenues. In addition, the Company is subject to
certain FCC-imposed fees including an annual regulatory assessment fee and an
annual payment to the Telecommunications Relay Service Fund.

The Company's primary business is the provision of international
telecommunications services and the Company does not currently market or promote
interstate or intrastate telecommunications services. Nonetheless, it is
technically possible for existing customers of the Company's international
services who are located in the United States to utilize the Company's services
to place interstate or intrastate calls. The provision of interstate service is
subject to the jurisdiction of the FCC. The Company is classified by the FCC as
a non-dominant common carrier. Its charges, practices, classifications, and
regulation of its services must be just and reasonable, and may not be
unreasonably discriminatory. Historically, interstate common carriers were
required to maintain tariffs with the FCC. Since the Company does not
specifically market interstate services, it has not maintained an interstate
tariff with the FCC. To the extent its customers utilize TelePassport services
for interstate services, however, the Company could be subject to sanctions for
failure to maintain an interstate tariff. The Company believes that imposition
of sanctions is unlikely and that any such sanctions would not have a material
adverse effect on its financial condition or results of operations. In addition,
as a result of rule and policy changes recently announced by the FCC, commencing
December 22, 1996, non-dominant providers of domestic interstate interexchange
service, including the Company, no longer are required to file and maintain
tariffs with the FCC. Domestic intrastate long distance services are subject to
various state laws and regulatory requirements including certification and
tariff filing requirements. The Company currently is not authorized to provide
intrastate service in any state and does not maintain any intrastate tariffs.
If, in the future, the Company seeks to provide intrastate services, it would
apply to obtain state authorizations and file tariffs, as may be required,
before commencing service. To the extent that the Company provides intrastate
service in any state where it is not authorized to provide such service, the
regulatory authorities in such states could impose sanctions against the Company
for unauthorized operation.

European Union

In Europe, the regulation of the telecommunications industry is governed at
a supra-national level by the EU. The EU was established by the Treaty of Rome
and subsequent conventions and through its operating bodies, the Council of
Ministers, the Commission (the "Commission") and the Parliament, is authorized
to issue EU "directives." EU member states (Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom) are required

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to implement these directives through national legislation. If an EU member
state fails to adopt, or does not properly or fully adopt, such directives, the
Commission may take action to require proper implementation through the European
Court of Justice.

Since 1987, the EU has issued a number of directives aimed at generating
competition in the telecommunications markets by liberalizing the provision of
telecommunications services and network infrastructure. In 1990, the EU issued a
Directive on Competition in the Markets for Telecommunications Services (the
"Telecommunications Services Directive") which required each EU member state to
abolish all exclusive and special rights concerning the provision of
telecommunications services other than Voice Telephony services. The aim of the
Telecommunications Services Directive was to permit the competitive offering of
services other than Voice Telephony, such as value-added services and the
delivery of voice services to CUGs. Differing interpretations of the
Telecommunications Services Directive and other EU initiatives, as well as
varying national policies to liberalize more quickly than the EU requires, have
led to variations among the EU member states as to which services may be
delivered and the manner in which they may be provided.

Subsequent directives adopted by the EU, including the Full Competition
Directive adopted in March 1996, require the liberalization of all Voice
Telephony service in the EU and the provision of competitive infrastructures by
January 1, 1998. Extensions until January 2003 were requested by Greece,
Ireland, Portugal and Spain, each of which believes it has a less developed
network, and an extension until 2000 was made available to Luxembourg, which has
a very small network, in order for these countries to achieve structural
adjustments in their networks. Spain has since volunteered to liberalize by the
second half of 1998 and the Commission expects that Greece will be liberalized
by 2001. To date, Sweden, Finland, Denmark and the United Kingdom have
liberalized facilities-based services.

As discussed above, each EU member state in which the Company currently
conducts its business has a different regulatory scheme and such differences are
expected to continue beyond January 1998. The Company's regulatory requirements
vary considerably from country to country. The Company believes that, to the
extent required for the provision of its current services, it has either
received all necessary approvals, filed applications for such approvals,
received comfort letters or obtained licenses from the applicable regulatory
authorities. The EU is currently considering the adoption of a directive to
establish a common framework for the granting and administration of licenses to
provide telecommunications services and infrastructure. To the extent such
directives are adopted by the EU and implemented by the member states in which
the Company operates, the Company may in the future be required to obtain
additional licenses, or renew, modify or replace existing licenses. See "Risk
Factors--Substantial Government Regulation."

The Company believes that the VAT Directive does not require the Company to
charge VAT to EU based customers because it is located outside of the EU. It is
anticipated that the VAT Directive will be amended in 1997 to specifically
impose VAT on telecommunications services used within the EU, even if supplied
by non-EU based carriers. Germany has already begun to impose VAT on such
services effective January 1, 1997. Under the new rules as currently proposed,
EU based businesses that purchase telecommunications services from non-EU based
carriers will be required to self-account for VAT on such services. Those EU
based business customers that are not entitled to recover 100% of VAT, such as
banks and insurance companies, will be required to pay VAT directly to the
authorities. If the Company's services become subject to VAT, the Company's
competitive price advantage over certain of its EU based competitors, including
the ITO in each EU market where the Company provides services, may be reduced
with respect to such businesses. Services provided to residential customers will
not be subject to VAT. See "Risk Factors--Risks Associated With Imposition of
VAT on Company's Services."

United Kingdom

In the United Kingdom, the Company's services are subject to and affected
by the UK Telecommunications Act. The TI Secretary is responsible for granting
telecommunications licenses and has the power to revoke them, and the DGT and
Oftel are responsible for enforcing the conditions of such licenses. The DGT is
required to take enforcement action under the UK Telecommunications Act if it
discovers a non-trivial breach of a license condition.

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BT and its predecessors were the sole providers of public
telecommunications services in all but a small part of the United Kingdom until
the early 1980's when the British government granted Mercury Communications Ltd.
("Mercury"), now a subsidiary of Cable and Wireless, a license to run its own
telecommunications system. In 1991, the British government established a
"multi-operator" policy with respect to Voice Telephony services using fixed
access systems to replace the duopoly by BT and Mercury that existed from the
early 1980's until 1991. Under the multi-operator policy, the TI Secretary will
consider on its merits any application for a license to operate a
telecommunications network within the United Kingdom. At the end of 1996, this
policy was extended with respect to international facilities and 44 new
operators were authorized to connect their United Kingdom networks to systems
outside of the United Kingdom.

The Company was granted an ISR license under the UK Telecommunications Act
on October 11, 1995, authorizing it to operate a switched system and provide
switched telecommunications services to the public. The license was granted for
a period of one year and continues thereafter in force and effect, subject to
revocation by the TI Secretary on one month's prior notice. The license contains
general conditions concerning, among other things, the use of interfaces that
comply with accepted international standards, the use of automatic calling
equipment, restrictions on types of self-advertising that use the licensed
system, such as the telemarketing of products covered by the license, and
certain administrative items, such as the payment of fees. In addition, the
license contains certain conditions relating to the provision of international
telecommunications services. Historically, the TI Secretary had specifically
designated certain countries for ISR traffic that it considered as maintaining
equivalent competitive regulatory frameworks. In July 1996, however, the
authorization to provide ISR traffic was extended to all countries, prompting
the TI Secretary to implement a "proportionate return" condition. The
"proportionate return" condition requires licensees, such as the Company, to
ensure that the ratio of incoming to outgoing ISR traffic over the licensed
system during certain relevant periods is the same as the ratio of all incoming
to outgoing traffic to each of those destinations from the United Kingdom over
an earlier period. These rules do not apply to traffic from countries within the
European Economic Area (which includes the EU member states, Iceland,
Liechtenstein and Norway) or the United States, Canada, Australia and New
Zealand. The Company is required to keep information and to submit reports
concerning these provisions. Except in relation to the countries specifically
exempted, the Company will be in breach of a license condition if its ISR
traffic is not "two way," both into and out of the country concerned. This
provision does not apply where customers connect to a Company switching facility
in a relevant country by means of leased lines. The Company presently utilizes
its license primarily for the traffic between the United Kingdom and the United
States.

All public telecommunications operators and ISR operators, as well as
several other categories of operators, operate under individual licenses granted
by the TI Secretary pursuant to the UK Telecommunications Act. Licenses granted
to large public operators, such as BT and Mercury, contain conditions relating
to the rights of the public to connect to such systems. Such conditions are not
generally imposed on ISR licenses, but ISR licenses, in most circumstances,
provide for "relevant connectable systems status," giving ISR operators a right
to connect to the networks of the large public operators, such as BT, Mercury
and cable operators. The Company's license provides for "relevant connectable
systems status" with respect to BT's license, entitling the Company to
interconnect with BT's systems at wholesale, as opposed to retail, rates with
respect to interconnection tariffs and charges. Interconnection rates with BT
are presently determined by the DGT. The DGT is considering a proposal for
implementation in 1997 pursuant to which BT would determine its own
interconnection charges, subject to applicable price ceilings and floors set by
DGT. The status of this proposed structure and its potential impact on the
Company are presently unclear.

To reduce transmission costs and expand its current capacity, the Company
is exploring the acquisition of one or more IRUs for traffic between the London
switching facility and the planned central New Jersey international gateway
switching center. The Company is required to apply to the TI Secretary to obtain
an IF License that would permit it to operate its own international
facilities-based voice services in the United Kingdom.

The DGT has recently announced several additional proposals. The DGT
intends to introduce into a number of telecommunications licenses a fair trading
provision prohibiting licensees from engaging in anti-competitive behavior. It
is not presently clear whether or when such condition will be introduced into

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<PAGE> 64

the Company's license, but such conditions could be introduced during 1997. A
violation of such provision by a licensee, such as entering into a
telecommunications cartel, could lead to loss of the license. BT has to date
been unsuccessful in litigation challenging the authority of the DGT to impose
such a condition. In addition, the DGT is expected to publish a statement
concerning the future regulation of service providers, including ISR operators
such as the Company, and changes to the availability of relevant connectable
systems status. Based on previously published documents, such statement could
reflect the view that relevant connectable systems status should be retained by
an ISR operator only where it makes a significant contribution to competition in
the international market and then only until such time as the international
markets have become competitive. It is presently unknown whether or when any of
such proposals will be implemented. See "Risk Factors--Substantial Government
Regulation; and --Risks Associated With Imposition of VAT on Company's
Services."

Germany

In the Federal Republic of Germany, liberalization of the
telecommunications market is taking place through a three-step process called
Postal Reform I--III. Postal Reform I in 1989 divided the state-owned Federal
Post Office ("Bundespost") into three government entities: the postal service,
the banking service and telecommunications (later to become DT), and ended the
government's monopoly on the provision of terminal equipment (i.e., telephones).
Postal Reform II in 1995 resulted in the conversion of the three government
entities into private stock corporations. Postal Reform III, currently taking
place, is expected to complete the privatization and liberalization process by
establishing a regulatory framework.

The constitutional basis for the liberalization of telecommunications was
achieved by the addition to the German constitution of a new Article 87(f).
Under Article 87(f), the national government is obliged to ensure appropriate
and sufficient telecommunications services throughout Germany. The primary
business objective of DT was re-defined as the provision of telecommunications
services in competition with other suppliers. The legal basis for the new
regulatory environment in Germany is the TKG, which, with respect to most of its
provisions, became effective August 1, 1996, replacing a number of traditional
telecommunications statutes. The Company's services in Germany are subject to
the TKG. See "Risk Factors--Substantial Government Regulation."

The TKG lays the groundwork for a competitive telecommunications
environment in Germany. Since July 1, 1996, owners of telecommunications
networks have been permitted to offer their services (other than Voice
Telephony) on the German market and on January 1, 1998, DT's monopoly over Voice
Telephony is scheduled to end. In general, under the TKG, carriers with dominant
market positions, such as DT, are required to interconnect their networks with
the networks of other service suppliers. The anticipated break-up of DT's
monopoly over Voice Telephony has led to a number of alliances among companies
that desire to be key players in Germany's new market, in particular electricity
providers. For example, VIAG Interkom GmbH is a joint venture between VIAG AG
and BT, and VEBA Telecom GmbH is a joint venture between Veba AG, RWE Energie AG
and Cable & Wireless plc. Certain of the above-named German companies have
monopolies in the energy market in Germany, which is still not open for
competition, potentially creating a negative impact on the liberalization
process for telecommunications.

Currently in Germany, regulation of the telecommunications industry is
governed by the German Ministry of Post and Telecommunications (the "German
Ministry"), and to a certain extent by the Commission. As of January 1998, the
German Ministry, in its capacity as a regulator, will be replaced by a new
regulatory authority yet to be established under the TKG. The new regulatory
authority will act within the German Federal Ministry of Economics and will have
the leading role in developing the new regulatory environment. Under the TKG, in
general, a TKG license is required by any person that: (i) operates transmission
facilities for the provision of telecommunications services to the public; or
(ii) offers Voice Telephony services to the public through telecommunications
networks operated by such provider. The criteria for granting licenses are
broadly outlined in the TKG and the new regulatory authority will be responsible
for interpreting these guidelines and granting the TKG Licenses. See "Risk
Factors--Substantial Government Regulation; and --Risks Associated With
Imposition of VAT on Company's Services."

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Switzerland

Until recently, the telecommunications industry in Switzerland was
regulated by the Law on Telegraph and Telephone Traffic under which Swiss PTT
maintained a monopoly of the Swiss telecommunications market. In June 1991, in
response to the liberalization taking place in the EU, the Swiss Parliament
adopted a new law on telecommunications. This regulation has partially
liberalized the Swiss telecommunications market, limiting the ITO monopoly to
Voice Telephony and the telecommunications infrastructures. As of July 1, 1995,
the Federal Government amended the Telecommunications Services Federal Decree of
March 25, 1992 in order to authorize private companies to provide voice
telecommunications services to CUGs. As a result of this action by the
government, telecommunications companies may provide telephone services over
leased lines for a group of customers. No permit or notice is required in order
to form a CUG or to offer telephone services for a CUG.

Although Switzerland is not an EU member state, the EU directives mandating
liberalization have nevertheless had an indirect effect on Swiss law, as the
Swiss government has expressed its intention to maintain Swiss
telecommunications regulations in line with EU directed liberalization. In
response to the EU's adoption of the resolution supporting the liberalization of
all Voice Telephony services by January 1, 1998, the Swiss federal government
proposed that Parliament further open the Swiss telecommunications market for
services and network infrastructures. On October 1, 1996, the Swiss federal
government proposed a draft law (the "Draft Law") designed to increase
competition in the telecommunications service area and to guarantee "universal"
services for the entire Swiss population at reasonable prices. The Company's
services in Switzerland will be subject to the Draft Law in the final form in
which it is enacted into law.

The Draft Law currently provides that any operator offering
telecommunications services through self-controlled infrastructures will be
required to obtain a license from the Swiss federal authorities. The government
will be required to grant a license if the applicant possesses the technical
abilities to offer the services and is able to offer sufficient guarantees that
it will comply with Swiss law. All other service providers will be required only
to notify the government of the services offered by them.

Any operator that acquires a dominant position in the market will be
required to guarantee the interconnection of its services and installations to
other suppliers. If an agreement regarding interconnection cannot be reached
between a dominant operator and a supplier, an independent federal commission
will determine the conditions of such interconnection.

In addition, the Draft Law introduces a licensing system for universal
services. This includes the obligation to offer telephone services transmission
data, service for urgent calls, a network of public telephones and access to the
Swiss telephone directories. The Swiss federal government will be authorized to
increase the services to be rendered by the holders of such universal service
licenses. Telecom PTT, a department within Swiss PTT, will guarantee the
universal service obligations without any compensation from the
telecommunications industry for a transition period of five years. By the end of
such transition period, the licenses for universal service obligations will be
offered for tender on a region-by-region basis so that continuous coverage will
be made available to the entire country. If provision of the universal service
obligations cannot cover costs in particular areas, a subsidy will be offered in
the form of investment contributions, which will be financed from a fund derived
from license fees collected from holders of service licenses.

The Draft Law creates an independent telecommunications commission that
will principally be responsible for licensing and approving interconnection
decisions. In response to the pressure from the EU liberalization directives,
the Swiss Parliament may attempt to adopt the Draft Law during 1997 in order to
make it effective by January 1, 1998.

The Company is not currently required to obtain a license to provide call
reorganization services in Switzerland. In the event that the Draft Law becomes
effective on substantially the terms initially published, the Company would be
required to notify the government of its provision of services or, depending
upon the extent to which the Company expands its operations in Switzerland,
obtain a license. See "Risk Factors-- Substantial Government Regulation."

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<PAGE> 66

Austria

The Company's services in Austria are subject to the Austrian
Telecommunications Act. In general, the Austrian Telecommunications Act requires
a license for the construction and operation of any telecommunications
equipment. A license may be refused on the basis of certain public policy rules.
Currently, the Austrian ITO generally maintains a monopoly over the fixed public
telecommunications network and Voice Telephony. The government is considering
the Austrian Proposed Legislation incorporating the EU directives to liberalize
the provision of Voice Telephony services and infrastructures by January 1998.
The Austrian Proposed Legislation would, in effect, end this monopoly, and
require dominant providers to grant interconnectivity on a nondiscriminatory
basis. Under the proposed law, in general, telecommunications services would be
subject only to a notification requirement, but a license would be required for
the provision of Voice Telephony services. Under the new law, in order to
provide the public switched services that the Company intends to provide in
Austria, the Company would be required to obtain an Austrian Telecommunications
License. It is currently contemplated that a new regulatory agency would be
established which would grant licenses containing fixed durations but subject to
renewal for so long as the licensee complies with applicable laws and
regulations. See "Risk Factors--Substantial Government Regulation; and --Risks
Associated With Imposition of VAT on Company's Services."

Japan

Prior to the liberalization of the Japanese telecommunications market in
1985, domestic and international calls were monopolized by Nippon Telegraph and
Telephone Public Corporation ("NTT") and KDD, respectively. The Company's
services are subject to the Japanese Law that became effective on April 1, 1985.
Under the Law, both domestic and international telecommunications services may
be provided by "Type I" and "Type II" carriers. As of March 31, 1996, there were
126 Type I carriers, 50 Special Type II carriers and approximately 3,000 General
Type II carriers. As part of the 1985 reform, NTT was privatized and renamed
Nippon Telegraph and Telephone Corporation.

Type I carriers provide telecommunications services through their own
telecommunication circuit facilities. In order to conduct Type I
telecommunications business, the carrier must be licensed by the Japanese
Ministry. Under the Japanese Law, the Japanese Ministry must approve an
application for a Type I license if certain conditions prescribed by the
Japanese Law are met. These conditions are broadly written, however, and in
practice, the Japanese Ministry enjoys a considerable degree of discretion in
determining whether to grant a Type I license. The terms and conditions
(including the tariff) for the provision of telecommunications services by a
Type I carrier must be approved by the Japanese Ministry. Foreign ownership in a
Type I carrier is limited to less than one-third of the outstanding shares.

Type II carriers provide telecommunications services using
telecommunications facilities and services provided by Type I carriers. A Type
II telecommunications business is defined in the Japanese Law as a
telecommunications business other than a Type I telecommunications business.
Type II telecommunications business is classified into Special Type II and
General Type II. Special Type II telecommunications business is defined as (i)
the provision of telecommunication services to an unspecified number of general
subscribers through facilities that exceed the minimum capacity prescribed by
Cabinet Order (currently an equivalent of two thousand 64K bps lines), and (ii)
the provision of telecommunications services through facilities for
telecommunication between a location within Japan and a location outside Japan.
The latter definition of a Special Type II business is interpreted by the
Japanese Ministry in such a way that only services provided through such
facilities as leased circuits connecting a node situated in Japan and one
situated outside Japan fall under this definition. In order to conduct Special
Type II telecommunications services, a carrier must be registered with the
Japanese Ministry. The conditions for registration as a Special Type II carrier
are significantly less stringent than conditions for license as a Type I
carrier. The terms and conditions for provision of telecommunications services
by a Special Type II carrier must be filed with the Japanese Ministry but it is
not necessary that such terms and conditions be approved by the Japanese
Ministry.

General Type II telecommunications business is defined as Type II
telecommunications business other than Special Type II business. General Type II
telecommunications business may be conducted by any person

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<PAGE> 67

who files a notice with the Japanese Ministry with respect thereto. There is no
requirement for a General Type II carrier to file with the Japanese Ministry the
terms and conditions for provision of services nor must a General Type II
carrier obtain the Japanese Ministry's approval. There is no restriction on
foreign ownership of a Special or General Type II carrier.

To use the facilities and services provided by a Type I carrier, a Special
or General Type II carrier may enter into a "non-tariff based contract" with the
Type I carrier. Non-tariff based contracts with Type I carriers are subject to
the approval of the Japanese Ministry.

The Company, through its Japanese subsidiary, has filed notice with the
Japanese Ministry as a General Type II carrier and is in the process of seeking
Special Type II registration. In addition, the Company is negotiating an
arrangement with A.T. NET that would allow the Company to take advantage of A.T.
NET's Special Type II registration. The Company's registration as Special Type
II carrier will permit the Company to provide additional services in Japan. See
"Risk Factors--Substantial Government Regulation" and "Business--Japan and Asahi
Telecom."

South Africa

The telecommunications industry in South Africa is principally regulated by
the SA Post Office Act and the recently enacted SA Telecommunications Act.
Section 78 of the SA Post Office Act confers a statutory monopoly on Telkom, a
state-owned company, for the construction, maintenance or use of any
telecommunications line. A "telecommunications line" is broadly defined in the
Post Office Act as including "any apparatus, instrument, pole, mast, wire, pipe,
pneumatic or other tube, thing or means which is or may be used for or in
connection with the sending, conveying, transmitting or receiving of signs,
signals, sounds, communications or other information." It is anticipated that
the government will promulgate regulations by mid-1997 that will provide for the
repeal of Section 78 of the SA Post Office Act pursuant to Section 106 of the SA
Telecommunications Act. Accordingly, while the SA Telecommunications Act
ultimately envisages the liberalization of telecommunications in South Africa,
Telkom continues to exercise at least a temporary monopoly over fixed line
telephony.

The Company's services in South Africa are subject to such Acts. The stated
principal objectives of the SA Telecommunications Act are ensuring fair
competition within, and encouraging investment and innovation in, the South
African telecommunications industry. Once Section 32 of the SA
Telecommunications Act becomes effective, it will prohibit any person from
providing a telecommunications service except under, and in accordance with, a
telecommunications license issued to that person in accordance with the SA
Telecommunications Act. A "telecommunications service" is defined as any service
provided by a "telecommunication system." A "telecommunications system" is, in
turn, defined as "any system or series of telecommunication facilities or radio,
optical or other electromagnetic apparatus or any similar technical system used
for the purpose of telecommunication." The Company believes that the SA Post
Office Act and the SA Telecommunications Act allow the Company to provide its
call reorigination services and that such laws do not require the Company to
obtain a license for the provision of such services. The Company does, however,
require a license for the connection, operation and maintenance of an automatic
dialing device for the provision of call reorigination services, or any similar
telecommunications apparatus. The Company believes that its agents in South
Africa that supply such equipment have obtained the required licenses.

Under Section 34 of the SA Telecommunications Act, a telecommunications
service provider will only be able to apply for a license to provide a
telecommunications service if invited to do so by the Minister of Posts,
Telecommunications and Broadcasting (the "South African Minister") via notice in
the Government Gazette. Under the SA Telecommunications Act, Telkom is currently
the only entity which has been granted a license to provide, among other things,
public switched telecommunication services, local access telecommunication
services and public pay telephone services. The initial term of Telkom's license
is 25 years. Although no date has been specified for the abolition of Telkom's
monopoly over fixed-line telephony, the White Paper on Telecommunications Policy
published by the South African Minister in the Government Gazette dated March
13, 1996, anticipates that Telkom's current monopoly will be phased out over a
period of six years.

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The SA Telecommunications Act establishes a new telecommunications
regulatory authority to be called the South African Telecommunications
Regulatory Authority ("SATRA"). SATRA's functions will include the granting of
telecommunication licenses, albeit that applications for such licenses may not
be sought until such time as the South African Minister calls for such
applications by way of invitation in the Government Gazette. SATRA will be
governed by and represented by its council, the members of which will be
appointed by the President on the advice of Parliament's standing committees on
communications. Although the SA Telecommunications Act states that SATRA will be
independent and impartial in the performance of its functions, it will be
required to act in accordance with policy directions issued by the South African
Minister. Such policy directions are required to be consistent with the
objective of the SA Telecommunications Act of ensuring fair competition within
the telecommunications industry. See "Risk Factors--Substantial Government
Regulation."

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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information regarding the Company's
directors and officers (ages as of December 31, 1996).

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- ---- ------------------------------------------------------
<S> <C> <C>
Stephen E. Myers 48 Chairman of the Board
James D. Pearson 42 President, Chief Executive Officer and Director
Francis J. Mount 54 Executive Vice President and Chief Operating Officer
John C. Brizendine 52 Executive Vice President
Jan Piazza 42 Vice President, Sales and Marketing
Paul K. Heun 36 Vice President, Network Services
R. Gordon Mills 63 Chief Financial Officer and Secretary
Michael C. Anderson 56 Director
</TABLE>

The business experience, principal occupations and employment, as well as
the periods of service, of each of the directors and executive officers of the
Company during at least the last five years are set forth below.

Stephen E. Myers, the founder of the Company, has been Chairman of the
Board of Directors of the Company since February 1993. Mr. Myers is a
co-founder, and since 1976 has been Chairman and a principal shareholder of US
Cable Corporation ("US Cable") and the US Cable Group, which consists of US
Cable and several other divisions and affiliated companies ("US Cable Group").
At various times, US Cable has served up to approximately 235,000 cable
subscribers in more than 150 communities throughout the United States.

James D. Pearson, has been a Director of the Company since February 1993
and has been President and Chief Executive Officer of the Company since 1994.
Since 1992, Mr. Pearson has been President and Chief Executive Officer of US
Cable and the US Cable Group. From 1982 to 1991, Mr. Pearson served as the Chief
Financial Officer for US Cable. Prior to joining US Cable, Mr. Pearson served as
a Second Vice President for the Continental Illinois National Bank and Trust in
Chicago as a lender to the media, communications, and sports industries.

Francis J. Mount, was appointed Vice President and Chief Operating Officer
of the Company in January 1996 and was subsequently promoted to Executive Vice
President and Chief Operating Officer in June 1996. From 1990 to January 1996,
Mr. Mount was employed by MCI, most recently as Director, Global Technical
Services, responsible for supporting international development, alliance
management and all technical operations and services outside of the United
States. This included the construction and maintenance of large networks such as
Hyperstream, Concert and private networks for large accounts such as J.P.
Morgan, Proctor and Gamble and IBM. From March 1967 to December 1989, Mr. Mount
was employed at AT&T in various positions, including Chief Executive Officer pro
tem, Chief Technical Officer in a Cable & Wireless joint venture in Jamaica and
District Manager, International Business Development.

John C. Brizendine, is a co-founder of the Company and has been Executive
Vice President of the Company since February 1993. Mr. Brizendine has been
instrumental in the development and market introduction of the TelePassport
service line, the formation of the Company's wholesale business and the
establishment of the Company's strategic relationships in Japan. From 1969 to
1992, Mr. Brizendine held several executive and management positions at IBM. In
such capacities, Mr. Brizendine was responsible for marketing IBM database and
data communications software systems and the market introduction of image
management systems in the United States. Mr. Brizendine was also responsible for
the adaptation and introduction strategy for IBM telecommunications and database
software in Italy and Japan.

Jan Piazza, has been Vice President, Sales and Marketing, of the Company
since September 1995, in which capacity she is responsible for wholesale and
retail sales, major account management and corporate communications. From 1987
to August 1995, Ms. Piazza served in various positions at a predecessor of
WorldCom, most recently as Vice President of Product Development and Carrier
Sales. From 1983 to 1987,

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Ms. Piazza was Director of Sales Administration and Customer Service for Argo
Communications, a then start-up satellite provider, which introduced the first
gateway switch to France. From 1980 to 1983, Ms. Piazza was Manager of
Subscriber Services at Manhattan Cable Television in New York City.

Paul K. Heun, has been Vice President, Network Services, of the Company
since April 1996 and is responsible for the day to day operation of the
TelePassport Network worldwide. From January 1995 to April 1996, Mr. Heun was
employed by AT&T where he was involved in the formation of an AT&T local access
company. Beginning in April 1989, Mr. Heun was employed within the international
division of MCI where he held several positions in which his responsibilities
ranged from assignments in data services and voice to servicing projects related
to the Japanese community and running MCI's switch operations in New York City.

R. Gordon Mills, has been Chief Financial Officer of the Company since June
1993. From 1991 to 1993, Mr. Mills was Vice President, Finance, of Total Office
Today, Inc., a commercial stationery company servicing medium and large-sized
companies. From 1981 to 1991, Mr. Mills served as Corporate Controller of the
Haagen Dazs Company during its transition from an entrepreneurial business to a
worldwide manufacturer and distributor of premium ice creams. Mr. Mills is a
former member of the Board of Directors of The Commerce & Industry Association
of New Jersey and currently serves as Board Chairman of a regional food service
company.

Michael C. Anderson, a founder of the Company, has been a Director of the
Company since February, 1993. Mr. Anderson is also a co-founder of US Cable and
has served as Executive Vice President of US Cable and the US Cable Group since
1976. Prior to co-founding US Cable, Mr. Anderson held key positions in
marketing, sales and management for both domestic and international
corporations, including Shell Oil Co. One of Mr. Anderson's primary
responsibilities at US Cable has been corporate development, including numerous
system acquisitions, consolidations and divestitures. Mr. Anderson's current
activities include initiatives throughout Spain to develop strategic alliances
and seek cable/telephony franchises to construct state-of-the-art, broadband
fiber-based full-service networks.

Following the Offering, the Company intends to establish a Board of
Directors of persons. Upon the closing of the Offering, the Board will consist
of members and have vacancies. To fill the vacancies on the Board of
Directors, the Board of Directors of the Company intends to appoint, within 60
days of the Offering, three directors who are neither officers nor employees of
the Company or its affiliates. All directors hold office until the next annual
meeting of stockholders or until their successors are elected and qualify.
Officers are elected annually by, and serve at the discretion of, the Board of
Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

Effective upon the Offering, the Board of Directors will have three
standing committees: the Compensation Committee, the Audit Committee and the
Executive Committee. Upon their appointment, the three directors who will fill
the vacancies on the Board of Directors will serve on the Compensation Committee
and the Audit Committee. The members of the Executive Committee will be Messrs.
Myers (Chairman), Anderson and Pearson. The functions of the Compensation
Committee are to review and approve salaries, benefits and bonuses for all
executive officers of the Company, and to review and recommend to the Board of
Directors matters relating to employee compensation and employee benefit plans.
The Compensation Committee also administers the 1996 Stock Option Plan. See
"Management--1996 Stock Option Plan." The functions of the Audit Committee are
to recommend annually to the Board of Directors the appointment of the
independent auditors of the Company, review the scope of their annual audit and
other services they are asked to perform, review the report on the Company's
financial statements following the audit, review the accounting and financial
policies of the Company, review management's procedures and policies with
respect to the Company's internal accounting controls and review related party
transactions. The functions of the Executive Committee are to address
significant corporate, operating and management matters between meetings of the
full Board of Directors.

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DIRECTOR COMPENSATION

Currently, the Company's directors do not receive cash compensation for
service on the Board of Directors or committees thereof, although directors are
reimbursed for certain out-of-pocket expenses in connection with attendance at
Board of Directors and committee meetings. Following completion of the Offering,
non-employee Directors will each receive options for 5,000 shares of Class B
Common Stock and will be compensated at the rate of $12,000 per year, payable
quarterly. The Company has adopted the 1996 Stock Option Plan under which the
Company may, from time to time and in the discretion of the Board of Directors
(or committee), grant options to directors in a manner complying with the
provisions of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").

EXECUTIVE COMPENSATION

Summary Compensation Table. The table below summarizes the compensation
earned by the Company's Chief Executive Officer and the Company's four (other)
most highly compensated executive officers, whose total annual salary and bonus
exceeded $100,000 (the "Named Executive Officers"), for services rendered during
the fiscal year ended December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- -------------------------------------------- ----- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James D. Pearson, President and Chief
Executive Officer(1)...................... 1996 -- -- -- --
Francis J. Mount
Chief Operating Officer................... 1996 $150,000 $37,000 -- $30,000(2)
John C. Brizendine,
Executive Vice President.................. 1996 $138,000 $25,000 -- --
Jan Piazza,
Vice President, Sales and Marketing....... 1996 $100,000 $30,000 $52,000(3) --
Paul K. Heun,
Vice President, Network Services.......... 1996 $110,000 $20,000 -- $20,000(4)
</TABLE>

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

(1) Mr. Pearson received no compensation from the Company during 1996. See
"Related Party Transactions." See "--Employment Agreements" for Mr.
Pearson's compensation arrangement with the Company following the completion
of the Offering.

(2) This amount represents an incentive payment paid to Mr. Mount upon his
appointment as Chief Operating Officer of the Company.

(3) This amount represents commissions earned by Ms. Piazza in 1996.

(4) This amount represents an incentive payment paid to Mr. Heun upon his
appointment as Vice President, Network Services.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors did not have a Compensation Committee prior to the
date of this Prospectus. Accordingly, the entire Board of Directors made all
determinations concerning compensation of executive officers. The members of the
Compensation Committee effective upon the Offering will consist of three
directors who are neither officers nor employees of the Company or its
affiliates. There are no Compensation Committee (or Board of Directors)
interlock relationships with respect to the Company.

EMPLOYMENT AGREEMENTS

Effective upon the closing of the Offering, the Company will enter into a
two-year employment agreement with James D. Pearson as President and Chief
Executive Officer. The agreement will provide for a

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<PAGE> 72

per annum base salary of $175,000, plus a minimum annual bonus of $100,000. In
addition, Mr. Pearson will be entitled to the grant of options to purchase
shares of Class B Common Stock commencing on the first anniversary
of this Prospectus. The options shall vest quarterly over four years. The
agreement will be terminable only for "Cause" (as defined in the agreement). In
the event of a "Change of Control" (as defined in the agreement), Mr. Pearson
will be entitled to receive a payment in the amount of 24 months base salary.
Under the agreement, Mr. Pearson shall continue to devote to the Company's
affairs that portion of his business time and attention as he or the Company's
Board of Directors may deem necessary to fulfill his obligations to the Company.
See "Risk Factors--Chief Executive Officer Not Full Time."

Effective upon the closing of the Offering, the Company will also be
subject to employment agreements with Francis J. Mount as Executive Vice
President and Chief Operating Officer, Paul K. Heun as Vice President, Network
Services and Jan Piazza as Vice President, Sales and Marketing. The agreements
will be terminable by either party in accordance with the terms thereof, and
provide for base salaries of $150,000, $110,000 and $100,000, respectively, plus
annual bonuses generally based on performance. The agreement will provide that
the employees shall not, for a period of two years after termination of their
respective agreements, compete with or solicit any employee or agent of the
Company or any of the Company's affiliates.

1996 STOCK OPTION PLAN

In 1996, the Board of Directors adopted the 1996 Stock
Option Plan and, prior to the Offering, it is anticipated that the Company's
stockholders will approve the 1996 Stock Option Plan. The primary purpose of the
1996 Stock Option Plan is to provide a means through which the Company may
attract and retain competent persons to become directors and consultants of the
Company and through which the Company may attract and retain able persons to
enter and remain in the employ of the Company. Eligible persons include selected
key employees, officers, directors and consultants of the Company.

The 1996 Stock Option Plan is administered by a committee, as defined in
the 1996 Stock Option Plan (the "Committee"), appointed by the Board of
Directors. Awards may be granted by the Committee to eligible persons in the
form of non-qualified stock options, incentive stock options (within the meaning
of Section 422 of the Internal Revenue Code), stock appreciation rights,
restricted stock awards, stock awards and other stockbased compensation
("Incentive Awards").

The aggregate number of shares of Class B Common Stock that may be issued
pursuant to Incentive Awards under the 1996 Stock Option Plan may not exceed
; provided, however, that stock appreciation rights that are
exercisable as an alternative to an option and shares of Class B Common Stock
returned to the Company as a result of forfeitures will not be subject to the
foregoing limitation. The maximum number of shares which may be the subject of
options and stock appreciation rights granted in any calendar year to an
eligible individual shall not exceed shares.

The 1996 Stock Option Plan permits the Committee to grant Incentive Awards
which would constitute "performance-based compensation" for purposes of Section
162(m) of the Internal Revenue Code. The maximum dollar amount of Incentive
Awards constituting performance-based compensation that may be granted to an
eligible individual during any calendar year shall not exceed .

In case of a Change of Control Event (as defined in the 1996 Stock Option
Plan), (i) all restrictions on restricted stock awarded under the 1996 Stock
Option Plan will expire, and (ii) all stock options outstanding under the 1996
Stock Option Plan will become immediately vested and exercisable for a period of
60 days following the disclosure of the Change of Control Event.

Prior to the date of this Prospectus, Incentive Awards to purchase an
aggregate of shares of Class B Common Stock will be issued and
outstanding pursuant to the 1996 Stock Option Plan.

It is anticipated that the Company will file a registration statement under
the Securities Act to register the shares of Class B Common Stock to be issued
under the 1996 Stock Option Plan.

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PRINCIPAL STOCKHOLDERS

The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale of the Class B Common Stock being offered hereby,
certain information with respect to the beneficial ownership of the Company's
voting securities by (i) each person known by the Company to be the owner of
more than 5% of the outstanding shares of any class of the Company's Common
Stock, (ii) each director, (iii) each Named Executive Officer and (iv) all
directors and executive officers as a group:

<TABLE>
<CAPTION>
SHARES PERCENTAGE OF VOTING
BENEFICIALLY PERCENTAGE OF CLASS POWER(2)
OWNED(1) -------------------------- --------------------------
------------ PRIOR TO PRIOR TO
NAME TITLE OF CLASS NUMBER OFFERING AFTER OFFERING OFFERING AFTER OFFERING
- ---------------------------------- --------------------- ------------ -------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stephen E. Myers (3).............. Class A Common Stock 1,700 85% 85% 85% %
Class B Common Stock -- -- -- -- --
Michael C. Anderson (4)........... Class A Common Stock 200 10 10 10 --
Class B Common Stock -- -- -- -- --
James D. Pearson (5).............. Class A Common Stock 160 8 8 8
Class B Common Stock -- -- -- -- --
Francis J. Mount (6).............. Class A Common Stock -- -- -- -- --
Class B Common Stock -- -- -- -- --
John C. Brizendine (7)............ Class A Common Stock -- -- -- -- --
Class B Common Stock -- -- -- -- --
Jan Piazza (8).................... Class A Common Stock -- -- -- -- --
Class B Common Stock -- -- -- -- --
Paul K. Heun (9).................. Class A Common Stock -- -- -- -- --
Class B Common Stock -- -- -- -- --
Directors and executive Class A Common Stock 2,000 100% 100% 100%
officers........................
as a group (7 persons total) (10) Class B Common Stock -- -- -- -- --
</TABLE>

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

(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares
beneficially owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants that
are held by such person (but not those held by any other person) and which
are exercisable within 60 days from the date hereof have been exercised.

(2) Determined with respect to matters submitted to all stockholders for a vote,
assuming in such case the Class A Common Stock and the Class B Common Stock
vote together as a single class. Each share of Class A Common Stock is
entitled to ten votes and each share of Class B Common Stock is entitled to
one vote. See "Description of Capital Stock."

(3) The address for Mr. Myers is 249 Royal Palm Way, Suite 301, Office D, Palm
Beach, Florida 33480. Includes shares of Class A Common Stock
representing Mr. Myers' portion of shares underlying the Pearson Options (as
hereafter defined). See "Related Party Transactions."

(4) The address for Mr. Anderson is 249 Royal Palm Way, Suite 301, Office D,
Palm Beach, Florida 33480. Includes shares of Class A Common Stock
representing Mr. Anderson's portion of shares underlying the Pearson Options
(as hereafter defined). See "Related Party Transactions."

(5) The address for Mr. Pearson is 28 West Grand Avenue, Montvale, New Jersey
07645. Does not include shares of Class B Common Stock issuable
upon exercise of a like number of options granted to Mr. Pearson pursuant to
the 1996 Stock Option Plan. Includes shares of Class A Common
Stock issuable upon exercise of the Pearson Options (as hereafter defined).
See "Related Party Transactions."

(6) The address for Mr. Mount is 1212 Avenue of the Americas, New York, NY
10036. Does not include shares of Class B Common Stock issuable
upon exercise of a like number of options granted to Mr. Mount pursuant to
the 1996 Stock Option Plan. See "Management."

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<PAGE> 74

(7) The address for Mr. Brizendine is 1212 Avenue of the Americas, New York, NY
10036. Does not include shares of Class B Common Stock issuable
upon exercise of a like number of options granted to Mr. Brizendine
pursuant to the 1996 Stock Option Plan. See "Management."

(8) The address for Ms. Piazza is 1212 Avenue of the Americas, New York, NY
10036. Does not include shares of Class B Common Stock issuable
upon exercise of a like number of options to be granted to Ms. Piazza
pursuant to the 1996 Stock Option Plan concurrently with the Offering. See
"Management."

(9) The address for Mr. Heun is 1212 Avenue of the Americas, New York, NY
10036. Does not include shares of Class B Common Stock issuable
upon exercise of a like number of options to be granted to Mr. Heun
pursuant to the 1996 Stock Option Plan concurrently with the Offering. See
"Management."

(10) Does not include shares of Class B Common Stock issuable upon
exercise of a like number of options under the 1996 Stock Option Plan.

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<PAGE> 75

RELATED PARTY TRANSACTIONS

On December 27, 1994, the net assets of US FiberCom Network, Inc., an
inactive affiliate under common control, were contributed to the Company, with
the net assets recorded at their historical carrying value by the Company. The
net assets, primarily consisting of property and equipment and amounts due from
the Company, had a net historical carrying value of $1.0 million, resulting in
an increase to additional paid-in capital of this amount. Prior to the
contribution, the Company utilized certain of the fixed assets of US FiberCom
Network, Inc. and was charged certain expenses amounting to $0.01 million.

For the year ended December 31, 1996, US Cable advanced an aggregate of
$0.16 million for certain expenses on behalf of the Company.

Since the Company's inception, James D. Pearson, the Company's President
and Chief Executive Officer, has provided services to the Company while employed
by US Cable. To date, the Company has paid no compensation to Mr. Pearson.

In March 1995, the Company entered into an agreement with TelePassport
Japan to provide international telecommunications services and to lease
switching equipment. For the year ended December 31, 1995, the Company's
consolidated revenues included approximately $0.4 million for such services
provided. See "Business--Japan and Asahi Telecom."

Prior to the date of this Prospectus, Messrs. Myers and Anderson granted to
Mr. Pearson an option to purchase an aggregate of shares of Class A
Common Stock (representing 2% of the outstanding shares of Common Stock owned by
Messrs. Myers and Anderson prior to the Offering) at an exercise price of
$ per share (the "Pearson 2% Option") and an option to purchase an
aggregate of shares of Class A Common Stock (representing 1% of the
outstanding shares of Common Stock owned by Messrs. Myers and Anderson prior to
the Offering) at an exercise price of $ per share (the "Pearson 1%
Option") (collectively with the Pearson 2% Option, the "Pearson Options").
Pursuant to the terms of the Pearson Options, if Mr. Pearson's employment with
the Company is terminated prior to the second anniversary of the date of this
Prospectus, Messrs. Myers and Anderson have the option to repurchase all or a
portion of the shares of Class A Common Stock underlying the Pearson 2% Option,
at a price per share equal to the per share consideration paid by Mr. Pearson to
exercise the Pearson 2% Option, plus 10%. If Mr. Pearson's employment with the
Company is terminated prior to the third anniversary of the date of this
Prospectus, Messrs. Myers and Anderson have the option to repurchase all or a
portion of the shares of Class A Common Stock underlying the Pearson 1% Option,
at a price per share equal to the per share consideration paid by Mr. Pearson to
exercise the Pearson 1% Option, plus 10%. See "Principal Stockholders."

For information concerning the TelePassport Companies, see "Business--The
Reorganization." For information concerning employment and consulting agreements
with, and compensation of, the Company's executive officers and directors, see
"Management--Employment Agreements" and "Management--1996 Stock Option Plan."

The Company believes that the terms of each of the foregoing transactions
and those that will exist after the consummation of the Offering are no less
favorable to the Company than could have been obtained from non-affiliated third
parties, although no independent appraisals were obtained.

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DESCRIPTION OF CAPITAL STOCK

Upon consummation of the Offering, the authorized capital stock of the
Company will consist of shares of Class A Common Stock,
shares of Class B Common Stock and shares of Preferred Stock, of which
shares of Class A Common Stock will be issued and outstanding,
shares of Class B Common Stock will be issued and outstanding, and no
shares of Preferred Stock will be issued or outstanding.

The following description of certain provisions of the Company's Amended
Certificate of Incorporation and By-laws is a summary only and is qualified in
its entirety by the provisions of such documents, copies of all of which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.

COMMON STOCK

The Class B Common Stock and the Class A Common Stock are substantially
identical, except for disparity in voting power and convertibility. The Class B
Common Stock is entitled to one vote per share and is not convertible into Class
A Common Stock. The Class A Common Stock is entitled to ten votes per share and
is convertible at any time on a share-for-share basis into Class B Common Stock.
Except as otherwise required by law, under the Company's Amended Certificate of
Incorporation, shares of Class A Common Stock and Class B Common Stock will vote
together on all matters submitted to vote of stockholders, including the
election of directors. Upon completion of the Offering, the Company's current
stockholders collectively will own 100% of the outstanding Class A Common Stock,
which will represent % of the combined voting power of the Company.
Accordingly, the holders of the Class A Common Stock will have the right to
elect a majority of the Company's Board of Directors. There are no preemptive,
subscription, conversion or redemption rights pertaining to the shares of Common
Stock. Holders of shares of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors from funds legally available
therefor and to share ratably in the assets of the Company available upon
liquidation, dissolution or winding up. The holders of shares of Common Stock do
not have cumulative voting rights for the election of directors. All of the
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid and non-assessable.

PREFERRED STOCK

The Amended Certificate of Incorporation authorizes the issuance of
shares of Preferred Stock, $.01 par value per share, in one or more
series, with each series to have such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Class B Common Stock. In addition, the Preferred Stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company. Although the Company does not have any
current intentions to issue any shares of Preferred Stock, there can be no
assurance that the Company will not do so in the future.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Certain provisions of the Delaware General Corporation Law and of the
Amended Certificate of Incorporation and By-Laws, summarized in the following
paragraphs, may be considered to have an anti-takeover effect and may delay,
deter or prevent a tender offer, proxy contest or other takeover attempt that a
stockholder might consider to be in such stockholder's best interest, including
such an attempt as might result in payment of a premium over the market price
for shares held by stockholders.

Delaware Anti-Takeover Law. Section 203 of the Delaware General Corporation
Law prohibits a Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the time of
the transaction in which the person became an interested stockholder unless (i)
prior to the time the person became an interested stockholder, either the
business combination or the transaction which resulted in the person becoming an
interested stockholder is approved by the board of

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<PAGE> 77

directors of the corporation, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such time the business combination is approved by the board of directors
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who owns 15%
or more of the corporation's outstanding voting stock or who is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder, as well as the affiliates and
associates of such person. The restrictions of Section 203 do not apply if,
among other things, a corporation, by action of its stockholders, adopts an
amendment to its certificate of incorporation or by-laws expressly electing not
to be governed by Section 203, provided that, in addition to any other vote
required by law, such amendment to the certificate of incorporation or by-laws
must be approved by the affirmative vote of a majority of the shares entitled to
vote. Moreover, an amendment so adopted is not effective until twelve months
after its adoption and does not apply to any business combination between the
corporation and any person who became an interested stockholder of such
corporation on or prior to such adoption. The Company's Amended Certificate of
Incorporation and By-laws do not currently contain any provisions electing not
to be governed by Section 203 of the Delaware General Corporation Law.

Class A Voting Rights. Shares of Class A Common Stock are entitled to ten
votes per share, as compared to one vote per share for the Class B Common Stock.
Upon completion of the Offering, the Company's current stockholders collectively
will own 100% of the outstanding Class A Common Stock, which will
represent % of the combined voting power of the Company. Accordingly, the
holders of the Class A Common Stock will have the right to elect a majority of
the Company's Board of Directors. This may have the result of discouraging a
change in control of the Company, even if a Class B stockholder considered to be
in such stockholder's best interest.

Preferred Stock. The Company is authorized to issue shares of
undesignated Preferred Stock. Under certain circumstances, the issuance of
Preferred Stock could be utilized as a method of discouraging, delaying or
preventing a change in control of the Company.

DIRECTOR LIABILITY AND INDEMNIFICATION

Pursuant to the Company's Amended Certificate of Incorporation and By-laws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Delaware law for claims brought against them in
their capacities as officers or directors. Indemnification is not allowed if the
officer or director does not act in good faith and in a manner reasonably
believed to be in the best interests of the Company, or if the officer or
director had no reasonable cause to believe his conduct was lawful. Accordingly,
indemnification may occur for liabilities arising under the Securities Act. The
Company and the Underwriters have agreed to indemnify each other (including
officers and directors) against certain liabilities, including liabilities under
the Securities Act. See "Underwriting." Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is Bank of New York.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have shares of
Class A Common Stock outstanding and shares of Class B Common Stock
outstanding ( shares if the over-allotment option is exercised in
full). Of the shares of Common Stock to be issued and outstanding after the
Offering, all of the shares of Class B Common Stock sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by "affiliates" of the Company
within the meaning of Rule 144 under the Securities Act ("Rule 144"). The
outstanding shares of Class A Common Stock are "restricted securities," as that
term is defined under Rule 144, and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption provided by Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be "affiliates" of the
Company, who has beneficially owned his or her shares for at least two years
since the later of the date of the acquisition of the securities from the
Company or from an affiliate is entitled to sell within any three-month period
that number of restricted securities that does not exceed the greater of one
percent of the then outstanding shares of securities of the same class or the
average weekly trading volume of such securities during the four calendar weeks
immediately preceding such sale, or the filing of notice of proposed sale, if
required, subject to the availability of adequate current public information
about the Company. After three years have elapsed since the later of the date
the securities were acquired from the Company or from an affiliate of the
Company, such shares may be sold without limitation by persons who are not
affiliates of the Company at the time of sale and have not been affiliates of
the Company for at least three months under Rule 144(k). The Commission has
proposed an amendment to Rule 144 which would reduce the holding period required
for shares subject to Rule 144 to become eligible for sale in the public market
from two years to one year, and from three years to two years in the case of
Rule 144(k).

The Company, its officers, directors and all existing holders of Common
Stock have agreed that, for a period of 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Commission a registration
statement under the Securities Act relating to, any additional shares of Common
Stock or securities convertible into or exchangeable or exercisable for any
shares of Common Stock, or disclose the intention to make any such offer, sale,
pledge, disposal or filing, without the prior written consent of Credit Suisse
First Boston Corporation, except, in the case of the Company, issuances pursuant
to the 1996 Stock Option Plan.

Rule 701 under the Securities Act provides that, beginning 90 days after
the date of this Prospectus, shares of Class B Common Stock acquired on the
exercise of outstanding options prior to the date of this Prospectus may be
resold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144, and by affiliates subject to all provisions of Rule 144
except its two-year minimum holding period. The Company intends to file one or
more registration statements under the Securities Act to register the shares of
Class B Common Stock issued and reserved for issuance in compensatory
arrangements and under the 1996 Stock Option Plan. Registration would permit the
resale of such shares by non-affiliates and affiliates, subject to the lock-up
described above, in the public market without restriction under the Securities
Act.

Prior to the Offering, there has been no public trading market for the
shares of Class B Common Stock and there can be no assurance that a regular
trading market will develop after the Offering, or that if developed it will be
sustained. In addition, no prediction can be made as to the effect, if any, that
market sales of shares of Class B Common Stock or the availability of such
shares for sale will have on the market prices prevailing from time to time.
Nevertheless, the possibility that substantial amounts of shares of Class A or
Class B Common Stock may be sold in the public market may adversely affect
prevailing market prices for the shares of Class B Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.

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CERTAIN UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS OF COMMON STOCK

The following is a summary of the principal United States federal income
and estate tax consequences of the ownership and sale or other disposition of
Class B Common Stock by a person (a "non-U.S. holder") which, for United States
federal income tax purposes, is a nonresident alien individual, a foreign
corporation, a foreign partnership or a foreign estate or trust, as such terms
are defined in the Internal Revenue Code of 1986 (the "Code"). This summary does
not address all aspects of United States federal income and estate taxes which
may be relevant to non-U.S. holders which may be subject to special treatment
under United States federal income tax laws (for example, insurance companies,
tax exempt organizations, financial institutions or broker-dealers).
Furthermore, this summary does not discuss any aspect of foreign, state or local
taxation. This summary is based on current provisions of the Code, existing and
proposed regulations promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change.

Dividends. Dividends paid to a non-U.S. holder of Class B Common Stock will
be subject to withholding of United States federal income tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty, unless
the dividends (i) are effectively connected with the conduct of a trade or
business of the non-U.S. holder in the United States and the non-U.S. holder
provides the payer with proper documentation or (ii) if a tax treaty applies,
are attributable to a United States permanent establishment of the non-U.S.
holder. In order to claim the benefit of an applicable tax treaty rate, a
non-U.S. holder may have to file with the Company or its dividend paying agent
an exemption or reduced treaty rate certificate or letter in accordance with the
terms of such treaty.

Dividends which are effectively connected with such a United States trade
or business or, if a tax treaty applies, are attributable to such a United
States permanent establishment, are generally subject to tax on a net income
basis (that is, after allowance for applicable deductions) at rates applicable
to United States citizens, resident aliens and domestic United States
corporations and are not generally subject to withholding. Any such effectively
connected dividends received by a non-United States corporation may also, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above (unless the payer has
knowledge to the contrary), and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. Under recently proposed United States Treasury regulations (the
"Proposed Regulations"), not currently in effect, however, a non-U.S. holder of
Class B Common Stock who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification and other
requirements. The Proposed Regulations are proposed to be effective for payments
made after December 31, 1997. There can be no assurance that the Proposed
Regulations will be adopted or what the provisions will include if and when
adopted in temporary or final form. Certain certification and disclosure
requirements must be complied with in order to be exempt from withholding under
the effectively connected income exemption discussed above.

A non-U.S. holder of Class B Common Stock that is eligible for a reduced
rate of United States tax withholding pursuant to an income tax treaty may
obtain a refund of any excess amounts currently withheld by filing an
appropriate claim for refund with the United States Internal Revenue Service.

Disposition of Class B Common Stock. A non-U.S. holder generally will not
be subject to United States federal income tax in respect of gain recognized on
the sale or other disposition of Class B Common Stock unless (i)(a) the gain is
effectively connected with the conduct of a trade or business of a non-U.S.
holder in the United States or (b) if a tax treaty applies, the gain is
attributable to a United States permanent establishment of the non-U.S. holder,
(ii) in the case of an individual non-U.S. holder who is present in the United
States for 183 or more days in the taxable year of the sale or other disposition
and certain other conditions are satisfied, or (iii)(a) if the Company is or has
been a "U.S. real property holding corporation"

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<PAGE> 80

for federal income tax purposes at any time during the five-year period ending
on the date of the disposition, or, if shorter, the period during which the
non-U.S. holder held the Class B Common Stock (the "applicable period"), and (b)
assuming that the Class B Common Stock continues to be "regularly traded on an
established securities market" for tax purposes, the non-U.S. holder owns,
actually or constructively, at any time during the applicable period more than
5% of the outstanding Class B Common Stock. The Company believes it is not
currently a U.S. real property holding corporation and does not anticipate
becoming such a corporation.

If an individual non-U.S. holder falls under the clause (i) above, such
individual generally will be taxed on the net gain derived from a sale under
regular graduated United States federal income tax rates. If an individual
non-U.S. holder falls under clause (ii) above, such individual generally will be
subject to a flat 30% tax on the gain derived from a sale, which may be offset
by certain United States capital losses (notwithstanding the fact that such
individual is not considered a resident of the United States). Thus, non-U.S.
holders who have spent (or expect to spend) 183 days or more in the United
States in the taxable year in which they contemplate a sale of Class B Common
Stock are urged to consult their tax advisors as to the tax consequences of such
sale.

If a non-U.S. holder that is a foreign corporation falls under clause (i)
above, it generally will be taxed on its net gain under regular graduated United
States federal income tax rates and, in addition, may, under certain
circumstances, be subject to an additional branch profits tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.

Federal Estate Taxes. Class B Common Stock held by a holder who is neither
a United States citizen nor a United States resident (as specifically defined
for United States federal estate tax purposes) at the time of death will be
included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.

United States Information Reporting Requirements and Backup Withholding
Tax. The Company must report annually to the Internal Revenue Service and to
each non-U.S. holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply regardless of whether withholding is required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder
resides under the provisions of an applicable income tax treaty.

United States backup withholding (which generally is imposed at a 31% rate)
generally will not apply to (i) the payment of dividends paid on Class B Common
Stock to a non-U.S. holder at an address outside the United States or (ii) the
payment of the proceeds of a sale of Class B Common Stock to or through the
foreign office of a broker. In the case of the payment of proceeds from such a
sale of Class B Common Stock through a foreign office of a broker that is a
United States person or a "U.S. related person," however, information reporting
(but not backup withholding) is required with respect to the payment unless the
broker has documentary evidence in its files that the owner is a non-U.S. holder
(and has no actual knowledge to the contrary) and certain other requirements are
met or the holder otherwise establishes an exemption. For this purpose, a "U.S.
related person" is (i) a "controlled foreign corporation" for United States
federal income tax purposes, or (ii) a foreign person 50% or more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities which are effectively
connected with the conduct of a Untied States trade or business. The payment of
the proceeds of a sale of shares of Class B Common Stock to or through a United
States office of a broker is subject to information reporting and possible
backup withholding at a rate of 31% unless the holder certifies, among other
things, its non-United States status under penalties of perjury or otherwise
establishes an exemption. Any amounts withheld under the backup withholding
rules from a payment to a non-U.S. holder will be allowed as a refund or a
credit against such non-U.S. holder's United States federal income tax
liability, provided that the required information is furnished to the Internal
Revenue Service.

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The Proposed Regulations would provide alternative methods for satisfying
the certification requirements described above.

THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL UNITED STATES
FEDERAL INCOME AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER
DISPOSITION OF CLASS B COMMON STOCK BY NON-UNITED STATES HOLDERS. ACCORDINGLY,
INVESTORS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION
OF CLASS B COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF THE LAWS OF ANY
STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION.

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UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1997, between the Company and the U.S.
Underwriters (the "U.S. Underwriting Agreement"), the underwriters named below
(the "U.S. Underwriters"), for whom Credit Suisse First Boston Corporation and
Smith Barney Inc. are acting as representatives (the "Representatives"), have
severally but not jointly agreed to purchase from the Company the following
respective numbers of U.S. Shares:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
----------------------------------------------------------------- -----------
<S> <C>
Credit Suisse First Boston Corporation...........................
Smith Barney Inc. ...............................................
-------
Total..................................................
=======
</TABLE>

The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.

The Company has entered into a Subscription Agreement (the "Subscription
Agreement") with the Managers of the International Offering (the "Managers")
providing for the concurrent offer and sale of the International Shares outside
the United States and Canada. The closing of the U.S. Offering is a condition to
the closing of the International Offering and vice versa.

The Company has granted to the U.S. Underwriters and the Managers an
option, exercisable by Credit Suisse First Boston Corporation, on behalf of the
U.S. Underwriters and the Managers, expiring at the close of business on the
30th day after the date of this Prospectus, to purchase up to
additional shares of Class B Common Stock from the Company at the initial public
offering price, less the underwriting discounts and commissions, all as set
forth on the cover page of this Prospectus. Such option may be exercised only to
cover over-allotments in the sale of the shares of Class B Common Stock offered
hereby. To the extent that this option to purchase is exercised, each U.S.
Underwriter and each Manager will become obligated, subject to certain
conditions, to purchase approximately the same percentage of additional shares
being sold to the U.S. Underwriters and the Managers as the number of U.S.
Shares set forth next to such U.S. Underwriter's name in the preceding table and
as the number set forth next to such Manager's name in the corresponding table
in the Prospectus relating to the International Offering bears to the total
number of shares of Class B Common Stock in such tables.

The Company has reserved for purchase from the Underwriters up to
shares of Class B Common Stock which may be purchased by employees and
friends of the Company through a directed share program. Such sales will be at
the initial public offering price. The number of shares of Class B Common Stock
available to the general public will be reduced to the extent these persons
purchase the reserved shares.

The Company has been advised by the Representatives that the U.S.
Underwriters propose to offer the U.S. Shares in the United States and Canada to
the public initially at the offering price set forth on the cover page of this
Prospectus and, through the Representatives, to certain dealers at such price
less a concession of $ per share, and that the U.S. Underwriters and
such dealers may allow a discount of $ per share on sales to certain
other dealers. After the Offering, the public offering price and concession and
discount to dealers may be changed by the Representatives.

The public offering price, the aggregate underwriting discounts and
commissions per share and per share concession and discount to dealers for the
U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the public
offering price, concession and discount to dealers

79
<PAGE> 83

will be made only upon the mutual agreement of Credit Suisse First Boston
Corporation, on behalf of the U.S. Underwriters, and Credit Suisse First Boston
Limited ("CSFBL"), on behalf of the Managers.

Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Class B Common Stock or distribute any
prospectus relating to the Class B Common Stock to any person outside the United
States or Canada or to any other dealer who does not so agree. Each of the
Managers has agreed or will agree that, as part of the distribution of the
International Shares and subject to certain exceptions, it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Class B
Common Stock or distribute any prospectus relating to Class B Common Stock in
the United States or Canada or to any other dealer who does not so agree. The
foregoing limitations do not apply to stabilization transactions or to
transactions between the U.S. Underwriters and the Managers pursuant to the
Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction. "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident in the United States or Canada or
(ii) a corporation, partnership, pension, profit-sharing or other trust or other
entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Class B Common
Stock as may be mutually agreed upon. The price of any shares so sold shall be
the public offering price, less such amount as may be mutually agreed upon by
Credit Suisse First Boston Corporation, as representative of the U.S.
Underwriters and CSFBL, on behalf of the Managers, but not exceeding the selling
concession applicable to such shares. To the extent there are sales between the
U.S. Underwriters and the Managers pursuant to the Intersyndicate Agreement, the
number of shares of Class B Common Stock initially available for sale by the
U.S. Underwriters or by the Managers may be more or less than the amount
appearing on the cover page of this Prospectus. Neither the U.S. Underwriters
nor the Managers are obligated to purchase from the other any unsold shares of
Class B Common Stock.

This Prospectus may be used by underwriters and dealers in connection with
sales of International Shares to persons located in the United States, to the
extent such sales are permitted by the contractual limitations on sales
described above.

The Company, its officers, directors and all existing holders of Common
Stock have agreed that, for a period of 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Commission a registration
statement under the Securities Act relating to, any additional shares of Common
Stock or securities convertible into or exchangeable or exercisable for any
shares of Common Stock, or securities convertible into or exchangeable or
exercisable for any shares of Common Stock, or disclose the intention to make
any such offer, sale, pledge, disposal or filing, without the prior written
consent of Credit Suisse First Boston Corporation, except, in the case of the
Company, issuances pursuant to the 1996 Stock Option Plan.

The Company has agreed to indemnify the U.S. Underwriters and the Managers
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments which the U.S. Underwriters and the Managers
may be required to make in respect thereof.

Application will be made to list the shares of Class B Common Stock on the
Nasdaq National Market under the symbol " ."

Prior to the Offering there has been no public market for the Class B
Common Stock. The initial public offering price for the Class B Common Stock
will be determined by negotiation among the Company and Credit Suisse First
Boston Corporation as the representative of the U.S. Underwriters and CSFBL on
behalf of the Managers and does not reflect the market price of the Class B
Common Stock following the Offering. Among the principal factors to be
considered in determining the initial public offering price will be market

80
<PAGE> 84

conditions for initial public offerings, the history of and prospects for the
Company's business, the Company's past and present operations, its past and
present earnings and current financial position, an assessment of the Company's
management, the market of securities of companies in businesses similar to those
of the Company, the general condition of the securities markets and other
relevant factors. There can be no assurance that the initial public offering
price will correspond to the price at which the Class B Common Stock will trade
in the public market subsequent to the Offering or that an active trading market
for the Class B Common Stock will develop and continue after the Offering.

The Representatives have informed the Company that they do not expect
discretionary sales by the U.S. Underwriters and the Managers to exceed 5% of
the number of shares being offered in the Offering.

NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS

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

REPRESENTATIONS OF PURCHASERS

Each purchaser of shares of Class B Common Stock in Canada who receives a
purchase confirmation will be deemed to represent to the Company and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such shares of
Class B Common Stock without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."

RIGHTS OF ACTION AND ENFORCEMENT

The securities offered hereby are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the United States federal securities laws.

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

NOTICE TO BRITISH COLUMBIA RESIDENTS

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

81
<PAGE> 85

LEGAL MATTERS

The validity of the shares of Class B Common Stock will be passed upon for
the Company by Baer Marks & Upham LLP, New York, New York. The Underwriters have
been represented by Cravath, Swaine & Moore, New York, New York.

EXPERTS

The consolidated financial statements and schedule of TelePassport Inc. at
December 31, 1995 and 1994, and for each of the two years in the period ended
December 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, which, as to the year 1995, are
based in part on the report of Deloitte Touche Tohmatsu, independent auditors.
The financial statements and schedule referred to above are included in reliance
on such reports given upon the authority of such firm as experts in accounting
and auditing.

The financial statements of TelePassport Japan Co., Ltd. as of and for the
period from March 6, 1995 (date of incorporation) to December 31, 1995 included
in this Prospectus and Registration Statement have been audited by Deloitte
Touche Tohmatsu, independent auditors, as stated in their report thereon
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 including all amendments
thereto (the "Registration Statement") under the Securities Act with respect to
the Class B Common Stock offered by this Prospectus. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted from this Prospectus in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Offering, reference is made to the Registration Statement, including the
exhibits filed therewith.

After consummation of the Offering, the Company will be subject to the
informational and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith, will be required to file reports, proxy
statements and other information with the Commission. The Registration
Statement, as well as any such report, proxy statement and other information
filed by the Company with the Commission, may be inspected and copies may be
obtained from the Public Reference Section at the Commission's principal office,
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the following regional offices of the Commission: Northeast Regional Office,
7 World Trade Center, 13th Floor, New York, New York 10048 and Midwest Regional
Office, Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511, upon payment of the fees prescribed by the Commission. The
Commission maintains a World Wide Web site on the Internet at http:/www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete and where the contract or other
document has been filed as an exhibit to the Registration Statement, each such
statement is qualified in all respects by such reference to the applicable
document filed with the Commission.

The Company intends to distribute to its stockholders annual reports
containing audited financial statements certified by its independent auditors
and such other periodic reports as the Company may determine to be appropriate
or as may be required by law.

82
<PAGE> 86

GLOSSARY OF TERMS

Accounting or Settlement Rate--The per minute rate negotiated between
carriers in different countries for termination of international long distance
traffic in, and return traffic to, the carriers' respective countries.

ATM (Asynchronous Transfer Mode)--A high capacity transmission method for
voice, data and image communications.

Call Reorigination--A form of dial up access that allows a user to access a
telecommunications company's network by placing a telephone call and waiting for
an automated callback. The callback then provides the user with dial tone which
enables the user to place a call. Technical innovations have enabled
telecommunications carriers to offer a "transparent" form of call reorigination
without the usual "hang-up" and "callback" whereby the call is automatically and
swiftly processed.

COMS (Communication Order Maintenance System)--TelePassport's proprietary
customer order entry system.

Correspondent agreement--Agreement between international long distance
carriers that provides for the termination of traffic in, and return traffic to,
the carriers' respective countries at a negotiated per minute rate and provides
for a method by which revenues are distributed between the two carriers.

CUG (Closed User Group)--A group of specified users, such as employees of a
company, permitted by applicable regulations to access a private voice or data
network.

Dedicated access--A means of accessing a network through the use of a
permanent point-to-point circuit typically leased from an ITO. The advantage of
dedicated access is simplified premises-to-anywhere calling, faster call set-up
times and potentially lower access costs (provided there is sufficient traffic
over the circuit to generate economies of scale).

Dedicated leased line--Any circuit (typically supplied by and leased from
an ITO) designated to be at the exclusive disposal of a given subscriber.

Dial up access--A form of service whereby access to a network is obtained
by dialing an international toll-free number or a paid local access number.

Direct access--A method of accessing a network through the use of private
lines.

Facilities-based carrier--A carrier which owns long distance interexchange
and transmission facilities.

Fiber optic--Otherwise known as optical fiber, this is a transmission
medium consisting of high-grade glass fiber through which light beams are
transmitted carrying a high volume of telecommunications traffic.

International gateway--A switching facility that provides connectivity
between international carriers and performs any necessary signaling conversions
between countries.

IPLC (International Private Line Circuits)--Point-to-point permanent
connections which can carry voice and data. IPLCs are owned and maintained by
ITOs or third party resellers.

IRU (Indefeasible Rights of Use)--The rights to use a telecommunications
system, usually an undersea cable, with most of the rights and duties of
ownership, but without the right to control or manage the facility and,
depending upon the particular agreement, without any right to salvage or duty to
dispose of the cable at the end of its useful life.

ISDN (Integrated Services Digital Network)--a hybrid digital network
capable of providing transmission speeds of up to 128 kilobits per second for
both voice and data.

ISR (International Simple Resale)--The use of international leased lines
for the resale of Voice Telephony to the public.

ITO (Incumbent Telecommunications Operator)--The dominant carrier in each
country, often government-owned or protected; commonly referred to as the
Postal, Telephone and Telegraph Company, or PTT.

83
<PAGE> 87

LCR (Least Cost Routing)--Routing of calls in the least expensive manner.

Local connectivity--Physical circuits connecting the switching facilities
of a telecommunications services provider to the interexchange and transmission
facilities of an ITO.

Local exchange--A geographic area determined by the appropriate regulatory
authority in which calls generally are transmitted without toll charges to the
calling or called party.

PBX (Public Branch Exchange)--Switching equipment that allows connection of
private extension telephones to the PSTN or to a private line.

PSTN (Public Switched Telephone Network)--An abbreviation used by the ITO,
PSTN refers to a telephone network which is accessible by the public at large
through private lines, wireless systems and pay phones.

Private line--A dedicated telecommunications connection between end user
locations.

Resale--Resale by a provider of telecommunications services of services
sold to it by other providers or carriers on a wholesale basis.

SS7 (Signaling System 7)--An international standardized signaling system
for use in digital networks.

Switched access--A method of accessing a network through the PSTN.

Switched minutes--The number of minutes of telephone traffic carried on a
network using switched access.

Switching facility--A device that opens or closes circuits or selects the
paths or circuits to be used for transmission of information. Switching is a
process of interconnecting circuits to form a transmission path between users.

VPN (Virtual Private Network)--Carrier-provided services that provide
capabilities similar to those of private lines, such as conditioning, error
testing and higher speed, full-duplex, four wire transmission with a line
quality adequate for data.

Voice Telephony--A term used by the EU, defined as the commercial provision
for the public of the direct transport and switching of speech in real-time
between public switched network termination points, enabling any user to use
equipment connected to such a network termination point in order to communicate
with another termination point.

X.25--A form of packet switching (a system whereby messages are broken down
into smaller units called packets which are then individually addressed and
routed through the network). The Company uses X.25 packet switching as a means
of originating callback requests.

84
<PAGE> 88

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TELEPASSPORT INC. AND SUBSIDIARIES:
Report of Independent Auditors...................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996
(Unaudited)...................................................................... F-3
Consolidated Statements of Operations for the Period from February 12, 1993
(Inception) to December 31, 1993 (Unaudited), for the Years Ended December 31,
1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996
(Unaudited)...................................................................... F-4
Consolidated Statements of Stockholders' Deficit for the Period from February 12,
1993 (Inception) to December 31, 1993 (Unaudited), for the Years Ended December
31, 1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996
(Unaudited)...................................................................... F-5
Consolidated Statements of Cash Flows for the Period from February 12, 1993
(Inception) to December 31, 1993 (Unaudited), for the Years Ended December 31,
1994 and 1995 and for the Nine Months Ended September 30, 1995 and 1996
(Unaudited)...................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
TELEPASSPORT JAPAN CO., LTD.:
Independent Auditors' Report........................................................ F-13
Balance Sheet as of December 31, 1995............................................... F-14
Statement of Operations for the Period from March 6, 1995 (Date of Incorporation) to
December 31, 1995................................................................ F-15
Statement of Stockholders' Capital Deficiency for the Period from March 6, 1995
(Date of Incorporation) to December 31, 1995..................................... F-16
Statement of Cash Flows for the Period from March 6, 1995 (Date of Incorporation) to
December 31, 1995................................................................ F-17
Notes to Financial Statements....................................................... F-18

TELEPASSPORT JAPAN CO., LTD. (UNAUDITED):
Balance Sheet as of September 30, 1996.............................................. F-22
Statements of Operations and Deficit for the Period from March 6, 1995 (Date of
Incorporation) to September 30, 1995 and for the Nine-Month Period Ended
September 30, 1996............................................................... F-24
Statements of Cash Flows for the Period from March 6, 1995 (Date of Incorporation)
to September 30, 1995 and for the Nine-Month Period Ended September 30, 1996..... F-25
Notes to Financial Statements....................................................... F-26
</TABLE>

F-1
<PAGE> 89

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
TelePassport Inc.

We have audited the accompanying consolidated balance sheets of
TelePassport Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of TelePassport Japan Co., Ltd., an unconsolidated 51%
owned subsidiary (see Note 1), which statements reflect equity in net losses
constituting 50% in 1995 of the consolidated net loss. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for TelePassport Japan Co.,
Ltd., is based solely on the report of other auditors.

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

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of TelePassport Inc. and subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.

Hackensack, New Jersey
, 1997

The foregoing report is in the form that will be signed upon the completion of
the reorganization described in Note 1 to the financial statements.

ERNST & YOUNG LLP

Hackensack, New Jersey
January 31, 1997

F-2
<PAGE> 90

TELEPASSPORT INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 318 $ 420 $ 159
Accounts receivable:
Customers, less allowance of $500, $683 and
$625........................................... 1,496 3,852 4,871
Foreign joint venture............................ 304 1,566
Prepaid expenses and other current assets........... 95 75 351
------ ------- -------
Total current assets............................. 1,909 4,651 6,947

Property and equipment, net (Note 3).................. 644 1,974 3,084
Deferred costs, net of accumulated amortization of $1,
$20 and $42......................................... 13 133 369
Goodwill, net of accumulated amortization of $5 and
$11................................................. 122 116
Deposits.............................................. 47 123 138
------ ------- -------
Total assets................................ $ 2,613 $ 7,003 $ 10,654
====== ======= =======

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................... $ 2,606 $ 4,797 $ 8,140
Accrued liabilities................................. 1,243 1,845 2,200
Reseller deposits................................... 269 263 325
Capital lease obligations........................... 24 3
Due to affiliates................................... 64 327 972
------ ------- -------
Total current liabilities................... 4,206 7,235 11,637

Loan from affiliates (Note 7)......................... 1,258

Commitments and contingencies (Note 5)

Equity in accumulated net loss of foreign joint
venture, net of investment and long-term advances... 348 1,382

Stockholders' deficit:
Preferred stock, $.01 par value, none issued
Common stock, $.01 par value, authorized 3,000
shares; issued and outstanding, 2,000 shares
Additional paid-in capital.......................... 4,325 5,484 9,767
Accumulated deficit................................. (5,918) (7,319) (12,133)
Foreign currency translation adjustment............. (3) 1
------ ------- -------
Total stockholders' deficit...................... (1,593) (1,838) (2,365)
------ ------- -------
Total liabilities and stockholders'
deficit................................... $ 2,613 $ 7,003 $ 10,654
====== ======= =======
</TABLE>

See accompanying notes.

F-3
<PAGE> 91

TELEPASSPORT INC. AND SUBSIDIARIES

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

PERIOD FROM
FEBRUARY 12,
1993 YEAR ENDED NINE MONTHS ENDED
(INCEPTION) DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ----------------------- --------------------
1993 1994 1995 1995 1996
--------------- ---------- -------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Telecommunications revenue...... $ 2,085 $ 12,775 $ 27,643 $ 19,722 $27,764
Costs and expenses:
Cost of telecommunications
services (Note 6).......... 1,367 8,907 20,075 14,179 22,302
Selling expenses.............. 349 1,687 2,579 1,808 2,683
General and administrative
expenses................... 2,848 5,173 5,349 3,737 6,046
Depreciation and amortization
(Note 2)................... 32 100 395 308 502
---------- ---------- -------- -------- -------
Total costs and
expenses............ 4,596 15,867 28,398 20,032 31,533
---------- ---------- -------- -------- -------
Loss from operations............ (2,511) (3,092) (755) (310) (3,769)
Other income (expense) (Note
5)............................ (315) 37 39 (11)
Equity in net loss of foreign
joint venture................. (703) (493) (1,034)
---------- ---------- -------- -------- -------
Loss before minority interest... (2,511) (3,407) (1,421) (764) (4,814)
Minority interest............... 20 20
---------- ---------- -------- -------- -------
Net loss........................ $ (2,511) $ (3,407) $ (1,401) $ (744) $(4,814)
========== ========== ======== ======== =======
Net loss per common share....... $ (1,256) $ (1,704) $ (701) $ (372) $(2,407)
========== ========== ======== ======== =======
Weighted average common shares
outstanding................... 2,000 2,000 2,000 2,000 2,000
========== ========== ======== ======== =======
</TABLE>

See accompanying notes.

F-4
<PAGE> 92

TELEPASSPORT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
PAID-IN ACCUMULATED TRANSLATION
CAPITAL DEFICIT ADJUSTMENT TOTAL
---------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Capital contributions (unaudited).............. $1,395 $ 1,395
Net loss for 1993 (unaudited).................. $ (2,511) (2,511)
------ -------- -------
Balance at December 31, 1993................... 1,395 (2,511) (1,116)
Capital contributions........................ 1,885 1,885
Contribution of USFN net assets.............. 1,045 1,045
Net loss for 1994............................ (3,407) (3,407)
------ -------- -------
Balance at December 31, 1994................... 4,325 (5,918) (1,593)
Capital contributions........................ 1,159 1,159
Net loss for 1995............................ (1,401) (1,401)
Foreign currency translation................. $(3) (3)
------ -------- --- -------
Balance at December 31, 1995................... 5,484 (7,319) (3) (1,838)
Capital contributions (unaudited)............ 4,283 4,283
Net loss for nine months ended September 30,
1996 (unaudited).......................... (4,814) (4,814)
Foreign currency translation (unaudited)..... 4 4
------ -------- --- -------
Balance at September 30, 1996 (unaudited)...... $9,767 $ (12,133) $ 1 $(2,365)
====== ======== === =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 93

TELEPASSPORT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12,
1993 YEAR ENDED NINE MONTHS ENDED
(INCEPTION) DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ----------------- -----------------
1993 1994 1995 1995 1996
--------------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................. $(2,511) $(3,407) $(1,401) $ (744) $(4,814)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization.......... 32 100 395 308 502
Provisions for losses on receivables... 320 645 184 133 369
Equity in net loss of foreign joint
venture.............................. 703 493 1,034
Minority interest...................... (20) (20)
Changes in operating assets and
liabilities:
Increase in accounts receivable...... (771) (1,691) (2,484) (2,430) (1,388)
(Increase) decrease in other current
assets............................ (51) (37) 28 (97) (276)
Increase in deposits................. (7) (76) (76) (15)
Increase in accounts payable and
accrued expenses.................. 1,342 2,505 2,644 2,474 3,698
Increase (decrease) in reseller
deposits.......................... 117 152 (6) 29 62
Increase (decrease) in due to/from
affiliates........................ 64 (41) 46 (617)
------- ------- ------- ------- -------
Net cash (used in) provided by operating
activities............................. (1,529) (1,669) (74) 116 (1,445)
INVESTING ACTIVITIES
Investment in/advances to TelePassport
Japan.................................. (355) (355)
Purchase of interest in Mastercall (net of
cash acquired)......................... (70) (70)
Purchase of equipment..................... (293) (304) (1,655) (1,209) (1,584)
Increase in deferred costs................ (14) (139) (119) (258)
------- ------- ------- ------- -------
Net cash used in investing activities..... (293) (318) (2,219) (1,753) (1,842)
FINANCING ACTIVITIES
Capital contributions (including $34 of
cash of USFN for 1994)................. 1,395 1,919 1,159 1,159 3,025
Advances from affiliates.................. 480 333 1,258 475
Repayment of capital lease obligation..... (21) (18) (3)
------- ------- ------- ------- -------
Net cash provided by financing
activities............................. 1,875 2,252 2,396 1,616 3,022
Effect of exchange rate changes on cash..... (1) 2 4
------- ------- ------- ------- -------
Increase (decrease) in cash................. 53 265 102 (19) (261)
Cash at beginning of period................. 53 318 318 420
------- ------- ------- ------- -------
Cash at end of period....................... $ 53 $ 318 $ 420 $ 299 $ 159
======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 94

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND FOR
THE PERIOD FROM FEBRUARY 12, 1993 (INCEPTION) TO
DECEMBER 31, 1993 IS UNAUDITED)

1. ORGANIZATION AND NATURE OF BUSINESS

These financial statements reflect the combination of USFI, Inc. ("USFI"),
USFI-Japan, LLC ("USFI-Japan") and TelePassport LLC (collectively "the USFI
Companies"). TelePassport Inc. ("TelePassport" or the "Company") was
incorporated in Delaware on December 9, 1996 for the purpose of acquiring and
continuing the operations of the USFI Companies. TelePassport and each of the
USFI Companies are entities under common control. The net assets of TelePassport
LLC will be merged into TelePassport and the stock of USFI and USFI-Japan will
be contributed to TelePassport on the closing date of the initial public
offering of the Company's common stock (see Note 9).

USFI, which was incorporated in New York on February 12, 1993, provides
least cost routing for international long distance telecommunication services,
which primarily originate and terminate outside of the United States.
Substantially all billings for service are denominated in U.S. currency.

Customers are principally located in Western Europe, Japan and South
Africa. No individual customer represents a significant percentage of revenues,
however, the Company utilizes outside agents to sell its services in certain
geographic areas, with agents in Germany and South Africa representing customers
with revenue aggregating 15% and 10%, respectively, of total 1995 revenues. The
Company performs a credit evaluation of all new customers and requires certain
customers to provide collateral in the form of a cash deposit or letter of
credit. At December 31, 1995, the Company had letters of credit issued on its
behalf from customers in the amount of approximately $525,000.

On May 15, 1995, USFI acquired a 51% interest in Mastercall, Ltd.
("Mastercall"), a joint venture that resells USFI's international
telecommunications services in the United Kingdom, for a purchase price of
approximately $148,000. The acquisition was accounted for using the purchase
method of accounting and the results of operations have been included in the
financial statements of the Company from the date of acquisition.

USFI-Japan was organized in February 1995 for the sole purpose of
establishing and investing in TelePassport Japan Co., Ltd. ("TelePassport
Japan"), a 51% owned joint venture which commenced operations in March 1995.
TelePassport Japan provides international telecommunication services to Japanese
customers through the utilization of services provided by USFI. The Company
accounts for this investment under the equity method as it has significant
influence but does not exercise control over TelePassport Japan under the terms
of the shareholder agreement with its joint venture partner.

Summarized financial information (in thousands) for TelePassport Japan as
of December 31, 1995 and for the period from March 6, 1995 (date of
incorporation) to December 31, 1995 is as follows:

<TABLE>
<S> <C>
Total assets........................................ $1,128
Total liabilities................................... 1,878
Telecommunication revenues.......................... 418
Net loss............................................ 1,378
</TABLE>

TelePassport LLC was organized in May 1996 for the purpose of building an
international framework for USFI's operations, and to date has not commenced
operations.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the

F-7
<PAGE> 95

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND FOR
THE PERIOD FROM FEBRUARY 12, 1993 (INCEPTION) TO
DECEMBER 31, 1993 IS UNAUDITED)

1. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

2. SIGNIFICANT ACCOUNTING POLICIES

Depreciation

Furniture and equipment are recorded at cost and are depreciated over the
estimated useful lives of three to five years, utilizing the straight-line
method. Leasehold improvements are amortized on a straight-line basis over the
shorter of their estimated useful lives or the terms of the leases. Depreciation
expense was $32,000 for the period ended December 31, 1993, $98,000 and $371,000
for the years ended December 31, 1994 and 1995, respectively, and $292,000 and
$474,000 for the nine month periods ended September 30, 1995 and 1996,
respectively.

Deferred Costs and Goodwill

Deferred costs include costs to obtain trademarks and certain
organizational costs. Goodwill consists of approximately $127,000 relating to
the 1995 acquisition of Mastercall (see Note 1). Such costs are amortized on the
straight-line basis generally as follows:

<TABLE>
<CAPTION>
PERIOD OF
ASSET AMORTIZATION
------------------------------------------------- ------------
<S> <C>
Trademarks....................................... 5 years
Organization costs............................... 5 years
Goodwill......................................... 15 years
</TABLE>

Revenue Recognition

The Company recognizes revenue from services and the related costs in the
period in which the services are rendered.

Net Loss Per Share

Net loss per common share is computed based on the weighted average number
of common shares outstanding during each period.

Basis of Consolidation

The consolidated financial statements include the accounts of TelePassport
and subsidiaries. All significant intercompany accounts and transactions have
been eliminated.

Interim Financial Statements

The accompanying unaudited consolidated interim financial statements as of
September 30, 1996 and for each of the nine month periods ended September 30,
1996 and 1995 include all adjustments which, in the opinion of management, are
necessary for a fair presentation of the Company's consolidated financial
position and results of operations and cash flows for the periods presented. All
such adjustments are of a normal

F-8
<PAGE> 96

TELEPASSPORT INC. AND SUBSIDIARIES

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
recurring nature. The results of the Company's operations for the nine months
ended September 30, 1996 and 1995 are not necessarily indicative of the results
of operations for a full fiscal year.

3. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Furniture and equipment............................. $ 482,834 $ 844,432
Switching equipment................................. 412,628 1,716,820
Leasehold improvements.............................. 65,044 89,425
Leased assets....................................... 155,763 47,577
---------- ----------
1,116,269 2,698,254
Less accumulated depreciation....................... 472,147 724,547
---------- ----------
$ 644,122 $1,973,707
========== ==========
</TABLE>

4. INCOME TAXES

Upon completion of the reorganization (see Note 1), the tax attributes of
the USFI Companies will be assumed by the Company. Certain of the USFI Companies
have elected to be taxed as an "S" Corporation for Federal income tax purposes
and, as such, any income or loss of such companies were taxed directly to the
shareholders. Due to the reorganization, such USFI companies will no longer be
taxed as "S" Corporations. Therefore, additional deferred taxes will be recorded
for the Company. If the reorganization had occurred as of December 31, 1995, the
components of deferred income tax assets and liabilities would have been as
follows:

<TABLE>
<S> <C>
Deferred income tax assets:
Accounts receivable allowance.................................. $ 273,000
Accrued liabilities............................................ 47,000
New York City net operating loss carryforwards................. 441,000
-------
Total deferred income tax assets................................. 761,000
Valuation allowance.............................................. (686,000)
-------
75,000
Deferred income tax liabilities:
Accumulated depreciation....................................... 75,000
-------
Net deferred income tax asset.................................... $ --
=======
</TABLE>

USFI has net operating loss carryforwards available in New York City of
$4,984,000, which principally expire in 2009-2010.

F-9
<PAGE> 97

TELEPASSPORT INC. AND SUBSIDIARIES

5. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office and switch site space under noncancellable
operating leases. The future minimum annual rental commitments under leases
having terms in excess of one year as of December 31, 1995 are as follows:

Rent expense was $41,000 for the period ended December 31, 1993, $260,000
and $256,000 for the years ended December 31, 1994 and 1995, respectively, and
$199,000 and $250,000 for the nine month periods ended September 30, 1995 and
1996, respectively.

Litigation

During 1994, the Company was involved in a contract dispute which was
presented to an arbitrator and, in August 1995, an award in the amount of
$333,450 representing damages and administrative fees and costs was determined
to be payable by the Company. The award amount has been included in 1994 other
income (expense).

The Company is involved in litigation in the normal course of business. In
the opinion of management, such litigation will not have a material effect on
the Company's cash flow, financial condition or results of operations.

Letters of Credit

At December 31, 1994, the Company had letters of credit outstanding
amounting to $400,000 on behalf of certain telecommunications carriers which
expired on various dates during 1995.

Incentive Plans

Currently, certain of the Company's subsidiaries have Incentive Plans which
entitle certain key employees to participate in certain future distributions, if
any. Participation commences if the amount of distributions paid to two of the
Company's principal stockholders exceeds certain stipulated amounts. Because
payments under the Incentive Plans are dependent on future distributions and the
timing and amount of such distributions, if any, is not reasonably estimable, no
compensation expense has been recorded. The Company intends to terminate the
Incentive Plans prior to its initial public offering (see Note 9).

The Company intends to issue stock options to certain employees, including
the aforementioned employees, prior to the initial public offering.

6. MAJOR SUPPLIERS

During 1995 and 1994, MCI, World Com, Inc. (formerly IDB) and Cable and
Wireless provided the Company with a majority of its international
telecommunications network services. Charges for such services are included in
cost of telecommunications services in the accompanying statement of operations.

F-10
<PAGE> 98

TELEPASSPORT INC. AND SUBSIDIARIES

7. RELATED PARTIES

In March 1995, the Company entered into an agreement with TelePassport
Japan to provide international telecommunications services and lease switching
equipment to TelePassport Japan. 1995 revenue includes approximately $371,000
for services provided to TelePassport Japan. The equipment under lease has a net
book value of $186,000 at December 31, 1995, and is included in property and
equipment.

Loan from affiliates at December 31, 1995 represents a note due to US Cable
Corporation ("US Cable"), an affiliate of certain stockholders. During 1996,
such stockholders assumed the note from US Cable and contributed the outstanding
balance to capital.

Included in due to affiliates at December 31, 1995 are amounts due to
TelePassport Japan for carrier charges paid by TelePassport Japan on behalf of
the Company and at December 31, 1994 and 1995 amounts due to US Cable for
expenses paid on behalf of the Company.

On December 27, 1994 the net assets of US FiberCom Network, Inc. ("USFN"),
an inactive affiliate under common control, were merged into USFI, with the net
assets recorded at their historical carrying value by USFI. Net assets,
primarily consisting of advances to USFI, had a net historical carrying value of
$1,045,000, resulting in an increase to additional paid-in capital of this
amount. Prior to the merger, the Company utilized the fixed assets of USFN and
was charged certain expenses amounting to $86,000, which is included in 1994
general and administrative expenses.

8. EMPLOYEE BENEFIT PLAN

Effective January 1, 1994, the Company implemented a defined contribution
plan that qualifies as a deferred salary arrangement under Section 401(a) of the
Internal Revenue Code. All full-time employees meeting minimum service
requirements are eligible to participate and may contribute up to 18% of their
pre-tax earnings subject to certain Internal Revenue Code restrictions. The
Company matches 50% of each employee's contribution up to an annual maximum of
$390 and $500 per employee for 1994 and 1995, respectively. Total Company
contributions were $7,000 and $14,000 for the years ended December 31, 1994 and
1995, respectively, and $11,000 and $16,000 for the nine month periods ended
September 30, 1995 and 1996, respectively, and are included in selling and
general and administrative expenses.

9. STOCKHOLDERS' EQUITY

In January 1997, the Company's Board of Directors authorized the filing of
a registration statement with the Securities and Exchange Commission for an
initial public offering of the Company's Common Stock.

The Certificate of Incorporation authorizes the issuance of Preferred
Stock, $.01 par value per share, in one or more series, with each series to have
such designations, rights and preferences as may be determined by the Board of
Directors.

10. STOCK INCENTIVE PLAN

In December 1996, the Board of Directors adopted the 1996 Stock Option Plan
(the "1996 Plan"). The 1996 Plan provides for a committee appointed by the Board
of Directors (the "Committee") to grant to qualified employees and directors of
the Company options to purchase shares of Common Stock. Options may be granted
by the Committee to eligible persons in the form of nonqualified stock options,
incentive stock options, reload options, stock appreciation rights, restricted
stock awards, performance units or shares and other stock-based compensation.

F-11
<PAGE> 99

TELEPASSPORT INC. AND SUBSIDIARIES

11. BUSINESS SEGMENT

The Company operates in a single industry segment. For the years ended
December 31, 1995 and 1994 and the period ended December 31, 1993 substantially
all of the Company's telecommunications revenues were derived from traffic
transmitted through its New York switch facilities. The geographic origin of
revenue is as follows:

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12,
1993 YEAR ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, -------------------
1993 1994 1995
-------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
North America...................................... $ 1,484 $ 6,700
Europe............................................. $ 635 7,189 13,976
Japan.............................................. 822 2,440 2,057
Africa............................................. 1,088 4,285
South America...................................... 628 574 625
------ ------- -------
$2,085 $12,775 $27,643
====== ======= =======
</TABLE>

Substantially all telecommunications revenue with the exception of revenue
received from its equity investee (TelePassport Japan), is derived from
unaffiliated customers.

F-12
<PAGE> 100

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
TelePassport Japan Co., Ltd.:

We have audited the accompanying balance sheet of TelePassport Japan Co., Ltd.
as of December 31, 1995, and the related statements of operations, shareholders'
capital deficiency, and cash flows for the period from March 6, 1995 (date of
incorporation) to December 31, 1995 (all expressed in Japanese yen). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of TelePassport Japan Co., Ltd. as of December
31, 1995, and the results of its operations and its cash flows for the period
from March 6, 1995 (date of incorporation) to December 31, 1995, in conformity
with accounting principles generally accepted in the United States of America.

Our audit also comprehended the translation of Japanese yen amounts into U.S.
dollar amounts and, in our opinion, such translation has been made in conformity
with the basis stated in Note 1 to the financial statements. Such U.S. dollar
amounts presented solely for the convenience of readers outside Japan.

/s/ DELOITTE TOUCHE TOHMATSU

Tokyo, Japan
March 22, 1996

F-13
<PAGE> 101

TELEPASSPORT JAPAN CO., LTD.

BALANCE SHEET

DECEMBER 31, 1995

<TABLE>
<CAPTION>
THOUSANDS U.S. DOLLARS
OF YEN (NOTE 1)
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................ Y 4,858 $ 47,165
Accounts receivable:
Trade........................................................ 14,011 136,029
Shareholder and affiliated company (Note 3).................. 42,714 414,699
Other........................................................ 5,736 55,689
Prepaid expenses and other current assets....................... 4,318 41,922
-------- ----------
Total current assets.................................... 71,637 695,504
-------- ----------
ASSETS UNDER CAPITAL LEASES (Note 4).............................. 36,503 354,398
Accumulated amortization........................................ (3,230) (31,359)
-------- ----------
Net assets under capital leases......................... 33,273 323,039
-------- ----------
TELEPHONE RIGHTS.................................................. 2,278 22,117
-------- ----------
REFUNDABLE LEASE DEPOSITS......................................... 7,615 73,932
-------- ----------
ORGANIZATION COST................................................. 1,342 13,029
-------- ----------
TOTAL................................................... Y116,145 $ 1,127,621
======== ==========
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Short-term bank loans (Note 5).................................. Y 62,000 $ 601,942
Current maturities of capital lease obligations (Note 4)........ 6,817 66,184
Accounts payable:
Trade........................................................ 19,244 186,835
Shareholders and affiliated company (Note 3)................. 43,790 425,146
Other........................................................ 275 2,670
Accrued expenses and other current liabilities.................. 1,779 17,271
-------- ----------
Total current liabilities............................... 133,905 1,300,048
LONG-TERM DEBT FROM SHAREHOLDERS (Note 3)......................... 32,360 314,175
LONG-TERM CAPITAL LEASE OBLIGATIONS (Note 4)...................... 27,032 262,447
-------- ----------
Total liabilities....................................... 193,297 1,876,670
-------- ----------
COMMITMENTS (Note 4)
SHAREHOLDERS' CAPITAL DEFICIENCY
Common stock, Y50 thousand par value -- authorized 200 shares
issued and outstanding 100 shares............................ 52,000 504,854
Additional paid-in capital...................................... 570 5,534
Deficit......................................................... (129,722) (1,259,437)
-------- ----------
Total shareholders' capital deficiency.................. (77,152) (749,049)
-------- ----------
TOTAL................................................... Y116,145 $ 1,127,621
======== ==========
</TABLE>

See notes to financial statements.

F-14
<PAGE> 102

TELEPASSPORT JAPAN CO., LTD.

STATEMENT OF OPERATIONS
PERIOD FROM MARCH 6, 1995 (DATE OF INCORPORATION) TO DECEMBER 31, 1995

<TABLE>
<CAPTION>
U.S.
THOUSANDS DOLLARS
OF YEN (NOTE 1)
-------- ----------
<S> <C> <C>
NET SALES............................................................ Y 39,382 $ 382,350
-------- ----------
COSTS AND EXPENSES (Note 3):
Direct costs....................................................... 44,641 433,408
Selling, general and administrative expenses....................... 121,015 1,174,903
-------- ----------
Total costs and expenses................................... 165,656 1,608,311
-------- ----------
Operating loss............................................. 126,274 1,225,961
-------- ----------
OTHER EXPENSES (Note 3):
Interest expenses -- net........................................... 1,757 17,058
Other expenses -- net.............................................. 1,691 16,418
-------- ----------
Total other expenses....................................... 3,448 33,476
-------- ----------
NET LOSS............................................................. Y129,722 $1,259,437
======== =========
</TABLE>

See notes to financial statements.

F-15
<PAGE> 103

TELEPASSPORT JAPAN CO., LTD.

STATEMENT OF SHAREHOLDERS' CAPITAL DEFICIENCY
PERIOD FROM MARCH 6, 1995 (DATE OF INCORPORATION) TO DECEMBER 31, 1995

<TABLE>
<CAPTION>
THOUSANDS OF YEN
--------------------------------------
ADDITIONAL
NUMBER OF COMMON PAID-IN
SHARES STOCK CAPITAL DEFICIT
--------- ------- ---------- -----------
<S> <C> <C> <C> <C>
ISSUANCE OF COMMON STOCK....................... 100 Y52,000 Y570
Net loss..................................... Y(129,722)
--- ------- ---- ---------
BALANCE, DECEMBER 31, 1995..................... 100 Y52,000 Y570 Y(129,722)
=== ======= ==== =========
</TABLE>

<TABLE>
<CAPTION>
U.S. DOLLARS (NOTE 1)
---------------------------------------
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL DEFICIT
-------- ---------- -----------
<S> <C> <C> <C>
ISSUANCE OF COMMON STOCK............................... $504,854 $5,534
Net loss............................................. $(1,259,437)
-------- ------ -----------
BALANCE, DECEMBER 31, 1995............................. $504,854 $5,534 $(1,259,437)
======== ====== ===========
</TABLE>

See notes to financial statements.

F-16
<PAGE> 104

TELEPASSPORT JAPAN CO., LTD.

STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 6, 1995 (DATE OF INCORPORATION) TO DECEMBER 31, 1995

<TABLE>
<CAPTION>
U.S.
THOUSANDS DOLLARS
OF YEN (NOTE 1)
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss....................................................... Y(129,722) $(1,259,437)
--------- -----------
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization................................................ 3,499 33,971
Changes in operating assets and liabilities:
Increase in accounts receivable........................... (62,461) (606,417)
Increase in prepaid expenses and other current assets..... (4,318) (41,922)
Increase in accounts payable.............................. 63,309 614,651
Increase in accrued expenses and other current
liabilities............................................ 1,779 17,271
--------- -----------
Total adjustments...................................... 1,808 17,554
--------- -----------
Net cash used in operating activities.................. (127,914) (1,241,883)
--------- -----------
INVESTING ACTIVITIES:
Payments for refundable lease deposits......................... (7,615) (73,932)
Payments of organization cost.................................. (1,611) (15,641)
Purchases of telephone rights.................................. (2,278) (22,117)
--------- -----------
Net cash used in investing activities.................. (11,504) (111,690)
--------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock......................... 52,570 510,388
Borrowing of short-term bank loans............................. 62,000 601,942
Borrowings of long-term debt from shareholders................. 32,360 314,175
Repayments of capital lease obligations........................ (2,654) (25,767)
--------- -----------
Net cash provided by financing activities.............. 144,276 1,400,738
--------- -----------
NET INCREASE IN CASH............................................. 4,858 47,165
--------- -----------
CASH, END OF PERIOD.............................................. Y 4,858 $ 47,165
========= ===========
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid.................................................. Y 1,757 $ 17,058
NONCASH INVESTING AND FINANCING ACTIVITY:
Acquisition of assets under capital leases..................... 36,503 354,398
</TABLE>

See notes to financial statements.

F-17
<PAGE> 105

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS
PERIOD FROM MARCH 6, 1995 (DATE OF INCORPORATION) TO DECEMBER 31, 1995

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Presentation -- The accompanying financial statements of
TelePassport Japan Co., Ltd. (the "Company") are stated in Japanese yen, the
currency of the country in which the Company is incorporated and operates. The
translation of Japanese yen amounts into U.S. dollar amounts is included herein
solely for the convenience of readers outside Japan and has been made at the
rate of Y103=U.S.$1, the approximate rate of exchange at December 29, 1995. The
U.S. dollar amounts should not be construed as representations that the Japanese
yen amounts have been, or could in the future be, converted into U.S. dollars at
that or any other rate.

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America ("US
GAAP"). The Company maintains its books of account in conformity with accounting
principles generally accepted in Japan. No adjustments were required to the
financial statement amounts in order for them to be in conformity with US GAAP.

The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The Company has obtained commitments from its shareholders to provide the
Company with sufficient financial support to enable it to continue as a going
concern.

2. Assets Under Capital Leases -- Assets leased under long-term
noncancelable lease agreements are capitalized in conformity with the provisions
of SFAS No. 13, as amended. Amortization of assets under capital leases is
computed on the straight-line method over lease terms.

3. Organization Cost -- Organization cost is stated at net of accumulated
amortization. Amortization is computed on the straight-line method over five
years.

4. Income Taxes -- Deferred income tax assets and liabilities are computed
for temporary differences between the financial statement and tax basis of
assets and liabilities and for tax credit and loss carryforwards based on
provisions of the enacted tax laws. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.

2. ORGANIZATION AND NATURE OF BUSINESS

The Company was incorporated on March 6, 1995, under the Commercial Code of
Japan and in accordance with the shareholders' agreement (the "shareholders'
agreement") dated March 13, 1995, between USFI-Japan LLC ("USFI-JAPAN"), a U.S.
limited liability company, and Asahi Telecom Co., Ltd. ("ASAHI"), a Japanese
corporation. The Company is owned 51% by USFI-JAPAN and 49% by ASAHI.

The Company provides international direct dial telephone services for
Japanese customers by utilization of the services of USFI, Inc. ("USFI"), an
affiliate of USFI-JAPAN, for transmission of customer telephone calls to
international points.

F-18
<PAGE> 106

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. RELATED PARTY TRANSACTIONS

The balances and transactions with related parties as of December 31, 1995,
and for the period from March 6, 1995 to December 31, 1995, are summarized as
follows:

<TABLE>
<CAPTION>
THOUSANDS
OF YEN U.S. DOLLARS
--------- ------------
<S> <C> <C>
Balances as of December 31, 1995:
Accounts receivable:
USFI..................................................... Y30,130 $292,524
ASAHI.................................................... 12,584 122,175
--------- ------------
Total............................................... Y42,714 $414,699
======== =========
Accounts payable:
USFI..................................................... Y37,783 $366,825
ASAHI.................................................... 4,267 41,427
USFI-JAPAN............................................... 1,740 16,894
--------- ------------
Total............................................... Y43,790 $425,146
======== =========
Long-term debt:
USFI-JAPAN............................................... Y16,180 $157,087
ASAHI.................................................... 16,180 157,088
--------- ------------
Total............................................... Y32,360 $314,175
======== =========
Transactions for the period from March 6, 1995 to December 31,
1995:
Carrier charges -- USFI..................................... Y36,826 $357,534
======== =========
Commission expense -- ASAHI................................. Y 4,972 $ 48,272
======== =========
Management fee expense:
USFI-JAPAN............................................... Y 1,198 $ 11,631
ASAHI.................................................... 1,151 11,175
--------- ------------
Total............................................... Y 2,349 $ 22,806
======== =========
Interest expenses:
USFI-JAPAN............................................... Y 506 $ 4,913
ASAHI.................................................... 496 4,816
--------- ------------
Total............................................... Y 1,002 $ 9,729
======== =========
</TABLE>

The Company is required to pay carrier charges to USFI for its services for
transmission of customer telephone calls to international points according to
the "Private Label Reseller Agreement" dated March 13, 1995. The carrier charges
are included in direct costs in the accompanying statement of operations.

Under the shareholders' agreement, the Company pays management fees equal
to 3.06% of gross revenues to USFI-JAPAN with respect to services it provides in
connection with the technical operations of the Company and 2.94% of gross
revenues to ASAHI with respect to services it provides in connection with sales
and marketing operations of the Company. Management fees are included in
selling, general and administrative expenses in the accompanying statement of
operations.

The Company has a sales and marketing agreement with ASAHI which stipulates
the payment of commissions at a certain percentage of customer collections net
of taxes, fees, refunds, credits and any other non-long distance charges.
Commissions are included in selling, general and administrative expenses.

F-19
<PAGE> 107

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Under the shareholders' agreement, Y16,180 thousand ($157,087) is loaned to
the Company by each of USFI-JAPAN and ASAHI. The loans are unsecured and due in
July 2000, bearing interest at 7% per annum, payable annually.

4. CAPITAL LEASES

The Company leases machinery and equipment under long-term noncancelable
lease agreements. Such leases are accounted for as capital leases.

The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of December 31, 1995:

<TABLE>
<CAPTION>
YEAR ENDING THOUSANDS
DECEMBER 31 OF YEN U.S. DOLLARS
-------------------------------------------------------------- --------- ------------
<S> <C> <C>
1996........................................................ Y 8,033 $ 77,990
1997........................................................ 8,033 77,990
1998........................................................ 8,033 77,990
1999........................................................ 8,033 77,990
2000........................................................ 4,667 45,311
Later years................................................. 318 3,087
------- --------
Total minimum lease payments........................ 37,117 360,358
Less -- amount representing interest and estimated executory
costs.................................................... 3,268 31,727
------- --------
Present value of net minimum lease payments................. 33,849 328,631
Less -- current maturities.................................. 6,817 66,184
------- --------
Long-term capital lease obligations......................... Y27,032 $262,447
======= ========
</TABLE>

5. SHORT-TERM BANK LOANS

Short-term bank loans represent unsecured borrowings under bank overdraft
agreements and bear interest at an annual rate of 1.625% at December 31, 1995.
Under the bank overdraft agreements, the Company can borrow up to the maximum
amount of Y450,000 thousand ($4,368,932).

As is customary in Japan, the bank overdraft agreements provide, under
certain circumstances, that the Company shall provide collateral or guarantees
for present and future indebtedness immediately upon the banks' request. Basic
agreements with banks also provide that the banks have the right to offset cash
deposited with them against borrowings or any other indebtedness outstanding in
the case of default or other similar events.

F-20
<PAGE> 108

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. OPERATING LOSS CARRYFORWARDS

At December 31, 1995, the Company had a net operating loss carryforward of
Y120,330 thousand ($1,168,252) for Japanese tax purposes. Such loss
carryforward, if unused as offsets to future taxable income, will expire in
2000.

The following is the detail of deferred tax balances at December 31, 1995:

<TABLE>
<CAPTION>
THOUSANDS
OF YEN U.S. DOLLARS
--------- ------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities................................. Y 888 $ 8,621
Net operating loss carryforward..................... 61,368 595,806
------- --------
Total....................................... 62,256 604,427
Valuation allowance................................... (62,256) (604,427)
------- --------
Total....................................... Nil Nil
======= ========
</TABLE>

7. COMMITMENTS

Rent expenses for office premises and parking space under cancelable
long-term leases amounted to Y7,642 thousand ($74,194) for the period from March
6, 1995 to December 31, 1995.

8. SUBSEQUENT EVENT (UNAUDITED)

In December 1996, TelePassport Inc., a U.S. corporation newly established
for the purpose of reorganizing the USFI group companies, reached an agreement
in principle with ASAHI to enter into a series of agreements under which
TelePassport Inc. would take the place of the Company as the exclusive carrier
of international long distance traffic for A.T. NET, a wholly-owned subsidiary
of ASAHI. Such agreements are intended to supersede the Company and, upon
effectiveness of the agreements, the Company will be liquidated.

F-21
<PAGE> 109

TELEPASSPORT JAPAN CO., LTD.

BALANCE SHEETS

(UNAUDITED)

<TABLE>
<CAPTION>
THOUSANDS OF YEN U.S. DOLLARS (NOTE 1)
---------------- ---------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
---------------- ---------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................. Y 56,151 $ 501,348
Accounts receivable:
Trade.............................................. 67,098 599,089
Shareholder and affiliated companies (Note 3)...... 115,107 1,027,741
Other..............................................
Inventory............................................. 45,122 402,875
Prepaid expenses and other current assets............. 5,228 46,680
------- --------
Total current assets.......................... 288,706 2,577,733
------- --------
ASSETS UNDER CAPITAL LEASES
(Note 4).............................................. 39,683 354,313
Accumulated amortization.............................. (8,173) (72,973)
------- --------
Net assets under capital leases............... 31,510 281,340
------- --------
TELEPHONE RIGHTS........................................ 2,278 20,339
------- --------
REFUNDABLE LEASE DEPOSITS............................... 135 1,205
------- --------
ORGANIZATION COST....................................... 1,100 9,821
------- --------
TOTAL......................................... Y323,729 $ 2,890,438
======= ========
</TABLE>

See notes to financial statements.

F-22
<PAGE> 110

TELEPASSPORT JAPAN CO., LTD.

BALANCE SHEETS -- (CONTINUED)

(UNAUDITED)

<TABLE>
<CAPTION>
U.S.
THOUSANDS DOLLARS
OF YEN (NOTE 1)
--------- -----------
SEPTEMBER SEPTEMBER
30, 30,
1996 1996
--------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Short-term bank loans (Note 5)................................... Y 265,000 $ 2,366,071
Current maturities of capital lease obligations (Note 4)......... 8,164 72,893
Accounts payable:
Trade......................................................... 76,302 681,268
Shareholders and affiliated companies (Note 3)................ 205,225 1,832,366
Other......................................................... 5,478 48,911
Accrued expenses and other current liabilities................... 3,028 27,036
-------- ---------
Total current liabilities................................ 563,197 5,028,545
LONG-TERM DEBT FROM SHAREHOLDERS (Note 3).......................... 32,360 288,929
LONG-TERM CAPITAL LEASE OBLIGATIONS (Note 4)....................... 23,478 209,625
-------- ---------
Total liabilities........................................ 619,035 5,527,099
-------- ---------
COMMITMENTS (Note 4)
SHAREHOLDERS' CAPITAL DEFICIENCY:
Common stock, Y50 thousand par value -- authorized, 200 shares;
issued and outstanding, 100 shares............................ 52,000 464,286
Additional paid-in capital....................................... 570 5,089
Deficit.......................................................... (347,876) (3,106,036)
-------- ---------
Total shareholders' capital deficiency................... (295,306) (2,636,661)
-------- ---------
TOTAL.................................................... Y 323,729 $ 2,890,438
======== =========
</TABLE>

See notes to financial statements.

F-23
<PAGE> 111

TELEPASSPORT JAPAN CO., LTD.

STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED)

<TABLE>
<CAPTION>
U.S. DOLLARS
THOUSANDS OF YEN (NOTE 1)
---------------------------------------------- ------------------
PERIOD FROM MARCH 6, 1995 NINE-MONTH NINE-MONTH
(DATE OF INCORPORATION) TO PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
-------------------------- ------------------ ------------------
<S> <C> <C> <C>
NET SALES............................................ Y 8,602 Y271,323 $2,422,527
------- -------- ----------
COSTS AND EXPENSES (Note 3):
Direct costs....................................... 15,599 331,677 2,961,402
Selling, general and administrative expenses....... 77,250 152,544 1,362,000
------- -------- ----------
Total costs and expenses........................ 92,849 484,221 4,323,402
------- -------- ----------
Operating loss.................................. 84,247 212,898 1,900,875
------- -------- ----------
OTHER EXPENSES (Note 3):
Interest expense................................... 754 4,780 42,679
Other expenses -- net.............................. 1,068 476 4,250
------- -------- ----------
Total other expenses............................ 1,822 5,256 46,929
------- -------- ----------
NET LOSS............................................. 86,069 218,154 1,947,804
DEFICIT, BEGINNING OF PERIOD......................... 129,722 1,158,232
------- -------- ----------
DEFICIT, END OF PERIOD............................... Y 86,069 Y347,876 3,106,036
======= ======== ==========
</TABLE>

See notes to financial statements.

F-24
<PAGE> 112

TELEPASSPORT JAPAN CO., LTD.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
THOUSANDS OF YEN
----------------------------------------- U.S. DOLLARS (NOTE
PERIOD FROM 1)
MARCH 6, 1995 ------------------
(DATE OF NINE-MONTH NINE-MONTH
INCORPORATION) TO PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................................. Y(86,069) Y (218,154) $ (1,947,804)
------------------ ------------------ ------------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization....................................... 1,850 5,184 46,286
Changes in assets and liabilities:
Increase in accounts receivable.................. (16,529) (119,745) (1,069,152)
Increase in inventories.......................... (45,122) (402,875)
Increase in prepaid expenses and other current
assets........................................ (5,601) (909) (8,116)
Increase in accounts payable..................... 23,404 223,697 1,997,295
Increase in accrued expenses and other current
liabilities................................... 1,599 1,249 11,151
------------------ ------------------ ------------------
Total adjustments............................. 4,723 64,354 574,589
------------------ ------------------ ------------------
Net cash used in operating activities......... (81,346) (153,800) (1,373,215)
------------------ ------------------ ------------------
INVESTING ACTIVITIES:
Payments for refundable lease deposits................ (7,615)
Refund of refundable lease deposits................... 7,480 66,786
Payment of organization cost.......................... (1,611)
Purchase of telephone rights.......................... (1,430)
------------------ ------------------ ------------------
Net cash provided by (used in) investing
activities.................................. (10,656) 7,480 66,786
------------------ ------------------ ------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock................ 52,570
Borrowing of short-term bank loans.................... 17,000 203,000 1,812,500
Borrowings of long-term debt from shareholders........ 32,360
Repayments of capital lease obligations............... (1,091) (5,387) (48,098)
------------------ ------------------ ------------------
Net cash provided by financing activities..... 100,839 197,613 1,764,402
------------------ ------------------ ------------------
NET INCREASE IN CASH.................................... 8,837 51,293 457,973
CASH, BEGINNING OF PERIOD............................... 4,858 43,375
------------------ ------------------ ------------------
CASH, END OF PERIOD..................................... Y 8,837 Y 56,151 $ 501,348
============ ============ ============
ADDITIONAL CASH FLOW INFORMATION:
Interest paid......................................... Y 290 Y 2,818 $ 25,161
NONCASH INVESTING AND FINANCING ACTIVITY:
Acquisition of assets under capital leases............ 32,498 3,180 28,393
</TABLE>

See notes to financial statements.

F-25
<PAGE> 113

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS
PERIOD FROM MARCH 6, 1995 (DATE OF INCORPORATION) TO SEPTEMBER 30, 1995 AND
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
(UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Basis of Presentation -- The accompanying financial statements of
TelePassport Japan Co., Ltd. (the "Company") are stated in Japanese yen, the
currency of the country in which the Company is incorporated and operates. The
translation of Japanese yen amounts into U.S. dollar amounts for the nine-month
period ended September 30, 1996 is included herein solely for the convenience of
readers outside Japan and has been made at the rate of Y112=U.S.$1, the
approximate rate of exchange at September 30, 1996. The U.S. dollar amounts
should not be construed as representations that the Japanese yen amounts have
been, or could in the future be, converted into U.S. dollars at that or any
other rate.

The Company's fiscal year end is December 31.

(2) Inventory -- Inventory, which consists of in-bound ringer equipment, is
stated at the lower of market or cost, cost being computed on average method.

(3) Assets under Capital Leases -- Assets leased under long-term
noncancelable lease agreements are capitalized in conformity with the provisions
of SFAS No. 13, as amended. Amortization of assets under capital leases is
computed on the straight-line method over the lease terms.

(4) Organization Cost -- Organization cost is stated at net of accumulated
amortization. Amortization is computed on the straight-line method over five
years.

(5) Income Taxes -- Deferred income tax assets and liabilities are computed
for temporary differences between the financial statement and tax basis of
assets and liabilities and for tax credit and loss carryforwards based on
provisions of the enacted tax laws. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.

2. ORGANIZATION AND NATURE OF BUSINESS

F-26
<PAGE> 114

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Ltd. ("ASAHI"), a Japanese corporation. The Company is owned 51% by USFI-JAPAN
and 49% by ASAHI.

3. RELATED PARTY TRANSACTIONS

The balances and transactions with related parties as of September 30,
1996, and for the period from March 6, 1995 to September 30, 1995 and the
nine-month period ended September 30, 1996, are summarized as follows:

<TABLE>
<CAPTION>
THOUSANDS
OF YEN U.S. DOLLARS
-------- ------------
1996 1996
-------- ------------
<S> <C> <C>
Balances as of September 30:
Accounts receivable:
USFI.......................................................... Y106,992 $ 955,286
ASAHI......................................................... 339 3,027
ATN........................................................... 243 2,170
USFI-Net Work................................................. 7,533 67,258
------- --------
Total.................................................... Y115,107 $ 1,027,741
======= ========
Accounts payable:
USFI.......................................................... Y185,208 $ 1,653,643
ASAHI......................................................... 18,783 167,705
USFI-JAPAN.................................................... 1,234 11,018
------- --------
Total.................................................... Y205,225 $ 1,832,366
======= ========
Long-term debt:
USFI-JAPAN.................................................... Y16,180 $ 144,464
ASAHI......................................................... 16,180 144,465
------- --------
Total.................................................... Y32,360 $ 288,929
======= ========
</TABLE>

F-27
<PAGE> 115

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
U.S.
THOUSANDS OF YEN DOLLARS
-------------------- ----------
1995 1996 1996
------- -------- ----------
<S> <C> <C> <C>
Transactions for the period from March 6, 1995 to September
30, 1995 and the nine-month period ended September 30,
1996:
Debit card commission -- USFI............................ Y 388 $ 3,464
==========
Carrier charges -- USFI.................................. Y12,245 Y261,421 $2,334,116
======= ======== ==========
Dialer cost -- ASAHI..................................... Y 6,400 $ 57,143
========
Commission expense -- ASAHI.............................. Y 926 Y 35,113 $ 313,509
======= ======== ==========
Maintenance fee -- ASAHI................................. Y 6,200 $ 55,357
========
Collection fee -- A.T. NET............................... Y 7 $ 63
========
Management fee expense:
USFI-JAPAN............................................ Y 264
ASAHI................................................. 253
------- --------
Total............................................ Y 517
======= ========
Interest expense:
USFI-JAPAN............................................ Y 224 Y 850 $ 7,589
ASAHI................................................. 214 850 7,589
------- -------- ----------
Total............................................ Y 438 Y 1,700 $ 15,178
======= ======== ==========
</TABLE>

The Company was required to pay carrier charges to USFI for its services
for transmission of customer telephone calls to international points according
to the "Private Label Reseller Agreement" dated March 13, 1995, between USFI and
the Company. The carrier charges are included in direct costs in the
accompanying statements of operations. USFI exempted the Company from equipment
rental payments set forth in section 10 of the Agreement for the nine-month
period ended September 30, 1996.

Under the shareholders' agreement, the Company is obligated to pay
management fees equal to 3.06% of gross revenues to USFI-JAPAN with respect to
services it provides in connection with the technical operations of the Company
and 2.94% of gross revenues to ASAHI with respect to services it provides in
connection with sales and marketing operations of the Company. USFI-JAPAN and
ASAHI exempted the Company from payments of such management fees for the
nine-month period ended September 30, 1996. Management fees for the period from
March 6, 1995 to September 30, 1995, are included in selling, general and
administrative expenses in the accompanying statements of operations.

Under the collecting agent agreement between the Company and A.T. NET
Corporation ("ATN"), the wholly owned subsidiary of ASAHI, ATN assumes the
billing and collection function for certain customers and accepts the credit
risk of non-payment by the customers. ATN pays to the Company 100% of the amount
billed by ATN to the customers less compensation of 3% of the customer billing
amount for such services.

The Company pays several expenditures on behalf of USFI-Net Work, a
Japanese corporation owned 100% by USFI Global Network Services LLC, which is an
affiliate of USFI-JAPAN.

F-28
<PAGE> 116

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Under the shareholders' agreement, Y16,180 thousand ($144,464) is loaned to
the Company by each of USFI-JAPAN and ASAHI. The loans are unsecured and due in
July 2000, bearing interest at 7% per annum, payable annually.

4. CAPITAL LEASES

The Company leases machinery and equipment under long-term noncancelable
lease agreements. Such leases are accounted for as capital leases.

The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of September 30, 1996:

<TABLE>
<CAPTION>
THOUSANDS OF YEN U.S. DOLLARS
---------------- ------------
<S> <C> <C>
Year ending September 30:
1997.......................................................... Y 8,902 $ 79,482
1998.......................................................... 8,902 79,482
1999.......................................................... 8,902 79,482
2000.......................................................... 6,458 57,661
2001.......................................................... 338 3,018
---------------- ------------
Total minimum lease payments.......................... 33,502 299,125
Less -- amount representing interest and estimated executory
costs......................................................... 1,860 16,607
---------------- ------------
Present value of net minimum lease payments..................... 31,642 282,518
Less -- current maturities...................................... 8,164 72,893
---------------- ------------
Long-term capital lease obligations............................. Y 23,478 $209,625
============= =========
</TABLE>

5. SHORT-TERM BANK LOANS

Short-term bank loans represent unsecured borrowings under bank overdraft
agreements and bear interest at an annual rate of 1.674% at September 30, 1996,
respectively. Under the bank overdraft agreements, the Company can borrow up to
the maximum amount of Y450,000 thousand ($4,017,857).

6. OPERATING LOSS CARRYFORWARDS

At September 30, 1996, the Company had net operating loss carryforwards of
Y313,288 thousand ($2,797,214) for Japanese tax purposes. Such loss
carryforwards, if unused as offsets to future taxable income, will expire as
follows:

<TABLE>
<CAPTION>
EXPIRE IN THOUSANDS OF YEN U.S. DOLLARS
------------------------------------------------ ---------------- ------------
<S> <C> <C>
2000.......................................... Y120,330 $ 1,074,375
2001.......................................... 192,958 1,722,839
-------- ----------
Total................................. Y313,288 $ 2,797,214
======== ==========
</TABLE>

F-29
<PAGE> 117

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following is the detail of deferred tax balances at September 30, 1996:

<TABLE>
<CAPTION>
THOUSANDS OF YEN U.S. DOLLARS
---------------- ------------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities........................................ Y 888 $ 7,929
Bad debt write-off......................................... 1,592 14,214
Net operating loss carryforwards........................... 170,806 1,525,054
-------- ---------
Total.............................................. 173,286 1,547,197
Valuation allowance.......................................... (173,286) (1,547,197)
-------- ---------
Total.............................................. Nil Nil
======== =========
</TABLE>

7. COMMITMENTS

Rent expenses for office premises and parking space under cancelable
long-term leases amounted to Y5,347 thousand and Y6,480 thousand ($57,857) for
the period from March 6, 1995 to September 30, 1995 and for the nine-month
period ended September 30, 1996, respectively.

8. SUBSEQUENT EVENT

In December 1996, TelePassport Inc., a U.S. corporation newly established
for the purpose of reorganizing the USFI group companies, reached an agreement
in principle with ASAHI to enter into a series of agreements under which
TelePassport Inc. would take the place of the Company as the exclusive carrier
of international long distance traffic for ATN. Such agreements are intended to
supersede the Company and, upon effectiveness of the agreements, the Company
will be liquidated.

F-30
<PAGE> 118

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION 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 OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. 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 AFFAIRS OF
THE COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 10
Use of Proceeds................................. 25
Dividend Policy................................. 25
Dilution........................................ 26
Capitalization.................................. 27
Selected Financial Data......................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 30
The International Telecommunications Industry... 37
Business........................................ 40
Regulation of the International
Telecommunications Industry................... 57
Management...................................... 66
Principal Stockholders.......................... 70
Related Party Transactions...................... 72
Description of Capital Stock.................... 73
Shares Eligible For Future Sale................. 75
Certain United States Tax Consequences to Non-
United States Holders of Common Stock......... 76
Underwriting.................................... 78
Notice to Canadian Residents.................... 80
Legal Matters................................... 81
Experts......................................... 81
Additional Information.......................... 81
Glossary of Terms............................... 82
Index to Financial Statements................... F-1
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, 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.

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

TelePassport Inc.

Class B Common Stock
($0.01 par value)

PROSPECTUS

Credit Suisse

First Boston

Smith Barney Inc.

- ------------------------------------------------------
<PAGE> 119

ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION, DATED FEBRUARY 3, 1997
Shares

TelePassport Inc.
[LOGO]
Class B Common Stock

($0.01 per share)
------------------

All the shares of Class B Common Stock, par value $0.01 per share (the "Class B
Common Stock"), of TelePassport Inc. ("TelePassport" or the "Company") offered
hereby are being sold by the Company. Of the shares of Class B Common
Stock being offered, shares (the "International Shares") are initially
being offered by the Managers (as defined herein) outside the United States and
Canada (the "International Offering") and shares (the "U.S. Shares" and
together with the International Shares, the "Shares") are initially being
concurrently offered by the U.S. Underwriters (as defined herein), in the United
States and Canada (the "U.S. Offering" and together with the International
Offering, the "Offering"). The initial price to public and the underwriting
discounts and commissions of the International Offering and the U.S. Offering
are identical. See "Subscription and Sale."

The Company's common stock, par value $0.01 per share, has been designated into
two classes, consisting of Class A Common Stock, par value $0.01 per share (the
"Class A Common Stock") and the Class B Common Stock (collectively, the "Common
Stock"). The Class B Common Stock and the Class A Common Stock are substantially
identical, except for disparity in voting power and convertibility. The Class B
Common Stock is entitled to one vote per share and is not convertible into Class
A Common Stock. The Class A Common Stock is entitled to ten votes per share and
is convertible at any time on a share-for-share basis into Class B Common Stock.
Except as otherwise required by law, under the Company's Amended Certificate of
Incorporation, shares of Class A Common Stock and Class B Common Stock will vote
together on all matters submitted to a vote of stockholders, including the
election of directors. Upon completion of the Offering, the Company's current
stockholders collectively will own 100% of the outstanding Class A Common Stock,
which will represent % of the combined voting power of the Company.
Accordingly, the holders of the Class A Common Stock will have the right to
elect a majority of the Company's Board of Directors. See "Description of
Capital Stock."

Application will be made for quotation of the shares of Class B Common Stock on
The Nasdaq Stock Market's National Market ("NNM") under the symbol " ."
------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS COMPANY(1)
---------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $

Total (2)....................................... $ $ $
</TABLE>

(1) Before deduction of expenses payable by the Company estimated at $ .

The International Shares are offered by the several Managers when, as and if
issued by the Company, delivered to and accepted by the Managers and subject to
their right to reject orders in whole or in part. It is expected that the
International Shares will be ready for delivery on or about , 1997,
against payment in immediately available funds.
Credit Suisse First Boston Limited Smith Barney Inc.
The date of this Prospectus is , 1997.
<PAGE> 120

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 10
USE OF PROCEEDS....................... 25
DIVIDEND POLICY....................... 25
DILUTION.............................. 26
CAPITALIZATION........................ 27
SELECTED FINANCIAL DATA............... 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 30
THE INDUSTRIAL TELECOMMUNICATIONS
INDUSTRY............................ 37
BUSINESS.............................. 40
REGULATION OF THE INTERNATIONAL
TELECOMMUNICATIONS INDUSTRY......... 57
MANAGEMENT............................ 66

<CAPTION>
PAGE
-----
<S> <C>
PRINCIPAL STOCKHOLDERS................ 70
RELATED PARTY TRANSACTIONS............ 72
DESCRIPTION OF CAPITAL STOCK.......... 73
SHARES ELIGIBLE FOR FUTURE SALE....... 75
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF
COMMON STOCK........................ 76
SUBSCRIPTION AND SALE................. 78
NOTICE TO CANADIAN RESIDENTS.......... 80
LEGAL MATTERS......................... 81
EXPERTS............................... 81
ADDITIONAL INFORMATION................ 81
GLOSSARY OF TERMS..................... 82
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION 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 OR ANY MANAGER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.

IN CONNECTION WITH THIS OFFERING, CREDIT SUISSE FIRST BOSTON CORPORATION,
ON BEHALF OF THE U.S. UNDERWRITERS AND THE MANAGERS, MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OF CLASS
B COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

Alt-2
<PAGE> 121

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS (CONTINUED)]

SUBSCRIPTION AND SALE

The institutions named below (the "Managers") have, pursuant to a
Subscription Agreement dated , 1997, between the Company and the
Managers (the "Subscription Agreement"), severally and not jointly, agreed with
the Company to subscribe and pay for the following respective numbers of
International Shares as set forth opposite their names:

<TABLE>
<CAPTION>
NUMBER OF
MANAGER INTERNATIONAL SHARES
------------------------------------------------------------ --------------------
<S> <C>
Credit Suisse First Boston Limited..........................
Smith Barney Inc. ..........................................
------
Total.............................................
======
</TABLE>

The Subscription Agreement provides that the obligations of the Managers
are such that, subject to certain conditions precedent, the Managers will be
obligated to purchase all the International Shares offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in the event of a default
by a Manager, in certain circumstances the purchase commitments of the
nondefaulting Managers may be increased or the Subscription Agreement may be
terminated.

The Company has entered into an Underwriting Agreement with the U.S.
Underwriters of the U.S. Offering (the "U.S. Underwriters") providing for the
concurrent offer and sale of the U.S. Shares in the United States and Canada.
The closing of the U.S. Offering is a condition to the closing of the
International Offering and vice versa.

The Company has granted to the Managers and the U.S. Underwriters an
option, exercisable by Credit Suisse First Boston Corporation, the
representative of the U.S. Underwriters, expiring at the close of business on
the 30th day after the date of this Prospectus, to purchase up to
additional shares at the initial public offering price less the underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. Such option may be exercised only to cover over-allotments in the
sale of the Shares. To the extent that this option to purchase is exercised,
each Manager and each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of additional shares
being sold to the Managers and the U.S. Underwriters as the number of
International Shares set forth next to such Manager's name in the preceding
table bears to the total number of International Shares in such table and as the
number set forth next to such U.S. Underwriter's name in the corresponding table
in the prospectus relating to the U.S. Offering bears to the sum of the total
number of Shares in such tables.

The Company has been advised by Credit Suisse First Boston Limited, on
behalf of the Managers, that the Managers propose to offer the International
Shares outside the United States and Canada initially at the public offering
price set forth on the cover page of this Prospectus and, through the Managers,
to certain dealers at such price less a commission of $ per share and that the
Managers and such dealers may reallow a commission of $ per share on
sales to certain other dealers. After the initial public offering, the public
offering price and commission and re-allowance may be changed by the Managers.

The public offering price, the aggregate underwriting discounts and
commissions per share and the per share commission and re-allowance to dealers
for the International Offering and the concurrent U.S. Offering will be
identical. Pursuant to an Agreement between the U.S. Underwriters and the
Managers (the "Intersyndicate Agreement") relating to the Offering, changes in
the offering price, the aggregate underwriting discounts and commissions per
share and per share commission and re-allowance to dealers will be made only
upon the mutual agreement of Credit Suisse First Boston Limited, on behalf of
the Managers, and Credit Suisse First Boston Corporation, as representative of
the U.S. Underwriters.

Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of International Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of Class B Common Stock or distribute any prospectus
relating to the Class B Common Stock in the United States or Canada or to any
other dealer who does not so agree. Each

Alt-3
<PAGE> 122

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS (CONTINUED)]

of the U.S. Underwriters has agreed that, as part of the distribution of the
U.S. Shares and subject to certain exceptions, it has not offered or sold, and
will not offer or sell, directly or indirectly, any shares of Class B Common
Stock or distribute any prospectus relating to the Class B Common Stock to any
person outside the United States and Canada or to any other dealer who does not
so agree. The foregoing limitations do not apply to stabilization transactions
or to transactions between the Managers and the U.S. Underwriters pursuant to
the Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) an individual resident in the United States or Canada or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
other entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.

Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Class B Common
Stock as may be mutually agreed upon. The price of any shares so sold will be
the public offering price less such amount agreed upon by Credit Suisse First
Boston Limited, on behalf of the Managers, and Credit Suisse First Boston
Corporation, as representative of the U.S. Underwriters, but not exceeding the
selling concession applicable to such shares. To the extent there are sales
between the Managers and the U.S. Underwriters pursuant to the Intersyndicate
Agreement, the number of shares of Class B Common Stock initially available for
sale by the Managers or by the U.S. Underwriters may be more or less than the
amount appearing on the cover page of this Prospectus. Neither the Managers nor
the U.S. Underwriters are obligated to purchase from the other any unsold shares
of Class B Common Stock.

Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (i) it has not offered or sold and prior to the date six months
after the date of issue of the Shares will not offer or sell any Shares 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 which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Shares 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 Shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.

Purchasers of shares of Common stock outside the United States 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 Price to Public set
forth on the cover page of this Prospectus.

The Company, its officers, directors and all existing holders of Common
Stock, have agreed that they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of Common Stock or securities convertible into or
exchangeable or exercisable for any shares of Common Stock, or disclose the
intention to make any such offer, sale, pledge, disposal or filing for a period
of 180 days after the date of this Prospectus without the prior written consent
of Credit Suisse First Boston Corporation, except, in the case of the Company,
issuances pursuant to the 1996 Stock Option Plan.

The Company has agreed to indemnify the Managers and the U.S. Underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or to contribute to payments that the Managers and the U.S. Underwriters
may be required to make in respect thereof.

Application will be made to list the shares of Class B Common Stock on the
NNM under the symbol " ."

Alt-4
<PAGE> 123

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS (CONTINUED)]

Prior to the Offering, there has been no public market for the Class B
Common Stock. The initial public offering price for the Shares was determined by
negotiation between the Company and Credit Suisse First Boston Corporation, as
representative of the U.S. Underwriters, and Credit Suisse First Boston Limited,
on behalf of the Managers, and does not reflect the market price for the Class B
Common Stock following the Offering. Among the principal factors considered in
determining the initial pubic offering price were market conditions for initial
public offerings, the history of and prospects for the Company's businesses, the
Company's past and present operations, its past and present earnings and current
financial position, an assessment of the Company's management, the market of
securities of companies in businesses similar to those of the Company, the
general condition of the securities markets and other relevant factors. There
can be no assurance that the initial public offering price will correspond to
the price at which the Class B Common Stock will trade in the public market
subsequent to the Offering or that an active trading market for the Class B
Common Stock will develop and continue after the Offering.

The Managers and the U.S. Underwriters have informed the Company that they
do not expect discretionary sales by the Managers and the U.S. Underwriters to
exceed 5% of the number of Shares being offered in the Offering.

Alt-5
<PAGE> 124

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the issuance and distribution of the securities being registered hereunder
(including the shares of Class B Common Stock which may be issued pursuant to
the over-allotment option). All of the amounts shown are estimates (except for
the SEC and the NASD filing fees).

<TABLE>
<S> <C>
SEC filing fee................................................... $22,727.27
NASD, Inc. filing fee............................................ 8,000.00
NASDAQ listing fee............................................... , .00
Transfer agent's fee............................................. , .00
Printing and engraving expenses.................................. , .00
Legal fees and expenses.......................................... , .00
Accounting fees and expenses..................................... , .00
Miscellaneous expenses........................................... , .
----------
Total.................................................. $ , .00
=========
</TABLE>

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

* To be provided by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933 (the "Securities Act"). The Registrant's Bylaws provide that the
Registrant will indemnify its directors, executive officers, other officers,
employees and agents to the fullest extent permitted by Delaware law.

The Registrant's Amended Certificate of Incorporation provides for the
elimination of liability for monetary damages for breach of the directors'
fiduciary duty of care to the Registrant and its stockholders. These provisions
do not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.

Reference is made to Section of the Underwriting Agreement (Exhibit 1.1 to
this Registration Statement) which provides for indemnification by the
Underwriters and their controlling persons, on the one hand, and of the
Registrant and its controlling persons on the other hand, against certain civil
liabilities, including liabilities under the Securities Act.

The Registrant intends to apply for a director and officer liability
insurance policy, under which each director and certain officers of the Company
would be insured against certain liabilities.

II-1
<PAGE> 125

ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES.

The Registrant was organized as a Delaware corporation on December 9, 1996.
Upon the completion of the Offering, the following stockholders will receive the
stated number of shares of Class A Common Stock of the Registrant after
transferring to the Company all of their respective shares and interest in the
TelePassport Companies pursuant to the Reorganization:

<TABLE>
<S> <C>
Stephen E. Myers....................................................... (1)
Michael C. Anderson.................................................... (2)
James D. Pearson....................................................... (3)
Seth Davis.............................................................
Total
</TABLE>

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

(1) Includes 1,700 shares purchased from the Registrant on December , 1996 for
$17.

(2) Includes 200 shares purchased from the Registrant on December , 1996 for
$2.

(3) Includes 100 shares purchased from the Registrant on December , 1996 for
$1.

The Company believes that the issuances described above were made in
reliance upon the exemption from the registration requirements of the Securities
Act provided by Section 4(2) of the Securities Act for transactions by an issuer
not involving a public offering. The recipients of the securities above
represented their intentions to acquire the securities for investment only and
not with a view to or a sale in connection with any distribution thereof. No
underwriter or underwriting discount or commission was involved in any of such
issuances.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS

The following Exhibits are filed herewith and made a part hereof.

<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
1.2* Form of Subscription Agreement.
2.1* Agreement of Merger between TelePassport LLC and TelePassport
Inc.
3.1* Certificate of Incorporation of the Registrant, as amended.
3.2* By-Laws of the Registrant.
4.1* Specimen Stock Certificate for shares of Class B Common Stock.
5.1* Opinion of Baer Marks & Upham LLP.
10.1* Agreement dated May 1, 1996, between the United States AF NAF
Purchasing Office and USFI, Inc.
10.2* Form of Independent Representative's Agreement.
10.3* The Registrant's 1996 Stock Option Plan.
10.4* Form of Customer Wholesale Agreement.
10.5* Agreement dated between MCI Telecommunication Corporation, as
supplier, and USFI, Inc., as reseller.
10.6* Agreement dated between WorldCom, Inc., as supplier, and USFI,
Inc., as reseller.
10.7* Agreement dated between Cable & Wireless, Inc., as supplier, and
U.S. Fibercom International, as reseller.
10.8 Option Agreement dated January 21, 1997, between TelePassport
Inc. and Intelenet, Inc.
</TABLE>

II-2
<PAGE> 126

<TABLE>
<S> <C>
10.9* Telecommunication Equipment Housing Agreement dated November 14,
1995.
10.10 Sublease Agreement dated January 28, 1993, between US Fibercom
Network, Inc. and United States Tennis Association.
10.11 License Agreement dated November 6, 1996, between USFI, Inc. and
48th Americas Company.
10.12 Collocation and Facilities Management Service Agreement dated
May 22, 1995, between Voyager Networks, Inc. and USFI, Inc.
10.13* Lease Agreement dated March 1, 1995, between Tokuyo Sangyo Inc.
and USFI Network K.K. (Translation from Japanese to English).
10.14* Employment Agreement with James D. Pearson.
10.15* Employment Agreement with Francis J. Mount.
10.16* Employment Agreement with Jan Piazza.
10.17* Employment Agreement with Paul K. Heun.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Baer Marks & Upham LLP (included in Part II of this
Registration Statement).
23.2 Consent of Ernst & Young LLP, independent auditors (included in
Part II of this Registration Statement).
23.3 Consent of Deloitte Touche Tohmatsu, independent auditors
(included in Part II of this Registration Statement).
24.1 Powers of Attorney (included on the signature page of this
Registration Statement).
27.1 Financial Data Schedule
</TABLE>

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

*To be filed by amendment.

(B) FINANCIAL STATEMENT SCHEDULES

Report of Ernst & Young LLP, independent auditors
Schedule II -- Valuation and Qualifying Accounts

All other schedules have been omitted because the information to be set
forth therein is not applicable or is shown in the financial statements or the
notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(a) (1) to file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:

(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");

(ii) reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
registration statement;

(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any

II-3
<PAGE> 127

deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (sec.230.424(b) of this chapter) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.

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

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.

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

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

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

II-4
<PAGE> 128

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 31st day of January 1997.

TELEPASSPORT INC.

By: /s/ JAMES D. PEARSON
------------------------------------
James D. Pearson
President

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James D. Pearson and Martin A. Rubin as his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, to sign any registration statement pursuant to
Rule 462(b) under the Securities Act of 1933 for the purpose of registering
additional shares of Class B Common Stock for the same offering covered by this
Registration Statement, and to file any of the same, with all exhibits and
supplements thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated:

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

/s/ STEPHEN E. MYERS Chairman of the Board of January 31, 1997
- ----------------------------------------------- Directors
Stephen E. Myers

/s/ JAMES D. PEARSON President, Chief Executive January 31, 1997
- ----------------------------------------------- Officer (Principal
James D. Pearson Executive Officer) and
Director

/s/ R. GORDON MILLS Chief Financial Officer January 31, 1997
- ----------------------------------------------- (Principal Financial and
R. Gordon Mills Accounting Officer)

/s/ MICHAEL C. ANDERSON Director January 31, 1997
- -----------------------------------------------
Michael C. Anderson
</TABLE>

II-5
<PAGE> 129

CONSENT OF COUNSEL

We hereby consent to the reference to our firm in the Registration
Statement on Form S-1 of TelePassport Inc., dated February 3, 1997, under the
caption "Legal Matters." In giving such consent, we do not thereby concede that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 (the "Securities Act"), or the rules or regulations
promulgated thereunder, or that we are "experts" within the meaning of the
Securities Act or such rules and regulations.

BAER MARKS & UPHAM LLP

New York, New York
January 31, 1997

II-6
<PAGE> 130

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated , 1997, in the Registration Statement
(Form S-1 dated February 3, 1997) and related Prospectus of TelePassport Inc.
for the registration of shares of its Class B Common Stock.

Hackensack, New Jersey
, 1997

The foregoing consent is in the form that will be signed upon the
completion of the reorganization described in Note 1 to the consolidated
financial statements.

ERNST & YOUNG LLP

Hackensack, New Jersey
January 31, 1997

II-7
<PAGE> 131

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in this Registration Statement relating to the
registration of the Class B Common Stock of TelePassport Inc. on Form S-1 dated
February 3, 1997 of our report dated March 22, 1996 appearing in the Prospectus,
which is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

DELOITTE TOUCHE TOHMATSU
Tokyo, Japan

February 3, 1997

II-8
<PAGE> 132

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
TelePassport Inc.

We have audited the consolidated financial statements of TelePassport Inc.
and subsidiaries as of December 31, 1995 and 1994, and for the years then ended,
and have issued our report thereon dated , 1997 (included elsewhere in
this Registration Statement). Our audits also included the financial statement
schedules listed in Item 16(b) of this Registration Statement. These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

Hackensack, New Jersey
, 1997

The foregoing report is in the form that will be signed upon the completion
of the reorganization described in Note 1 to the financial statements.

ERNST & YOUNG LLP

Hackensack, New Jersey
January 31, 1997

S-1
<PAGE> 133

TELEPASSPORT INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN E
COLUMN B COLUMN C --------
----------- ----------------- COLUMN D BALANCE
COLUMN A BALANCE AT ADDITIONS ------------ AT END
- ------------------------------------------- BEGINNING CHARGED TO COSTS DEDUCTIONS- OF
DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE PERIOD
- ------------------------------------------- ----------- ----------------- ------------ --------
<S> <C> <C> <C> <C>
Period ended December 31, 1993 (Unaudited)
Allowance for doubtful accounts.......... $ 0 $ 320 $ -- $320
==== ==== ==== ====
Year ended December 31, 1994
Allowance for doubtful accounts.......... $ 320 $ 645 $465(a) $500
==== ==== ==== ====
Year ended December 31, 1995
Allowance for doubtful accounts.......... $ 500 $ 184 $ 1(a) $683
==== ==== ==== ====
</TABLE>

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

(a) Accounts written off as uncollectible.

S-2
<PAGE> 134

EXHIBIT INDEX

<TABLE>
<S> <C> <C>
1.1* Form of Underwriting Agreement. ..........................
1.2* Form of Subscription Agreement. ..........................
2.1* Agreement of Merger between TelePassport LLC and
TelePassport Inc. ........................................
3.1* Certificate of Incorporation of the Registrant, as
amended. .................................................
3.2* By-Laws of the Registrant. ...............................
4.1* Specimen Stock Certificate for shares of Class B Common
Stock. ...................................................
5.1* Opinion of Baer Marks & Upham LLP. .......................
10.1* Agreement dated May 1, 1996, between the United States AF
NAF Purchasing Office and USFI, Inc. .....................
10.2* Form of Independent Representative's Agreement. ..........
10.3* The Registrant's 1996 Stock Option Plan. .................
10.4* Form of Customer Wholesale Agreement. ....................
10.5* Agreement dated between MCI Telecommunication Corporation,
as supplier, and USFI, Inc., as reseller. ................
10.6* Agreement dated between WorldCom, Inc., as supplier, and
USFI, Inc., as reseller. .................................
10.7* Agreement dated between Cable & Wireless, Inc., as
supplier, and U.S. Fibercom International, as
reseller. ................................................
10.8 Option Agreement dated January 21, 1997, between
TelePassport Inc. and Intelenet, Inc. ....................
10.9* Telecommunication Equipment Housing Agreement dated
November 14, 1995. .......................................
10.10 Sublease Agreement dated January 28, 1993, between US
Fibercom Network, Inc. and United States Tennis
Association. .............................................
10.11 License Agreement dated November 6, 1996, between USFI,
Inc. and 48th Americas Company. ..........................
10.12 Collocation and Facilities Management Service Agreement
dated May 22, 1995, between Voyager Networks, Inc. and
USFI, Inc. ...............................................
10.13* Lease Agreement dated March 1, 1995, between Tokuyo Sangyo
Inc. and USFI Network K.K. (Translation from Japanese to
English). ................................................
10.14* Employment Agreement with James D. Pearson. ..............
10.15* Employment Agreement with Francis J. Mount. ..............
10.16* Employment Agreement with Jan Piazza. ....................
10.17* Employment Agreement with Paul K. Heun. ..................
21.1* Subsidiaries of the Registrant. ..........................
23.1 Consent of Baer Marks & Upham LLP (included in Part II of
this Registration Statement). ............................
23.2 Consent of Ernst & Young LLP, independent auditors
(included in Part II of this Registration Statement). ....
23.3 Consent of Deloitte Touche Tohmatsu, independent auditors
(included in Part II of this Registration Statement).
24.1 Powers of Attorney (included on the signature page of this
Registration Statement).
27.1 Financial Data Schedule
</TABLE>

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

*To be filed by amendment.

<PAGE> 1
EXHIBIT 10.8

OPTION AGREEMENT

THIS OPTION AGREEMENT, dated as of __________, 1997 between
Telepassport, a New York corporation (the "Grantee"), and Intelenet, Inc., a
Delaware corporation (the "Grantor).

WHEREAS, the parties are involved in various aspects of the
telephony service business; and

WHEREAS, the parties have agreed that Grantor shall grant to Grantee
the option referred to herein.

NOW, THEREFORE, it is hereby agreed as follows:

SECTION 1. Definitions. The following terms shall have the following
meanings:

"Closing" shall mean the closing of the Option granted hereunder
with respect to the Customers and the Equipment.

"Common Stock" shall mean the common capital stock of the entity
controlled by or under common control with Grantee which has been registered for
sale to the public with the Securities and Exchange Commission and which
completes an initial public offering of such common stock.

"Customers" shall mean those customers of Grantor listed on Exhibit
A, together with any additions thereto between the date hereof and the Closing.

"Customer Purchase Price" shall mean the sum of (i)(A) one times the
Retail Revenue generated by the Service during the third month following the
Node Installation Date and, (B) 75% of the Wholesale Revenue generated by the
Service during the third month following the Node Installation Date; (ii)(A) one
times the Retail Revenue generated by the Service during the sixth month
following the Node Installation Date, and (B) 75% of the Wholesale Revenue
generated by the Service during the sixth month following the Node Installation
Date, and (iii)(A) one times the Retail Revenue generated by the Service during
the ninth month following the Node Installation Date and (B) 75% of the
Wholesale Revenue generated by the Service during the ninth month following the
Node Installation Date. Each installment of the Customer Purchase Price may be
paid in such combination of cash/or in Common Stock (valued at the Valuation
Price) as Grantee may elect, provided that at least 40% of any installment must
be paid in cash.
<PAGE> 2
"Equipment Purchase Price" shall mean the actual documented cost of
the Equipment, less $10,000.

"Equipment" shall mean those items of telecommunications and related
equipment installed and to be installed by Grantor in various locations in
Italy, other than Milan, listed on Exhibit B hereto together with any additions
thereto between the date hereof and the Closing.

"Exercise Notice" shall have the meaning set forth in Section 4
hereof.

"Node Installation Date" shall mean the date on which the node is
installed in Milan, Italy and becomes operational.

"Option" shall have the meaning set forth in Section 2 hereof.

"Retail Revenue" shall mean the aggregate monthly revenue paid by
end-user Customers of the Service for per minute voice and facsimile service
after giving effect to any allowances, discounts, fees and credits which may be
applied during such monthly period.

"Service" shall mean the telephony service provided by Grantor to
the Customers.

"Valuation Price" shall mean the average closing price of the Common
Stock during the 7 trading days immediately preceding each day on which Common
Stock is delivered to the Grantor.

"Wholesale Revenue" means the aggregate monthly revenue paid to
Grantor by other distributors of the Service for per minute voice and facsimile
service who are not the ultimate end-users thereof, after giving effect to any
allowances, discounts, fees, and credits which may be applied during such
monthly period.

SECTION 2. Grant of Option. In consideration of, among other things,
the sum of $35,000 paid by Grantee to Grantor on the execution and delivery
hereof, Grantor hereby grants to Grantee the right and option to purchase each
of the Equipment and the Customers upon the terms and conditions set forth
herein (collectively, the "Option").

SECTION 3. Term of Option. The term of the Option shall commence on
the execution and delivery hereof and shall terminate on the earlier of (i) the
first anniversary of the execution and delivery hereof, (ii) 30 days following
consummation of the initial public offering of the Common Stock.

-2-
<PAGE> 3
SECTION 4. Exercise of Option. To be effective, the Option must be
exercised by written notice (an "Exercise Notice") from Grantee to Grantor at
the address of Grantor set forth herein.

SECTION 5. Closings. (a) The Closing shall be held at the offices of
counsel to the Grantee, at the time and date set forth in the Exercise Notice,
or at such other time or date as the parties may mutually agreed upon. At the
Closing, the Grantee shall deliver the Equipment Purchase Price in cash. The
Customer Purchase Price shall be paid within 10 days after the end of the third,
sixth or ninth month, respectively, following the Node Installation Date or the
Closing, whichever occurs later in such combination of cash and/or Common Stock
as is provided herein. The Customer Purchase Price shall be computed by Grantee,
and absent manifest error shall be binding upon the parties. Grantor agrees to
cooperate fully with Grantee and to promptly supply such information, from time
to time as is necessary in Grantee's reasonable opinion to prepare such
computation. Concurrent with the payment of each installment of the Customer
Purchase Price, Grantee shall deliver to Grantor a copy of its calculation of
the Customer Purchase Price during the applicable period.

(b) At the Closing, Grantor shall deliver to Grantee a duly
executed bill of sale and other instruments of conveyance in form and substance
satisfactory to Grantor whereby Grantee shall transfer title to the Customers
and/or the Equipment free and clear of all liens, claims and encumbrances.

SECTION 6. Price Protection on Common Stock. Provided that Common
Stock has been issued in connection with payment of the Customer Purchase Price,
if, on the day following the second anniversary after the issuance thereof, the
average closing price during the 7 trading days immediately preceding such date
of such Common Stock is less than 70% of the Valuation Price, then Grantor shall
be entitled to receive in cash or additional shares of Common Stock (valued at
such closing price) at Grantee's option, the difference between such average
closing price and the Valuation Price.

SECTION 7. Representations and Warranties of Grantor. Grantor
represents and warrants to Grantee as follows:

(a) Grantor has duly taken all action required to be
taken by it to authorize the execution and delivery of this Agreement by it and
each other agreement to be executed in connection herewith and the consummation
of the transactions contemplated hereby to be performed by it, and this
Agreement is and when executed and delivered such other agreements will be,
valid and binding agreements of Grantor enforceable against Grantor in
accordance with their terms.

-3-
<PAGE> 4
(b) Neither the execution and delivery of this Agreement
or any agreement contemplated hereby nor the consummation of the transactions
contemplated hereby or thereby will (i) violate any provision of Grantor's
articles of incorporation or bylaws, or (ii) violate, or be in conflict with, or
constitute a default under, or result in the termination of, or accelerate the
performance required by any contract to which Grantor is a party or by which it
is bound, or (iii) violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority.

(c) Grantor has and will at the Closing, have, good
title to the Equipment and the Customers, free and clear of all liens, security
interests or other encumbrances of any nature.

(d) No consent, approval, license or authorization of
any governmental or regulatory authority or any other person is required to be
obtained by Grantor or Grantee in connection with the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.

(e) The aggregate monthly gross revenues generated by
sales of the Service in Italy by Grantor is no less than $160,000 per month.

SECTION 8. Covenants of Grantor and Grantee.

(a) From and after the execution and delivery hereof
through the Closing, Grantor covenants and agrees to operate its business and
affairs and the Service in the ordinary course, consistent with past practices,
and in furtherance of the foregoing, shall not, without Grantee's consent, make
any changes in its sales, marketing, commission, pricing or operating practices.
Grantor further covenants and agrees that it shall not at any time sell,
transfer or encumber in any manner whatsoever any of the Customers or the
Equipment or its interest therein.

(b) Until the end of the third month following the
Closing, (i) pricing and commission practices with respect to the Service may be
modified upon mutual agreement of Grantor and Grantee, (ii) DID's may be changed
upon mutual agreement of Grantor and Grantee, and (iii) the name of the product
marketed in connection with the Service shall remain "Intelenet".

(c) From and after the end of the third month following
the Closing, (i) at Grantee's request, the name of the product marketed in
connection with the Service shall become "TelePassport" (or another name
selected by Grantee) in each jurisdiction in which the product is marketed, (ii)
DID's may be changed in the sole discretion of Grantee, and (iii) pricing and
commission practices with respect to the Service may be changed in the sole
discretion of Grantee.

-4-
<PAGE> 5
(d) Grantee agrees to use its reasonable efforts to
promptly complete the installation of the node in Milan, Italy. Grantor agrees
to cooperate fully with the Grantee in identifying a suitable location in Milan
and in completing such installation.

(e) Grantor agrees that it shall not install any
equipment in more than two cities in Italy without Grantee's consent which shall
not be unreasonably withheld. The equipment installed in such two cities shall
be included in and deemed part of the "Equipment".

(f) From and after the execution and delivery hereof
through the Closing, Grantor covenants and agrees (i) to cooperate fully with
Grantee in connection with its due diligence activities performed in connection
with the transactions contemplated hereby, including the furnishing of such
information as Grantee may reasonably request from time to time; and (ii) to
consult with Grantee with respect to the purchasing of equipment for, site
selection and installation of all node sites to be selected and/or constructed
by Grantor in Italy.

SECTION 9. Conditions to Obligations of Grantee. Each and every
obligation of Grantee under this Agreement to be performed at or before Closing
shall be subject to the satisfaction, at or before Closing, of each of the
following conditions, unless waived in writing by Grantee:

(a) Grantor shall have performed and complied in all
material respects with all agreements, obligations and covenants required by
this Agreement to be performed or complied with by Grantor at or prior to
Closing and Grantor shall have delivered to Grantee a certificate dated the date
of Closing to such effect.

(b) The representations and warranties of Grantor
contained herein shall be true and accurate in all respects (i) on and as of the
date of this Agreement, and (ii) on and as of the date of Closing as though such
representations and warranties were made on and as of the date of Closing and
Grantor shall have delivered to Grantee a certificate of Grantor dated the date
of Closing to such effect.

(c) No suit, action, or other legal or administrative
proceeding by any governmental body or other person shall have been instituted
which questions the validity or legality of the transactions contemplated hereby
and on the date of Closing there shall be no effective injunction, writ,
temporary restraining order or any other order of any nature issued by a court
of competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as so provided.

-5-
<PAGE> 6
SECTION 10. Conditions to Obligations of Grantor. Each and every
obligation of Grantor under this Agreement to be performed at or before Closing
shall be subject to the satisfaction, at or before Closing, of each of the
following conditions unless waived in writing by Grantor:

(a) Grantee shall have performed and complied with in
all material respects with all agreements, obligations and covenants required by
this Agreement to be performed and complied with by Grantee at or prior to
Closing and Grantee shall have delivered to Grantor a certificate dated the date
of Closing to such effect.

(b) At the Closing, Grantee and Peter Falconello shall
have entered into an Employment Agreement substantially in the form of Exhibit C
hereto.

SECTION 11. Notices. (a) All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
addressed to the parties at their addresses set forth below or at such other
addresses as may be designated by notice given pursuant hereto:

If to Grantor, to:

____________________________
____________________________
____________________________

If to Grantee, to:

Telepassport, Inc.
1212 Avenue of the Americas
New York, NY 10036-9999
Attention: James D. Pearson

(b) Any notice addressed as aforesaid shall be deemed to have
been given: (i) on the date of delivery, if delivered by hand or by overnight
courier service, (ii) on the date of transmission, if transmitted by telecopier,
telex or cable, provided that if transmitted by telex or cable such transmittal
is confirmed in writing, or (iii) five days after deposit of same in the mails
if dispatched by registered mail. Notwithstanding the foregoing, notice of a
change of address shall be effective only upon receipt.

SECTION 12. Entire Agreement. Each party hereto agrees that this
Agreement constitutes the entire agreement between them with respect to the
subject matter hereof and supersedes all prior agreements and understandings
between them as to such subject matter; and there are no agreements,
arrangement, oral or written, between the parties relating to the subject matter
hereof which are not fully expressed or referred to herein.

-6-
<PAGE> 7
SECTION 13. Waiver. Failure by one party to insist upon strict
compliance with any of the terms, covenants or conditions of this Agreement
shall not be deemed a waiver by such party of such term, covenant or condition,
nor shall any waiver of any term, covenant or condition hereunder by one party
at any one time be deemed a waiver or relinquishment by such party of that or
any other term, covenant or condition at any other time.

SECTION 14. Amendment. This Agreement may not be amended nor shall
any waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party seeking or against
whom enforcement of any amendment, waiver, change, modification, consent or
discharge is sought.

SECTION 15. Assignment; Binding Effect. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, successors and permitted assigns. This
Agreement and the Option granted pursuant hereto may be assigned by Grantee to
an affiliate of Grantee but may not be assigned by Grantor without the written
consent of Grantee.

SECTION 16. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York.

SECTION 17. Headings. The headings of this Agreement are for
convenience only and shall not in any way affect the meaning or interpretation
of this Agreement.

SECTION 18. Counterparts. This Agreement may executed in one or more
counterparts but all such separate counterparts shall constitute one and the
same instrument.

IN WITNESS WHEREOF, the parties hereto have each executed this
Agreement as of the date and year first above written.

Intelenet, Inc.

________________________________ By:________________________________
WITNESS Name:
Title:

Telepassport, Inc.

________________________________ By:________________________________
WITNESS Name:
Title:

-7-

<PAGE> 1
EXHIBIT 10.10

UNITED STATES TENNIS ASSOCIATION INCORPORATED

Sublandlord

and

US FIBERCOM NETWORK, INC.

Subtenant

SUBLEASE

January 28, 1993
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS

Paragraph Page

<S> <C> <C>
1. Term 1
2. Annual Fixed Rent and Additional Rent 1
3. Use of the Sublease Premises 3
4. Incorporation of Overlease Terms 3
5. Sublease Subject to Overlease 5
6. Electricity 7
7. Occupancy Tax 8
8. Non-Applicability of Certain Provisions
of the Overlease 9
9. No Assignment or Subletting 9
10. Insurance 15
11. Brokerage 17
12. Assignment of Overlease 18
13. Notices and Cure Periods; Default and
Remedies 18
14. Binding Effect 24
15. Condition of the Sublease Premises 24
16. At End of Term 25
17. Alterations 26
18. Security 26
19. Directory Listings 29
20. Miscellaneous 29
21. Valid Authority 31
22. Failure to Give Possession 31
23. Consent of Overlandlord under the Overlease 32
24. First Right to Sublease 33
</TABLE>

EXHIBIT A - Overlease
EXHIBIT B - Overlandlord's Form of Consent to Sublease
EXHIBIT C - Form of Letter of Credit
EXHIBIT D - Form of Guaranty
<PAGE> 3
SUBLEASE

AGREEMENT OF SUBLEASE ("Sublease") dated as of the _____ day of January, 1993,
by and between UNITED STATES TENNIS ASSOCIATION INCORPORATED, a New York
corporation having an office at 1212 Avenue of the Americas, New York, New York
10036- 9998 ("Sublandlord"), and US FIBERCOM NETWORK, INC., a Delaware
corporation having an office at 725 Fifth Avenue, 15th floor, New York, New York
10022 ("Subtenant").

WHEREAS:

I. By lease dated as of January 10, 1985 between The 48th Americas
Company ("Overlandlord"), as landlord, and Sublandlord, as tenant, Sublandlord
leased from Overlandlord certain premises in the building ("the Building") known
as 1212 Avenue of the Americas, New York, New York, for a term to expire on June
30, 2000;

II. Said lease has been amended by a certain letter agreement dated
October 28, 1985 and a certain agreement dated November 1, 1985 (said lease as
now or hereafter amended, the "Overlease"); and

III. Subtenant desires to sublet from Sublandlord, and Sublandlord
desires to sublet to Subtenant, the entire twelfth (12th) floor of the Building
(the "Sublease Premises"), upon the terms and subject to the provisions and
conditions hereinafter set forth.

NOW, THEREFORE, the parties hereto, in consideration of the
mutual convenants, conditions and agreements hereinafter contained, do hereby
agree as follows:

W I T N E S S E T H :

1. Term. Sublandlord hereby sublets the Sublease Premises to Subtenant,
and Subtenant hereby hires the Sublease Premises from Sublandlord, for a term
(the "Term") which shall commence on the later of (a) February 15, 1993 and (b)
the date that is fifteen days after the day on which Sublandlord shall give
notice to Subtenant that Sublandlord has vacated the Sublease Premises (the
"Commencement Date"), and which shall end on June 29, 2000 (the "Expiration
Date"), unless sooner terminated in accordance with the provisions of this
Sublease.

2. Annual Fixed Rent and Additional Rent.

A. Subtenant covenants and agrees that, during and throughout
the entire Term, Subtenant shall pay to Sublandlord
<PAGE> 4
annual fixed rent ("Fixed Rent") in the amount of $282,797.50 per annum (in
monthly installments of $23,566.46) during and for the period commencing on the
Commencement Date and continuing through and including the Expiration Date;
which Subtenant covenants and agrees to pay to Sublandlord, in lawful money of
the United States, in equal monthly installments in advance, on the first day of
each calendar month during the Term, without demand, deduction, offset,
abatement, defense, and/or counterclaim whatsoever, except that Subtenant shall
pay the first monthly installment of Fixed Rent simultaneously with the
execution and delivery of this Sublease. The monthly installment of Fixed Rent
payable on account of any partial calendar month during the Term shall be
prorated.

B. In addition to the Fixed Rent payable hereunder, Subtenant
covenants to pay as additional rent, without any demand, deduction, offset,
abatement, defense and/or counterclaim whatsoever, all amounts that are required
to be paid to Overlandlord as either additional rent or "increases in Fixed
Rent" pursuant to the Overlease, including, without limitation, those "increases
in Fixed Rent" payable under Articles 37, 38 and 39 of the Overlease, and which
are payable with respect to the Sublease Premises for periods occurring wholly
or in part within the Term of this Sublease, as calculated and in the manner
provided in the Overlease, except that for purposes of this Subparagraph 2B: the
term "Base Tax" as defined in Paragraph A.3 of Article 37 of the Overlease shall
mean Taxes (as defined in Paragraph A.7 of Article 37 of the Overlease for the
fiscal year commencing on July 1, 1993, and ending June 30, 1994; the term "Base
Tax Year", as defined in Paragraph A.3 of Article 37 of the Overlease, shall
mean the fiscal year commencing on July 1, 1993 and ending on June 30, 1994; the
deleted percentages in Articles 37 and 39 of the Overlease shall be deemed to be
5.08%; there shall be deemed excluded from "Wage Rates", as defined in Paragraph
A.5 of Article 38 of the Overlease, the monetary value of cost of benefits
(other than wages) and the third sentence of said paragraph shall be deemed
deleted; the deleted figure and percentage in Paragraph B.1 of Article 38 of the
Overlease shall be deemed to be 12,710 and 100% respectively; and the term "Base
Wage Rates" as defined in Paragraph B.1 of Article 38 of the Overlease shall be
deemed to refer to the Wage Rate in effect for 1993.

C. Notwithstanding anything to the contrary contained herein,
Subtenant shall pay all additional rent payable under said Subparagraph 2B
directly to Sublandlord or as Sublandlord shall direct at lease five (5)
business days prior to the respective due dates under the Overlease for such
additional rent except that regularly scheduled items of additional rent shall
be due and payable on the respective due dates under the Overlease for such
additional rent.

<PAGE> 5
D. All payments of Fixed Rent and additional rent (Fixed Rent
and additional rent are collectively referred to herein as "rent") shall be made
by good and sufficient check (subject to collection) currently dated, drawn on a
bank which is a member of the New York Clearing House or any successor thereto,
issued directly from Subtenant, without endorsements, to the order of
Sublandlord (or such other party as Sublandlord may, from time to time, direct)
at Sublandlord's office (or such other place as Sublandlord may designate from
time to time).

E. In the event that additional rent is due under the
Overlease with respect to any period which precedes the Commencement Date or
follows the Expiration Date, Subtenant's obligations hereunder on account of
such additional rent shall be appropriately prorated.

F. Notwithstanding anything to the contrary contained in this
Sublease, all sums of money, other than Fixed Rent, as shall become due and
payable by Subtenant to Sublandlord under this Sublease shall be deemed to be
additional rent, and Sublandlord shall have the same rights and remedies in the
event of non-payment of additional rent as are available to Sublandlord for the
non-payment of Fixed Rent.

G. Notwithstanding anything to the contrary provided in
Subparagraph 2A above, the amount by which the fixed Rent for (i) the first
(1st) three (3) months of the Term, (ii) each January during the Term other than
January 1998, 1999 and 2000, and (iii) one-half of the month of January 2000,
exceeds the Electric Charge (hereinafter defined) for each such period, shall be
abated. Notwithstanding the foregoing, if, at any time during the Term,
Subtenant shall be in default beyond the expiration of the applicable cure
period (if any) in the performance of any of its obligations under this Sublease
and Sublandlord shall terminate this Sublease by reason of such default, then in
calculating damages to which Landlord may be entitled, Fixed Rent shall be
considered without regard to any abatement thereafter accruing.

3. Use of the Sublease Premises. Subtenant shall use and occupy the
Sublease Premises for general and executive offices in accordance with the terms
and conditions of the Overlease (the "Permitted Use"), and for no other purpose,
and further covenants not to do any act which will result in a violation of the
Overlease.

4. Incorporation of Overlease Terms.

A. All capitalized and other terms not otherwise defined
herein shall have the meanings ascribed to them in the Overlease, unless the
context clearly requires otherwise.

<PAGE> 6
B. Except as herein otherwise expressly provided, all of the
terms, provisions, covenants and conditions contained in the Overlease are
hereby made a part hereof. The rights and obligations contained in the Overlease
are, during the term of this subletting, hereby imposed upon the respective
parties hereto, Sublandlord as being substituted for Overlandlord, and Subtenant
being substituted for Sublandlord with respect to the Overlease; provided,
however, that Sublandlord shall not be liable to Subtenant for any failure in
performance resulting from the failure in performance by Overlandlord under the
Overlease of the corresponding covenant of the Overlease, and Sublandlord's
obligations hereunder are accordingly conditional where such obligations require
such parallel performance by Overlandlord. It is expressly agreed that
Sublandlord shall not be obligated to perform any obligation which is the
obligation of Overlandlord under the Overlease. Sublandlord shall have no
liability to Subtenant by reason of default of Overlandlord under the Overlease.
Subtenant recognizes that Sublandlord is not in a position and shall not be
required to render any of the services or utilities, to make repairs,
replacements, restorations, alterations or improvements or to perform any of the
obligations required of Overlandlord by the terms of the Overlease. Sublandlord
agrees, however, to use reasonable efforts to enforce its rights against
Overlandlord under the Overlease for the benefit of Subtenant upon Subtenant's
written request therefor (and to forward to Overlandlord any notices or requests
for consent as Subtenant may reasonably request); provided, however, Sublandlord
shall not be obligated to incur any expense to Overlandlord, Subtenant or their
agents or contractors (unless otherwise required by the Overlease) in connection
with expending such efforts. Except as provided in the immediately succeeding
sentence, nothing contained in this Section 4(A) shall require Sublandlord to
institute any suit or action to enforce such rights. Sublandlord agrees that, if
(i) Overlandlord is in default of its obligations under the Overlease after the
expiration of any applicable cure period, (ii) such default materially and
adversely affects Subtenant, (iii) Sublandlord shall have exhausted all
reasonable efforts to compel Overlandlord to cure such default (other than
commencing appropriate legal action), (iv) no default in the payment of Fixed
Rent, additional rent or any other sum or any other material obligation shall
have occurred hereunder and be continuing and (v) Subtenant shall have delivered
to Sublandlord security, satisfactory in all respects to Sublandlord in the
exercise of its reasonable judgment, to secure Subtenant's obligations under
this sentence and the next succeeding sentence, then Sublandlord shall institute
such appropriate legal action to enforce Overlandlord's obligations with respect
to the Sublease Premises as Subtenant may reasonably request in writing, at
Subtenant's sole cost and expense, with counsel of Sublandlord's selection.
Subtenant shall within five (5) days after demand reimburse Sublandlord for any
and all costs which Sublandlord shall incur in bringing any such action, and
Subtenant does

<PAGE> 7
hereby indemnify and agree to hold Sublandlord harmless from and against any and
all claims, liabilities, damages, costs and expenses (including, without
limitation, reasonable attorney's fees and disbursements) incurred or suffered
by Sublandlord by reason of or in connection with bringing such action.
Subtenant acknowledges that the failure of Overlandlord to provide any services
or comply with any obligations under the Overlease shall not entitle Subtenant
to any abatement or reduction in rent payable hereunder. Notwithstanding the
foregoing, if under the terms of the Overlease Sublandlord shall be entitled to
an abatement in rent thereunder with respect to the Sublease Premises and
Sublandlord receives such abatement, then Subtenant shall be entitled to a
corresponding abatement in the rent hereunder; provided, however, the amount of
such abatement shall not exceed the amount of the abatement under the Overlease
which Sublandlord receives with respect to the Sublease Premises.

C. Wherever the Overlease refers to the "Demised Premises,"
such references for the purposes hereof shall be deemed to refer to the Sublease
Premises.

D. Subtenant shall pay, as additional rent, to Sublandlord
five (5) business days prior to the last day of each calendar month during the
Term in the manner applicable to the payment of Fixed Rent, the entire amount of
all charges made by Overlandlord, Sublandlord or others during such month for
repairs, cleaning, maintenance, overtime heating, ventilation and
air-conditioning service, electricity service and other services which are not
required to be furnished by Overlandlord to Sublandlord or by Sublandlord to
Subtenant, as the case may be, at no additional cost pursuant to the express
terms of the Overlease and/or this Sublease, as the case may be, and which are
either requested by Subtenant or necessitated by the acts or omissions of
Subtenant, its employees, agents, licensees, invitees or others who are or may
be present at the Sublease Premises.

E. Sublandlord represents that: (i) as of the date hereof the
Overlease annexed hereto as Exhibit "A" and made a part hereof is a true and
complete copy of the Overlease, except as to certain intentionally omitted
provisions, which provisions are expressly not incorporated herein and made
inapplicable to Subtenant and the Sublease premises, (ii) to the best knowledge
of Sublandlord, Overlandlord is not in default under the Overlease and (iii)
Sublandlord has received no notice of default from Overlandlord under the
Overlease with respect to a default which has not been cured. Sublandlord shall
indemnify and hold Subtenant harmless from all direct and provable claims,
liabilities, damages, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) arising by reason of the default
of Sublandlord under the Overlease unless caused by Subtenant's default
hereunder.

<PAGE> 8
5. Sublease Subject to Overlease

A. This Sublease is expressly made subject and subordinate to
all of the terms and conditions of the Overlease and to all matters to which the
foregoing is subject, except as specifically provided to the contrary in this
Sublease, to the extent applicable to the Sublease Premises. Subtenant hereby
assumes and covenants that, throughout the Term, Subtenant shall observe and
perform, all of the provisions of the Overlease, to the extent applicable to the
Sublease Premises, which are to be observed and performed by the tenant
thereunder. Subtenant covenants that Subtenant shall not do any act, matter or
thing which will be, result in, or constitute a violation or breach of or a
default under the Overlease; it being expressly agreed to by Subtenant that any
such violation, breach or default shall constitute a material breach by
Subtenant of a substantial obligation under this Sublease. Subtenant hereby
agrees that Subtenant shall indemnify and hold Sublandlord harmless from and
against all direct and provable claims, liabilities, penalties and expenses,
including, without limitation, attorneys' fees and disbursements, arising from
or in connection with any default by Subtenant in Subtenant's performance of
those terms, covenants and conditions of this Sublease and/or of the Overlease
which are or shall be applicable to Subtenant, and all amounts payable by
Subtenant to Sublandlord on account of such indemnity shall be deemed to be
additional rent hereunder and shall be payable upon demand. In any case where
the consent or approval of Overlandlord shall be required pursuant to the
Overlease or otherwise, Overlandlord's and Sublandlord's consent shall be
required hereunder, and Sublandlord shall have no obligation to consent to any
matter to which Overlandlord's consent is so required but not obtained.

B. Subtenant covenants and agrees that if, by reason of a
default on the part of Sublandlord, as the tenant under the Overlease, in the
performance of any of the terms or provisions of the Overlease, or for any other
reason of any nature whatsoever, such lease or the leasehold estate of the
tenant thereunder, is terminated by summary dispossess proceeding or otherwise,
then Subtenant will, at Overlandlord's election, attorn to Overlandlord, and
will recognize Overlandlord as Subtenant's landlord under this Sublease.
Subtenant covenants and agrees to execute and deliver, at any time and from time
to time, within five (5) business days following a request therefor by
Sublandlord or Overlandlord, any instrument which may be reasonably necessary or
appropriate to evidence such attornment. Sublandlord shall request that
Overlandlord enter into a so-called "subordination, non-disturbance and
recognition agreement" with Subtenant.

C. Subject to the provisions of the next succeeding sentence,
Subtenant agrees to be bound, for all purposes of this Sublease, by any
modifications or amendments to

<PAGE> 9
The Overlease. Sublandlord shall not amend or modify the Overlease in
any way that would discriminate against Subtenant, or which would increase
Subtenant's monetary obligations hereunder, shorten the term hereof or decrease
Subtenant's rights with respect to the Permitted Use of the Sublease Premises,
or which would otherwise materially adversely affect Subtenant's rights or
obligations hereunder or permit the same to be canceled or terminated, unless
required pursuant to the terms of the Overlease prior to the effectiveness of
any such modification or amendment, without Subtenant's prior written consent;
provided, however, that Sublandlord shall have the right to terminate this
Sublease in the event that Sublandlord terminates the Overlease in accordance
with the provisions of any of Articles 9, 10 or 54 of the Overlease.

6. Electricity

A. Subtenant acknowledges that the Fixed Rent includes an
amount (the "Electric Charge") payable in consideration of electricity furnished
to the Sublease Premises, equal to $34,952.50 per annum (in monthly installments
of $2,912.71), such amount to be in substitution for ERIF payable with respect
to the Sublease Premises at the date hereof. If the cost to Overlandlord for
electricity shall be increased after the date hereof by changes in
Overlandlord's electric rates, charges, fuel adjustment or service
classifications, or by taxes or charges of any kind imposed thereon, or for any
other reason (other than by reason of an increase in consumption of electricity
on the eleventh (11th) floor of the Building) and as a result thereof the ERIF
portion of the fixed annual rent to be paid by Sublandlord to Overlandlord under
Article 46 or the Overlease is increased, then the Electric Charge shall be
increased by one-half of the amount by which said ERIF shall have been increased
after the date hereof.

B. At any time during the term of this Sublease, but not more
often than once per year, Sublandlord, at Sublandlord sole cost and expense, may
cause an independent electrical engineer or electrical consulting firm selected
by Sublandlord to make a survey of Subtenant's electrical equipment located in
the Sublease Premises, and the use thereof, to determine if the full value of
electricity furnished to the Sublease Premises exceeds the Electric Charge. If
the value of such electricity exceeds the Electric Charge, Sublandlord shall
furnish a copy of said survey to Subtenant and Sublandlord and Subtenant shall
execute a supplementary agreement modifying this Sublease by increasing the
Electric Charge to such excess. The failure of the parties to execute such
supplementary agreement shall not affect Subtenant's obligation to pay such
excess. If Subtenant shall dispute the result of any survey conducted by the
independent electrical engineer or consultant selected by Sublandlord
("Sublandlord's Survey"), Subtenant shall have the right, for a period of thirty
(30) days following Subtenant's

7
<PAGE> 10
receipt of the results of Sublandlord's Survey, to have Subtenant's own
electrical engineer or consultant conduct a survey of the Sublease Premises
("Subtenant's Survey"). The cost of Subtenant's Survey shall be paid by
Subtenant. If the results of Subtenant's Survey indicate a variation of less
than ten(10%) percent from the results of Sublandlord's Survey, Sublandlord's
Survey shall be binding and conclusive on both parties. In the event that the
results of Subtenant's Survey indicate a variation of ten (10%) or more from the
results of Sublandlord's Survey and such dispute cannot be resolved between
Sublandlord's and Subtenant's electrical engineers and/or consultants, said
dispute shall be resolved by a third electrical engineer or consultant who shall
be selected by the two electrical engineers or consultants who shall have
already made such surveys, whose fees shall be paid for equally by Subtenant and
Sublandlord. Notwithstanding anything contained herein to the contrary, the
Electric Charge shall not be increased pursuant to this Subparagraph 6B merely
by reason of Tenant's consumption in the Sublease Premises of electricity in
amounts not normal for general offices in connection with the normal use of
lamps, typewriters, photocopiers for normal office use, personal computers and
other small office machines which consume comparable amounts of electricity.

C. In the event that Overlandlord shall elect to discontinue
the redistribution of furnishing of electrical energy to the Sublease Premises
pursuant to Article 46 of the Overlease the provisions of Subparagraph 6A hereof
shall cease to apply, the Fixed Rent shall, from the date that such
discontinuance is effective, be reduced by the amount of the Electric Charge
then in effect and Subtenant shall obtain electric service directly from the
public utility company servicing the Building. In no other event shall the Fixed
Rent be reduced by reason of a change in the Electric Charge or in electric
service to the Sublease Premises.

D. Without limiting the terms of Subparagraph 6B hereof,
except as otherwise expressly provided in this Article 6, the terms of Article
46 Paragraphs A, C and D of the Overlease shall be incorporated by reference in
this Sublease as if fully stated herein. As incorporated herein, there shall be
substituted in said Paragraphs A, C, and D (i) Sublandlord for Overlandlord and
(ii) Subtenant for Sublandlord.

7. Occupancy Tax. If any commercial rent or occupancy tax
(collectively, "Rent Tax") shall be levied with regard to the Sublease Premises
during the Term, Subtenant shall pay the same either to the taxing authority,
or, if appropriate, to Sublandlord, as additional rent, not less than twenty
(20) days before the due date of each and every such tax payment. In the event
that any such tax payment shall be made by Subtenant to Sublandlord, Sublandlord
shall remit the amount of such payment to the taxing authority on subtenant's
behalf. Sublandlord shall

8
<PAGE> 11
pay to the taxing authority, or, if appropriate, to Overlandlord, the Rent Tax,
if any, that shall be levied with regard to the Overlease subject to the credits
and/or deductions to which Sublandlord may be entitled by reason of Subtenant's
obligations with respect to Rent Tax pertaining to this Sublease.

8. Non-Applicability of Certain Provisions of the Overlease.

A. The following provisions of the Overlease shall not be
incorporated in this Sublease by reference: the demising clause first appearing
in the Overlease, Articles 18 and 27, Articles 33 and 41, Article 46 Paragraph
B, Article 47, Article 49 Paragraphs H and W, Articles 52, 53, 54 and 57, the
letter agreement dated October 28, 1985 from Overlandlord to Sublandlord, the
agreement dated November 1, 1985 by and between Overlandlord and Sublandlord
and all references to a renewal or extension in term (wherever appearing).

B. As incorporated herein: the words "twenty (20) days in
Article 3 of the Overlease shall be deemed deleted and replaced with "fifteen
(15) days"; and the words "ten (10) days" in Article 4 of the Overlease shall be
deemed deleted and replaced with "seven (7) days".

9. No Assignment or Subletting.

A. Subtenant, on its own behalf and on behalf of its heirs,
distributees, executives, administrators, legal representatives, successors and
assigns, covenants and agrees that Subtenant shall not, by operation of law or
otherwise: (i) assign, whether by merger, consolidation or otherwise, mortgage
or encumber its interest in this Sublease, in whole or in part, or (ii) sublet,
or permit the subletting of, the Sublease Premises or any part thereof, or (iii)
permit the Sublease Premises or any part thereof to be occupied or used for desk
space, mailing privileges or otherwise by any person or entity other than
Subtenant without the prior written consent of Sublandlord and of Overlandlord
in each instance. Any violation of the provisions of this Subparagraph 9A shall
constitute a material default under this Sublease.

B. If Subtenant shall desire to sublet all or any portion of
the Sublease Premises, Subtenant shall submit to Sublandlord a written request
for Sublandlord's consent to such assignment or subletting, which request shall
be accompanied by the following information: (i) The name and address of the
proposed subtenant; (ii) If Subtenant desires to sublet only a portion of the
Sublease Premises, a description of the portion to be sublet, together with a
floor plan thereof; (iii) the terms and conditions of the proposed subletting
and any other related transactions between Subtenant and the subtenant; (iv) the
nature and character of the business of the proposed subtenant and its

9
<PAGE> 12
proposed use of the Sublease Premises; and (v) current financial information and
any other information Sublandlord may reasonably request with respect to the
proposed subtenant, including, without limitation, its most recent financial
report. Sublandlord, by notice given to Subtenant within thirty (30) days after
receipt of Subtenant's request for consent to any sublease of the whole of the
Sublease Premises, may terminate this Sublease on a date to be specified in said
notice (the "Termination Date"), which date shall be the later of (x) five (5)
days after Sublandlord's notice and (y) the effective date of the proposed
subletting. Subtenant shall vacate and surrender the Sublease Premises on or
before the Termination Date as if it were the Expiration Date. If Subtenant
proposes to sublet only a portion of the Sublease Premises, Sublandlord, by
notice given to Subtenant within thirty (30) days after receipt of Subtenant's
request for consent, may elect to eliminate such portion of the Sublease
Premises (said portion hereinafter called the "Eliminated Space") from the
Sublease Premises during the period (hereinafter called the Elimination Period")
commencing on the date (hereinafter called the "Elimination Date") immediately
prior to the proposed commencement date of the term of the proposed subletting,
and ending on the Expiration Date, and in the event such notice is given: (a)
the Eliminated Space shall be eliminated from the Sublease Premises during the
Elimination Period; (b) Subtenant shall surrender the Eliminated Space to
Sublandlord on or prior to the Elimination Date in the same manner as if said
Elimination Date were the Expiration Date; (c) if the Eliminated Space shall
constitute less than an entire floor, Sublandlord, at Sublandlord's expense,
shall have the right to make any alterations and installations in the Sublease
Premises required, in Sublandlord's reasonable judgment, to make the Eliminated
Space a self-contained rental unit with access through corridors to the
elevators and core toilets serving the Eliminated Space, and if the Sublease
Premises shall contain any core toilets or any corridors (including any
corridors proposed to be constructed by Sublandlord pursuant to this clause
(c)), providing access from the Eliminated Space to the core area, Sublandlord
and any tenant or other occupant of the Eliminated Space shall have the right to
use such toilets and corridors in common with Subtenant and any other permitted
occupants of the Sublease Premises, and the right to install signs and
directional indicators in or about such corridors indicating the name and
location of such tenant or other occupant; and (d) during the Elimination
Period, (x) the Fixed Rent shall be reduced in the proportion which the area of
the eliminated Space bears to the total area of the Sublease Premises
immediately prior to the Elimination Date (including an equitable portion of the
area of any corridors referred to in clause (c) of this sentence as part of the
area of the Eliminated Space for the purpose of computing such reduction), (y)
the additional rent payable under Subparagraph 2B shall be reduced
proportionately, and (z) any prepaid portion of Fixed Rent and additional rent
for any period after the Eliminated Date allocable to the Eliminated Space

10
<PAGE> 13
shall be refunded by Sublandlord to Subtenant. At the request of Sublandlord,
Subtenant shall execute and deliver an instrument or instruments, in the form
satisfactory to Sublandlord, setting forth any modifications to this Sublease
contemplated in or resulting from the operation of the foregoing provisions of
this Subparagraph 9B; however, neither Sublandlord's failure to execute or
deliver any such instrument shall vitiate the effect of the foregoing provisions
of this Subparagraph 9B.

C. Notwithstanding anything to the contrary contained in this
Paragraph 9, if Sublandlord does not exercise its right to terminate this
Sublease or to eliminate the Eliminated Space from the Sublease Premises
pursuant to Subparagraph 9B above, provided that Subtenant is not in default
after any applicable grace or notice provided in this Sublease in the payment of
Fixed Rent, additional rent or any other sum or any other material obligation of
Subtenant under this Sublease. Subtenant shall have the right to sublet any
portion of the Sublease Premises, subject to all of the following terms and
conditions:

(i) Subtenant shall have complied with the provisions
of the Overlease and shall obtain, prior to the effective date of such sublease,
the consent of Overlandlord to such sublease;

(ii) Subtenant shall obtain the prior written consent
os Sublandlord to such proposed sublease, which consent shall not be
unreasonably withheld provided the other conditions of this Subparagraph 9C are
satisfied;

(iii) In Sublandlord's reasonable judgment, the
proposed subtenant is engaged in a business, and the Sublease Premises will be
used in a manner, which is limited to the use for the purposes set forth in this
Sublease, and for no other purposes;

(iv) The proposed subtenant shall be reputable and
shall have, in the reasonable judgment of Sublandlord, sufficient financial
worth to perform the obligations of the subtenant under the sublease as
evidenced by the presentation to Sublandlord of financial and other information
regarding the proposed subtenant including, without limitation, its business
experience, a current financial statement, and such other information as
Sublandlord may reasonably request;

(v) If all of the 11th floor of the Building, or any
part thereof that is reasonably comparable to the space that Subtenant proposes
to sublease, is not sublet by Sublandlord or if any sublease of all of the 11th
floor of the Building or any portion thereof that is reasonably comparable to
the space that Subtenant proposes to sublease, is scheduled to expire before the
commencement date of the proposed sublease, and all

11
<PAGE> 14
of, or such portion of, the 11th floor of the Building is not subject to a
further sublease that is scheduled to expire on or before the commencement date
of the proposed sublease, Subtenant shall not have negotiated or entered into a
proposed sublease, Subtenant shall not have negotiated or entered into a
proposed subletting with any tenant, subtenant or occupant or any space in the
11th floor of the building or any person with whom Sublandlord is then
negotiating (or with whom Sublandlord has, in the previous four-month period,
negotiated) to sublease space on the 11th floor of the Building that is
reasonably comparable to the space that Subtenant proposes to sublease or with
any person which directly or indirectly controls, or is controlled by, or is
under common control with, any such tenant, subtenant or occupant or person with
whom Sublandlord is then negotiating (or with whom Sublandlord has, in the
previous four-month period, negotiated);

(vi) No subletting shall be for a term ending later
than one (1) day prior to the expiration date of the term of this Sublease;

(vii) The sublease shall be subject and subordinate
to all provisions of this Sublease and the Overlease and all of the rights of
Sublandlord hereunder and of Overlandlord under the Overlease;

(viii) Subtenant shall deliver to Sublandlord
duplicate original of such sublease, duly executed and acknowledged by Subtenant
and the subtenant, at the time Subtenant requests Sublandlord's consent thereto;

(ix) The sublease shall provide that it is subject
and subordinate to this Sublease and to the matters to which this Sublease is or
shall be subordinate, and that, in the event of termination, re-entry or
dispossession by Sublandlord under this Sublease, Sublandlord may, at its
option, take over any of the right, title and interest of Subtenant, as
sublessor, under such subleasee, and the subtenant shall, at Sublandlord's
option, attorn to Sublandlord pursuant to the then executory provisions of such
sublease, except that Sublandlord shall not (x) be liable for any previous act
or omission of Subtenant under such sublease, (y) be subject to any
counterclaim, offset or defense, which theretofore accrued to such subtenant
against Subtenant, or (z) be bound by any previous modification of such sublease
or by any Previous prepayment of more than one (1) month's rent (it being
acknowledged and agreed, however, that the provisions of this Subparagraph
9C(ix) shall be self operative, and that no further instrument shall be required
to give effect to this provision);

(x) The subtenant shall have no right whatsoever to
further sublet the Sublease Premises or any portion thereof or to assign its
interest in the Sublease; provided, however, subject to Overlandlord's consent,
if required under the Overlease, the subtenant may further sublease the
Sublease

<PAGE> 15
Premises to an Affiliate (hereunder defined) of such subtenant; provided,
further, however, that no such further subletting shall be effective unless and
until a copy of the sub-sublease shall have been delivered to Sublandlord and
such sub-lease shall provide for the automatic termination thereof upon such
Affiliate sub-subtenant ceasing to be an Affiliate of the subtenant. As used
herein the term "Affiliate" means, with respect to any person or entity, any
party that is under the control of, controlling or under common control with
such person or entity;

(xi) The subtenant shall not be entitled, directly or
indirectly, to diplomatic or sovereign immunity and shall be subject to service
or process in, and the jurisdiction of the courts of, the State of New York;

(xii) There shall not be more than three (3)
subtenants or occupants (including Subtenant) of the Sublease Premises; and

(xiii) No sublease shall be for less than 3,000
contiguous square feet of area and shall be of a shape or configuration such
that the area proposed to be sublet and the remainder of the Sublease Premises
shall in Sublandlord's reasonable judgment constitute commercially marketable
separate rental units.

D. Subtenant shall reimburse Sublandlord on demand for all
costs (including, without limitation, all reasonable legal fees and
disbursements, as well as the costs of making investigations as to the
acceptability of the proposed subtenant) which may be incurred by Sublandlord in
connection with a request by Subtenant that Sublandlord consent to any proposed
assignment or sublease.

E. Subtenant hereby waives any claim against Sublandlord for
money damages which Subtenant may have based upon any assertion that Sublandlord
has unreasonably withheld or delayed any consent to a subletting pursuant to the
provisions of this Sublease. Subtenant agrees that its sole remedy shall be an
action or proceeding to enforce such provisions or for specific performance.

F. If Sublandlord shall give its consent to any sublease of
the Sublease Premises, Subtenant shall pay to Sublandlord, as additional rent,
75% of any and all Sublease Profits (as hereinafter defined). For purposes of
this sublease, the term "Sublease Profits" shall be deemed to mean the amount by
which (i) all rents, additional charges or other consideration paid under the
sublease to, or in connection with the subletting by, Subtenant (including, but
not limited to, (x) sums paid for the sale or rental of Subtenant's fixtures,
leasehold improvements, equipment, furniture or other personal property to the
extent such sums exceed the fair market value or fair market

<PAGE> 16
rental, as the case may be, of such fixtures, leasehold improvements, equipment,
furniture or other personal property and (y) any and all sums paid on account of
the Workstations (hereinafter defined)) after deducting therefrom the amount of
any reasonable brokerage commission, attorney's fees and disbursements and
advertising costs, reasonable rent concessions and the reasonable cost of
constructing demising walls or other reasonable alterations and decorations in
connection with the subletting of a portion of the Sublease Premises, if
applicable, actually incurred by Subtenant in connection with such subletting,
exceed the (ii) Fixed Rent and regularly scheduled items of additional rent
accruing during the term of such sublease pursuant to the terms hereof with
respect to the portion of the Sublease Premises to be subleased. Not
withstanding the foregoing, Sublandlord agrees that if, and for so long as, (x)
the sum of (a) the Fixed Rent and regularly scheduled items of additional rent
accruing during the Term pursuant to the terms of this Sublease and (b) Sublease
Profits theretofore paid by Subtenant to Sublandlord, exceeds (y) the total
amount of fixed rent and regularly scheduled items of additional rent payable
with respect to the Sublease Premises by Sublandlord to Overlandlord during the
Term pursuant to the terms of the Overlease, the amount of Sublease Profits
shall be reduced by 75% of such excess. The sums payable under this Subparagraph
9F shall be paid to Sublandlord as and when payable by the subtenant to
Subtenant. If Sublandlord and Subtenant disagree as to whether the sale price or
rental of any of Subtenant's personal property sold or rented in connection with
a sublease exceeds fair market value, Sublandlord may, at its own expense,
conduct an appraisal thereof by a licensed real estate appraiser of
Sublandlord's selection, whose determination of fair market value shall be
conclusive and binding on the parties; provided that if any such appraiser
determines the sale price or rental of such personal property does not exceed
110% of the fair market value thereof, then Sublandlord shall waive any payment
on account of Sublease Profits attributable to the sale or rental of such
personal property.

G. Any attempted assignment or subletting made contrary to the
provisions of this Paragraph 9 shall be null and void. No consent by Sublandlord
or Overlandlord to any assignment or subletting shall in any manner be
considered to relieve Subtenant from obtaining Sublandlord's and Overlandlord's
express written consent to any further assignment or subletting. The provisions
of this Paragraph 9 shall apply to each and every sublease Subtenant proposes to
enter into during the Term. For the purposes of this Paragraph 9, "sublettings"
shall be deemed to include all sub-sublettings as well as sublettings.

H. (i) If Subtenant is a corporation, the direct or indirect
transfer and/or exchange of fifty (50%) percent or more (aggregating all prior
transfers) of the shares of Subtenant or of the shares of any corporation of
which Subtenant is a

<PAGE> 17
direct or indirect subsidiary, including transfers by operation of law and
including a related or unrelated series of transactions, shall be deemed an
assignment of this Sublease for purposes of this Paragraph 9.

(ii) If Subtenant is a partnership, the direct or indirect
transfer of fifty (50%) percent or more (aggregation all prior transfers) of the
partnership interests or Subtenant, including transfers by operation of law and
including a related or unrelated series of transactions, shall be deemed an
assignment of this Sublease for all purposes of this Paragraph 9.

I. Notwithstanding anything contained in Subparagraph 9A hereof to the
contrary, subject to the terms of the Overlease and the consent of Overlandlord
if required thereunder, the Subtenant initially named herein ( the "Initial
Subtenant"), shall, so long as such Initial Subtenant be the subtenant
hereunder, have the right to sublease the Sublease Premises to an Affiliate of
the Initial Subtenant for a term extending only so long as such Affiliate is an
Affiliate of the Initial Subtenant without the consent of Sublandlord and
without sharing with Sublandlord Sublease Profits; provided, however, no such
subletting shall be effective unless and until a copy of the sub-sublease
therefor shall have been delivered to Sublandlord. In the event such Affiliate
shall cease to be an Affiliate of the Initial Subtenant, then Subtenant shall
immediately give a notice thereof to Sublandlord. If the Subtenant shall desire
to sublease all or a portion of the Sublease Premises to such former Affiliate
of the Initial Subtenant, then simultaneously with the giving of the aforesaid
notice to Sublandlord, Subtenant shall submit its request for Sublandlord's
consent to such sublease and the terms of Subparagraphs 9B through and including
9H hereof shall apply to such proposed subletting.

10. Insurance.

A. Modifying the provisions of Article 45 of the
Overlease, as such provisions pertain to this Sublease. Subtenant shall, at its
own cost and expense, obtain, maintain and keep in force during the Term for the
benefit of Sublandlord, Subtenant, Overlandlord and such other parties as are
named in the Overlease, commercial general liability insurance which shall
include premises operation, bodily injury, personal injury, death, independent
contractors, products and completed operations, broad form contractual liability
and broad form property damage coverages in a combined single limit amount of
$3,000,000, against all claims, demands or actions with respect to damage,
injury or death made by or on behalf of any person or entity, arising from or
related to the conduct and operation of Subtenant's business in, on or about the
Sublease Premises. Whenever in Sublandlord's reasonable judgment, good business
practice and changing conditions indicate a need for additional or different
types or insurance coverage, Subtenant shall, upon

<PAGE> 18
Sublandlord's request, promptly obtain such insurance coverage, at Subtenant's
expense provided such type of additional insurance coverage is either (i) then
being required by Overlandlord under the Overlease or (ii) then being obtained
by or required of tenants occupying premises similar to the Sublease Premises in
buildings similar to the Building located in the vicinity of the Building.

B. Sublandlord, Overlandlord and such other parties as are
required to be named pursuant to the overlease, including, without limitation,
Overlandlord's agents and any lessor under any ground or underlying lease, shall
be named as additional insureds in said policies and shall be protected against
all liability occasioned by an occurrence insured against. All of said policies
of insurance shall be: (i) written as "occurrence" policies, (ii) written as
primary policy coverage and not contributing with or in excess of any coverage
which Sublandlord may carry, and (iii) issued by insurance companies which are
rated not less than "A:XII" in Best's Key Rating Guide or which are otherwise
reasonably satisfactory to Sublandlord, and which are licensed to do business in
the State of New York. Said policies shall also provide that the insurer will
give Sublandlord at lease thirty (30) days prior written notice of cancellation
of said policy or of any material modification thereof, and shall comply with
all of the provisions of Article 45 of the Overlease. Subtenant shall deliver to
Sublandlord the policies of insurance or certificates thereof, together with
evidence of the payment of premiums thereon, prior to the Commencement Date, and
shall thereafter furnish to Sublandlord, at least twenty (20) days prior to the
expiration of any such policies and any renewals thereof, a new policy or
certificate in lieu thereof, with evidence of the payment of premiums thereon.

C. Subtenant shall pay all premiums and charges for all of
said policies, and, if Subtenant shall fail to make any payment when due or
carry any such policy, Sublandlord may, but shall not be obligated to, make such
payment or carry such policy, and the amount paid by Sublandlord, with interest
thereon at the maximum legal rate of interest from the date of such payment or
the issuance of such policy, shall be repaid to Sublandlord by Subtenant on
demand, and all such amounts so repayable, together with such interest, shall be
deemed to constitute additional rent hereunder. Payment by Sublandlord of any
such premium, or the carrying by Sublandlord of any such policy, shall not be
deemed to waive or release the default of Subtenant with respect thereto.

D. Notwithstanding anything to the contrary contained in
Article 45 of the Overlease, and notwithstanding the limits of insurance
specified in this Paragraph 10, Subtenant agrees to defend, indemnify and hold
harmless Sublandlord, and the agents, partners, shareholders, directors,
officers and employees of Sublandlord, from and against all damage, loss,

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<PAGE> 19
liability, cost and expense (including, without limitation, engineers',
architects' and attorneys' fees and disbursements) resulting from any of the
risks referred to in this Paragraph 10. Such indemnification shall operate
whether or not Subtenant has placed and maintained the insurance specified in
this Paragraph 10, and whether or not proceeds from such insurance (such
insurance having been placed and maintained) actually are collectible from one
or more of the aforesaid insurance companies; provided, however, that Subtenant
shall be relieved of its obligation of indemnity herein pro tanto of the amount
actually recovered by Sublandlord from one or more of said insurance companies
by reason of injury or damage to or loss sustained on the Sublease Premises.

E. Subtenant hereby agrees to indemnify, hold harmless and
defend Sublandlord, its officers, directors, employees, agents and contractors
from and against any and all claims, damages, liabilities, costs and expenses
(including, but not limited to, reasonable attorneys' fees and disbursements)
arising as a result of: (i) any breach by Subtenant of any of the
representations, warranties, covenants and agreements of Subtenant under this
Sublease, or (ii) the conduct of business in or management of the Sublease
Premises during the Term or while Subtenant is in possession of or otherwise
occupies all or any part of the Sublease Premises except to the extent due to
the negligence or wilful misconduct of Sublandlord, or (iii) any work or thing
whatsoever done or any condition created in or about the Sublease Premises
during the Term or while Subtenant is in possession of or otherwise occupies all
or any part of the Sublease Premises, or (iv) any negligent or willful act or
omission of Subtenant or of any licensee or invite or other occupant of, or
person present at, the Sublease Premises or of any employee, agent or contractor
of any of the foregoing during the Term or while Subtenant is in possession of
or otherwise occupies all or any part of the Sublease Premises except to the
extent due to the negligence or wilful misconduct of Sublandlord or (v) any act
or omission of Sublandlord arising from or in connection with any action taken
by Sublandlord to cure any default by Subtenant hereunder.

II. Brokerage. Each of Subtenant and Sublandlord represents
and warrants to the other that no broker, other than CB Commercial Real Estate
Group, Inc. And The Lansco Corporation (collectively, the "Broker"), was
instrumental in consummating this Sublease, and Subtenant warrants and
represents that no conversations or prior negotiations were had with any broker
other than the Broker concerning the subletting of the Sublease Premises. Each
party shall indemnify and hold the other harmless from and against any claims
for brokerage commissions or similar fees claimed by any person or entity other
than the Broker and any and all other claims, damages, liabilities, costs and
expenses (including, without limitation, attorneys' fees and disbursements)
arising out of or in connection with such party's

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<PAGE> 20
breach of the foregoing representations and warranties. Sublandlord shall be
responsible for paying the Broker any commission due with respect to the
execution and delivery of this Sublease.

12. Assignment of the Overlease. The term "Sublandlord" as
used in this Sublease means only the tenant under the Overlease, at the time in
question, so that if Sublandlord's interest in the Overlease is assigned,
Sublandlord shall be thereupon released and discharged from all covenants,
conditions and agreements of Sublandlord hereunder accruing with respect to the
Overlease from and after the date of such assignment, but such covenants,
conditions and agreements shall be binding on the assignee until thereafter
assigned. If Sublandlord shall assign or surrender the Overlease to
Overlandlord, such assignment or surrender shall be effectuated so as not to
terminate the estate herein granted. If Sublandlord shall assign the Overlease
to Overlandlord or an Affiliate of the Overlandlord, Overlandlord shall enter
into an agreement with Subtenant whereby Overlandlord agrees that in the event
of the Termination of the Overlease (other than a termination in accordance with
the terms of the Overlease but not by reason of the tenant's default under the
Overlease) then, provided the Subtenant shall not be in default hereunder after
any applicable grace or notice provided in this Sublease, Overlandlord will not
disturb the use and occupancy of Subtenant under this Sublease; provided,
however, Overlandlord shall not under any circumstances be liable for any act or
omission of any prior sublandlord (other then a sublandlord who is an Affiliate
of Overlandlord), provided that the foregoing shall not affect Subtenant's
rights under subparagraph 2G hereof (b) be liable for the return of any security
deposit unless actually received by Overlandlord or its Affiliates, (c) bound by
any waiver or forbearance or any prior sublandlord (other than a sublandlord who
is an Affiliate of Overlandlord), (d) subject to any offsets of defenses which
Subtenant might have against any Sublandlord (other than a sublandlord who is an
Affiliate of Overlandlord) or (e) bound by any Fixed Rent or additional rent
which the subtenant might have paid in excess of the then current month to any
prior Sublandlord (other than a sublandlord who is an Affiliate of
Overlandlord).

13. Notices and Cure Periods; Default and Remedies.

A. All notices hereunder to Sublandlord or Subtenant shall be given
in writing and delivered by hand, national overnight courier or mailed by
certified or registered mail, return receipt requested, to the address set forth
below:

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<PAGE> 21
If to Sublandlord:

if before the commencement of the Term:

United States Tennis Association Incorporated
1212 Avenue of the Americas
New York, New York 10036-9998
Attention: Chief Financial Officer

both before and during the Term:

United States Tennis Association Incorporated
70 West Red Oak Lane
Harrison, New York 10528
Attention: Chief Financial Officer

with a copy of any notice of default or termination to:

Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Attention: David A. Rahm, Esq.

If to Subtenant:

US Fibercom Network, Inc.
1212 Avenue of the Americas
New York, New York 10036-9998
Attention: Mr. Seth R. Davis

with a copy of any notice of default or termination to:

Baer Marks & Upham
805 Third Avenue
New York, New York 10022
Attention: Stanley E. Bloch, Esq.

and

US Cable Corporation
28 West Grant Avenue
Montvale, New Jersey 07645
Attention: Mr. James Pearson

B. By notice given in the aforesaid manner, either party
hereto may notify the other as to any change as to where and to whom such
party's notices are thereafter to be addressed.

C. The effective date of any notice shall be the date such
notice is delivered (if by hand or by national overnight courier) or the date of
mailing thereof.

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<PAGE> 22
D. In connection with the incorporation by reference of notice
and other time limit provisions of the Overlease into this Sublease (and except
with respect to actions to be taken by Subtenant for which shorter time limits
are specifically set forth in this Sublease, which time limits shall control for
the purposes of this Sublease), the time limits provided in the Overlease for
the giving or making of any notice to the tenant thereunder by Overlandlord, the
holder of any mortgage, the lessor under any ground or underlying lease or any
other party, or for the performance of any act, condition or covenant or the
curing of any default by the tenant thereunder, or for the exercise of any
right, remedy or option by the tenant thereunder, are changed for the purposes
of this Sublease, by shortening the same in each instance: (i) to fifty (50)
calendar days with respect to all such periods of sixty (60) or more calendar or
business days, (ii) to twenty two (22) calendar days with respect to all such
periods of thirty (30) or more calendar or business days but less than sixty
(60) calendar or business days, (iii) to twelve (12) calendar days with respect
to all such periods of twenty (20) or more calendar or business days but less
than thirty (30) calendar or business days, (iv) to five (5) calendar days with
respect to all such periods of ten (10) or more calendar or business days but
less than twenty (20) calendar or business days, and (v) to two (2) calendar
days with respect to all such periods of five (5) or more calendar or business
days but less than ten (10) calendar or business days; but in any and all events
to a time limit enabling Sublandlord to give any notice, perform any act,
condition or covenant, cure any default, and/or exercise any option within the
time limit relating thereto as contained in the Overlease. Sublandlord shall,
promptly after receipt thereof, notify Subtenant of any notice of default served
by Overlandlord upon Sublandlord under any of the provisions of the Overlease.
Sublandlord shall promptly furnish notice to Subtenant of any action taken by
Sublandlord to cure such default. Subtenant shall, immediately upon receipt
thereof, notify Sublandlord of any notice served by Overlandlord upon Subtenant
under any of the provisions of the Overlease or with reference to the Sublease
Premises. Subtenant shall immediately furnish notice to Sublandlord of any
action taken by Subtenant to cure any default under, or comply with any request
or demand made by Overlandlord and/or Sublandlord in connection with the
Overlease (pertaining to the Sublease Premises) or this Sublease.

E. (i) Article 17 of the Overlease as incorporated herein by
reference is hereby modified (a) by deleting from the first sentence of Section
(2) thereof the phrase "unless such default" and replacing it with "and such
default"; (b) the words "or any other lease" appearing in the first sentence of
Section (1) thereof shall be deemed deleted and replace with "or any other lease
or sublease"; (c) the words "fifteen (15) days' and "fifteen (15) days,"
wherever appearing shall be deemed deleted and replaced with "ten (10) days" and
"ten (10) day," respectively; and (d) the words "ten (10) days',"

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<PAGE> 23
wherever appearing in said Article 17 shall be deemed deleted and replace with
"seven (7) days'"; and (e) "or if any guarantor of Subtenant's obligations under
this Sublease ("Guarantor") shall default in any of its obligations under its
guaranty; or if a case in bankruptcy or under the laws of any state is commenced
naming Guarantor as debtor unless Landlord shall be obligated pursuant to the
terms of Subparagraph 18F hereof to agree to the termination of the Guarantor's
guaranty; or if Guarantor shall make an assignment or any other arrangement for
the benefits of creditors under any state law unless Landlord shall be obligated
pursuant to the terms of Subparagraph 18F hereof to agree to the termination of
the Guarantor's guaranty" is inserted after the word "judge" appearing in the
13th line of Section (1) thereof.

(ii) Supplementing and notwithstanding the provisions of
Article 17 of the Overlease as incorporated herein, this Sublease and the term
and estate hereby granted are subject to the further limitation that whenever
Subtenant will default in the payment of any installment of Fixed Rent, or in
the payment of any additional rent or any other charge payable by Subtenant
under this Sublease or any other sublease between Sublandlord and Subtenant, on
any day upon which the same ought to be paid and such default will continue for
five (5) days after Sublandlord will have given Subtenant a notice specifying
such default, then, in any such case. Sublandlord may give to Subtenant a notice
of cancellation and termination of this Sublease effective at the expiration of
three (3) days from the date of the service of such notice, and upon the
expiration of said three (3) day notice period this Sublease and the term and
estate hereby granted whether or not the term will theretofore have commenced
will terminate as fully and with the same effect as if that day were set forth
herein for the expiration of the term hereof, but Subtenant will remain liable
for damages as provided herein.

F. (i) If this Sublease shall be terminated under the
provisions of Article 17 of the Overlease as incorporated herein or under
Subparagraph 13E hereof:

(a) Subtenant shall quit and peacefully surrender the
Sublease Premises to Sublandlord, and Sublandlord and its agents may
immediately, or at any time after such termination or after the date upon which
this Sublease and the Term shall expire and come to an end, re-enter the
Sublease Premises or any part thereof, without notice, either by summary
proceedings, or by any other applicable action or proceeding, or by force or
other wise (without being liable to indictment, prosecution or damages
therefor), and may repossess the Sublease Premises and dispossess Subtenant and
any other persons from the Sublease Premises and remove any and all of their
property and effects from the Sublease Premises; and

(b) Sublandlord, at Sublandlord's option, may relet
the whole or any part or parts of the Sublease Premises

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<PAGE> 24
from time to time, either in the name of Sublandlord or otherwise, to such
subtenant or subtenants, for such term or terms ending before, on or after the
Expiration Date, at such rental or rentals and upon such other conditions, which
may include concessions and free rent periods, as Sublandlord, in its sole
discretion, may determine; provided, however, that Sublandlord shall have no
obligation to relet the Sublease Premises or any part thereof and shall in no
event be liable for failure to relet the Sublease Premises or any part thereof,
or, in the event of any such reletting, for failure to collect any rent due upon
any such reletting, and no such refusal or failure shall operate to relieve
Subtenant of any liability under this Sublease or otherwise affect any such
liability, and Sublandlord, at Sublandlord's option, may make such repairs,
replacements, alterations, additions, improvements, decorations and other
physical changes in and to the Sublease Premises as Sublandlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Subtenant of any liability
under this Sublease or otherwise affecting any such liability.

(ii) Subtenant hereby waives the service of any notice of
intention to re-enter or to institute legal proceedings to that end which may
otherwise be required to be given under any present or future law. Subtenant, on
its own behalf and on behalf of all persons claiming through or under Subtenant,
including all creditors, does further hereby waive any and all rights which
Subtenant and all such persons might otherwise have under any present or future
law to redeem the Sublease Premises, or to re-enter or repossess the Sublease
Premises, or to restore the operation of this Sublease, after (a) Subtenant
shall have been dispossessed by a judgment or by warrant of any court or judge,
or (b) any re-entry by Sublandlord, or (C) any expiration or termination of this
Sublease and the Term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
Sublease. The words "re-enter," "re-entry" and "re-entered" as used in this
Sublease shall not be deemed to be restricted to their technical legal meanings.
In the event of a breach or threatened breach by Subtenant, or any persons
claiming through or under Subtenant, of any term, covenant or condition of this
Sublease, Sublandlord shall have the right to enjoin such breach and the right
to invoke any other remedy allowed by law or in equity as if re-entry, summary
proceedings and other special remedies were not provided in this Sublease for
such breach. The rights to invoke the remedies hereinbefore set forth are
cumulative and shall not preclude Sublandlord from invoking any other remedy
allowed at law or in equity.

(iii) If this Sublease and the Term shall expire and come to
an end as provided in Article 17 of the Overlease as incorporated herein or in
this Subparagraph 13F, or

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<PAGE> 25
by or under any summary proceeding or any other action or proceeding, or if
Sublandlord shall re-enter the Sublease Premises as provided in said Article 17
as incorporated herein or this Subparagraph 13F, or by or under any summary
proceeding or any other action or proceeding, then, in any of said events:

(a) Subtenant shall pay to Sublandlord all rent
(including additional rent) and other items payable under this Sublease by
Subtenant to Sublandlord to the date upon which this Sublease and the Term shall
have expired and come to an end or to the date of re-entry upon the Sublease
Premises by Sublandlord, as the case may be;

(b) Subtenant also shall be liable for and shall pay
to Sublandlord, as damages, any deficiency (referred to as "Deficiency") between
the rent (including additional rent) for the period which otherwise would have
constituted the unexpired portion of the Term and the net amount, if any, of
rents collected under any reletting effected pursuant to the provisions of
clause (a) of sub-subparagraph 13F(i) hereof for any part of such period (first
deducting from the rents collected under any such reletting all of Sublandlord's
expenses in connection with the termination of this Sublease, Sublandlord's
re-entry upon the Sublease Premises and with such reletting including, but not
limited to, all repossession costs, brokerage commissions paid or payable to
third party brokers, reasonable attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Sublease Premises for such reletting);
any such Deficiency shall be paid in monthly installments by Subtenant on the
days and in the manner specified in this Sublease for payment of monthly
installments of Fixed Rent, Sublandlord shall be entitled to recover from
Subtenant each monthly Deficiency as the same shall arise, and no suit to
collect the amount of the Deficiency for any month shall prejudice
Sublandlord's right to collect the Deficiency for any subsequent month by a
similar proceeding; and

(c) whether or not Sublandlord shall have collected
any monthly Deficiency as aforesaid, Sublandlord shall be entitled to recover
from Subtenant, and Subtenant shall pay to Sublandlord, on demand, in lieu of
any further Deficiency as and for liquidated and agreed final damages, a sum
equal to the amount by which the rent (including additional rent) for the period
which otherwise would have constituted the unexpired portion of the Term exceeds
the then fair and reasonable rental value of the Sublease Premises for the same
period, both discounted to present worth at the 4% per annum, less the aggregate
amount of Deficiencies theretofore collected by Sublandlord pursuant to the
provisions of clause (b) of sub-subparagraph 13F(iii) hereof for the same
period; if, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the Sublease Premises, or any part thereof, shall
have been relet by Sublandlord for the period

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<PAGE> 26
which otherwise would have constituted the unexpired portion of the Term, or any
part thereof, the amount of rent reserved upon such reletting to a bona fide
third party subtenant shall be deemed, prima facie, to be the fair and
reasonable rental value for the part or the whole of the Sublease Premises so
relet during the term of the reletting.

(iv) If the Sublease Premises, or any part thereof, shall be
relet together with other space in the Building, the rents collected or reserved
under any such reletting to a bona fide third party Subtenant and the expenses
of any such reletting shall be equitably apportioned for the purposes of
subparagraph 13F(iii) hereof. Subtenant shall in no event be entitled to any
rents collected or payable under any reletting, whether or not such rents shall
exceed the fixed annual rent reserved in this Sublease.

14. Binding Effect. The covenants, conditions and agreements contained
in this Sublease shall bind and inure to the benefit of the parties hereto and
their respective legal representatives, successors and assigns (to the extent
permitted hereunder).

15. Condition of the Sublease Premises.

A. It is understood and agreed that all understandings and
agreements heretofore had between the parties are merged in this Sublease, which
alone fully and completely expresses their agreements, and that the same are
entered into after full investigation, neither party relying upon any statement
or representation made by the other and not embodied in this Sublease. Subtenant
agrees to accept possession of the Demised Premises in "as is" and "where is"
condition on the Commencement Date and Sublandlord is not required to perform
work of any kind, nature or description to prepare the Sublease Premises for
Subtenant's occupancy.

B. Subtenant acknowledges and agrees that any and all
alterations, installations, renovations or other items of work necessary to
prepare the Sublease Premises for Subtenant's initial occupancy ("Subtenant's
Work") shall be performed by Subtenant (subject to the provisions of Paragraph
17 below and the applicable provisions of the Overlease), at Subtenant's sole
cost and expense.

C. During the Term, Subtenant shall be entitled to the
exclusive use of Sublandlord's workstations then in the Sublease Premises (the
"Workstations"). Subtenant acknowledges and agrees that Sublandlord makes no
warranty or representation with respect to the Workstations except that same are
free and clear of liens. Subtenant acknowledges and agrees that it has
personally inspected same and agrees to accept same in their "as is" condition
on the Commencement Date, without recourse or

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<PAGE> 27
representation. Subtenant agrees to keep said Workstations in good repair and
condition throughout the term subject to reasonable wear and tear. In the event
the Workstations are damaged, destroyed, stolen or otherwise unavailable or not
suitable for Subtenant's use or intended use, Sublandlord shall have no
liability therefor. Throughout the Term the Workstations shall remain the
property of Sublandlord; provided, however, upon the Expiration Date, provided
Subtenant shall not then be in default under this Sublease, the Workstations
shall be the property of Subtenant. In the event Subtenant shall intend to
replace the Workstations with its own furniture and fixtures, then Subtenant
shall give Sublandlord notice of such intention. Sublandlord shall for a period
of thirty days after such notice have the right to enter the Sublease Premises
and remove the Workstations therefrom, at Sublandlord's own cost and expense. If
Sublandlord shall fail to so remove the Workstations, Sublandlord shall be
deemed to have abandoned the Workstations, and Subtenant may, at its own cost
and expense, remove the Workstations from the Sublease Premises and dispose of
the Workstations as Subtenant deems fit. Subtenant hereby agrees to indemnify
and hold Sublandlord harmless from all costs, damages, fees, taxes, (including,
without limitation, sales taxes) expenses (including, without limitation,
attorneys' fees and disbursements) suffered or incurred by Sublandlord with
respect to or in connection with the Workstations, the use thereof by Subtenant
and the transfer thereof to Subtenant.

16. At End of Term.

A. Upon the expiration or sooner termination of the Term,
Subtenant shall vacate and surrender the Sublease Premises in broom-clean
condition, restore the Sublease Premises to its condition on the date that
Sublandlord tendered the Sublease Premises to Subtenant, and shall forthwith
repair any damage to the Sublease Premises caused by any permitted or required
removal from the Sublease Premises of any of Subtenant's furniture, moveable
trade fixtures, improvements or any other property so removed from the Sublease
Premises; provided, however, if the Term shall expire on the scheduled
Expiration Date and shall not have been terminated earlier, then Subtenant shall
be obligated to repair only such damage and remove such property as Sublandlord
is obligated to repair and/or remove, as the case may be, under the Overlease
upon the expiration of the term thereof.

B. Modifying the provisions of Articles 21 and 50 of the
Overlease and Paragraph O of Article 49 of the Overlease, as such provisions are
or shall be applicable to the Sublease Premises and this Sublease, the parties
recognize and agree that the damage to Sublandlord resulting from any failure by
Subtenant to timely surrender possession of the Sublease Premises as aforesaid
will be substantial and will exceed the amount of the monthly installments of
the Fixed Rent payable hereunder.

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<PAGE> 28
Subtenant therefore agrees that if possession of the Sublease Premises is not
surrendered to Sublandlord on the Expiration Date or sooner termination of the
Term, in addition to any other right or remedy Sublandlord may have hereunder or
at law or in equity, Subtenant shall pay to Sublandlord for each month and for
each portion of any month during which Subtenant holds over in the Sublease
Premises after the Expiration Date or sooner termination of this Sublease, a sum
equal to (i) two (2) times the Fixed Rent, plus (ii) the regularly scheduled
items of additional rent which were payable hereunder with respect to the last
month of the Term. Nothing herein contained shall be deemed to permit Subtenant
to retain possession of the Sublease Premises after the Expiration Date or
sooner termination of this Sublease and no acceptance by Sublandlord of payments
from Subtenant after the Expiration Date or sooner termination of the Term shall
be deemed to be other than on account of the amount to be paid by Subtenant in
accordance with the provisions of this Paragraph, which provisions shall survive
the Expiration Date or sooner termination of this Sublease.

17. Alterations. Modifying the provisions of Articles 3 and 42 of the
Overlease, as such provisions are applicable to the Sublease Premises, any and
all Tenant Changes proposed to be made by Subtenant in the Sublease Premises
(including, without limitation, Tenant Changes made in connection with
Subtenant's initial occupancy) shall be subject to Sublandlord's prior written
consent, which consent may be granted or withheld in Sublandlord's sole and
absolute discretion; provided, however, if Overlandlord shall have consented to
a Tenant Change which Subtenant proposes to make in the Sublease Premises,
Sublandlord shall not unreasonably withhold its consent thereto provided
Subtenant shall provide Sublandlord with security, acceptable in all respects to
Sublandlord in the exercise of its reasonable judgment, for Subtenant's
obligations under Article 3 and 42 under the Overlease as incorporated herein;
and, provided further, however, that if Sublandlord shall not be required
pursuant to the terms of the Overlease or otherwise to restore the Sublease
Premises to its condition prior to the making of a Tenant Change by Subtenant,
Sublandlord shall not require as a condition to its consent to the making of
such Tenant Change that Subtenant so restore the Sublease Premises.

18. Security.

A. Upon the execution of this Sublease, Subtenant shall
deposit with Sublandlord a sum equal to six (6) monthly installments of Fixed
Rent as security for the faithful performance and observance by Subtenant of all
of the terms, provisions, covenants and conditions of this Sublease. If
Subtenant shall default with respect to any of the terms, provisions, covenants
and conditions of this Sublease, including, but not limited to, the payment of
any rent after any applicable grace or notice provided in this Sublease,
Sublandlord may use,

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<PAGE> 29
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any such rent or any other sum as to which Subtenant
is in default or for any sum which Sublandlord may expend or may be required to
expend by reason of Subtenant's default with respect to any of the terms,
conditions, provisions, covenants and conditions of this Sublease, including,
but not limited to, any damages or deficiency in the re-subletting of the
Sublease Premises, whether such damage or deficiency accrued before or after
summary proceedings or other re-entry by Sublandlord. If all or any portion of
the security shall be used, applied or retained by Sublandlord in accordance
with the provisions of this Paragraph 18 or if for any reason the sum of the
amount on deposit as security under this Subparagraph 18A, plus the then amount
of the Letter of Credit (hereinafter defined), if any, plus the amount then
contingently owed under paragraph 1 of the Guaranty (hereinafter defined), if
any, is less than an amount equal to six (6) monthly installment of Fixed Rent,
then the amount by which the security on hand with Sublandlord (plus the then
amount of the Letter of Credit, if any, plus the amount then contingently owed
under paragraph 1 of the Guaranty, if any) is less than six (6) monthly
installments of Fixed Rent shall be deposited by Subtenant within ten (10) days
after demand therefor, and a failure by Subtenant timely to comply therewith
shall be deemed a material default of Subtenant under this Sublease entitling
Sublandlord to avail itself of its remedies or as provided at law or in equity
or as provided in this Sublease. If Subtenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this Sublease,
the security shall be returned to Subtenant after the date fixed as the end of
the Term and after delivery of possession of the entire Sublease Premises to
Sublandlord. In the event of an assignment of Sublandlord's interest in, under
or to this Sublease, Sublandlord shall have the right to transfer the security
to the assignee thereof, and Sublandlord shall thereupon be released by
Subtenant from all liability for the return of such security, and Subtenant
agrees to look solely to the new Sublandlord for the return of said security;
and it is agreed that the provisions hereof shall apply to every transfer or
assignment made of the security to a new Sublandlord. Subtenant further
covenants that Subtenant shall not assign or encumber or attempt to assign or
encumber the monies deposited herein as security, and that neither Sublandlord
nor its successors or assigns shall be bound by any such assignment,
encumbrance or attempted assignment or attempted encumbrance.

B. Intentionally Deleted.

C. Sublandlord shall deposit the security delivered by Subtenant under
Subparagraph 18A in an interest bearing account. Sublandlord shall remit to
Subtenant the interest earned on said security, less an amount equal to 1% of
said security, annually. Sublandlord shall be entitled to retain

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<PAGE> 30
an amount equal to 1% of said security annually to compensate Sublandlord for
overhead and administrative expenses incurred in connection with maintaining
said security in an interest bearing account.

D. Notwithstanding anything to the contrary contained in Subparagraph
18A above, in lieu of all (or, subject to the terms hereof, a part of) the cash
security deposit, Subtenant may deliver to Sublandlord a clean, irrevocable,
transferable and unconditional letter of credit (the "Letter of Credit") issued
by and drawn upon a commercial bank (hereinafter referred to as the "Issuing
Bank") which shall be a member bank of the New York Clearinghouse Association
(or, in the alternative, which shall have offices for banking purposes in the
Borough of Manhattan and shall have a net worth of not less than $100,000,000,
with appropriate evidence thereof to be submitted by Subtenant), which Letter of
Credit shall: (i) have a term of not less than one year, (ii) be in the form
annexed hereto as Exhibit C, (iii) be for the account of Sublandlord, (iv) be in
an amount equal to the excess of (x) the sum of six (6) monthly installments of
Fixed Rent over (y) the sum of (A) the amount the cash security, plus (B) the
amount then contingently owed under paragraph 1 of the Guaranty, if any, but in
all events not less than two (2) monthly installments of Fixed Rent (v) except
as otherwise provided in this Subparagraph 18D, conform and be subject to
Uniform Customs and Practice for Documentary Credits, 1983 Revision, ICC
Publication No. 400, (vi) be fully transferable by Sublandlord without any fees
or charges therefor, (vii) provide that Sublandlord shall be entitled to draw
upon the Letter of Credit upon presentation to the Issuing Bank of a sight draft
accompanied by Sublandlord's statement that Sublandlord is then entitled to
draw upon the Letter of Credit pursuant to the terms of this Sublease, and
(viii) provide that the Letter of Credit shall be deemed automatically renewed,
without amendment, for consecutive periods of one year each year thereafter
during the Term of this Sublease, unless the Issuing Bank shall send notice (the
"Non-Renewal Notice") to Sublandlord by registered mail, return receipt
requested, not less than thirty (30) days next preceding the then expiration
date of the Letter of Credit that the Issuing Bank elects not to renew such
Letter of Credit, in which case Sublandlord shall have the right, by sight draft
on the Issuing Bank, to receive the monies represented by the then existing
Letter of Credit, and to hold and/or disburse such proceeds pursuant to the
terms of this Paragraph 18 as cash security. Subtenant acknowledges and agrees
that the Letter of Credit shall be delivered to Sublandlord as security for the
faithful performance and observance by Subtenant of all of the covenants,
agreements, terms, provisions and conditions of this Sublease, and that
Sublandlord shall have the right to draw upon the entire Letter of Credit in any
instance in which Sublandlord would have the right to use, apply or retain the
whole or any part of any cash security deposited with Sublandlord pursuant to
Subparagraph 18A above.

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<PAGE> 31
E. In the event that Subtenant shall elect to furnish the
Letter of Credit in lieu of all or part of the cash security, then, where
appropriate, references to "security" in Subparagraph 18A above shall be deemed
to also refer to the Letter of Credit or any proceeds thereof as may be drawn
upon by Sublandlord.

F. Subject to the terms of the third sentence of subparagraph
18A, in lieu of up to an amount equal to four (4) monthly installments of Fixed
Rent of the cash security deposit, Subtenant may deliver to Sublandlord a
guaranty (the "Guaranty") of Subtenant's obligations under this Sublease from US
Cable Corporation, which Guaranty shall be in the form annexed hereto as Exhibit
D. If Subtenant shall deliver such Guaranty and shall thereafter increase the
cash security by (or deliver a Letter of Credit in) an amount equal to the
amount then contingently owed under paragraph 1 of the Guaranty, such that
Sublandlord shall hold as security cash or letter of credit or both in an amount
equal to six (6) monthly installments of Fixed Rent, Sublandlord shall agree to
the termination of the Guaranty.

19. Directory Listings. Subtenant shall have the right to maintain one-
half (1/2) of the listing spaces permitted to be maintained by Sublandlord under
the Overlease.

20. Miscellaneous. A. This Sublease is made in the State of New York
and Shall be governed by and construed under the laws thereof. This Sublease
supersedes any and all other or prior understandings, agreements, covenants,
promises, representations or warranties of or between the parties (which are
fully merged herein). The headings in this Sublease are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
Whenever necessary or appropriate, the neuter gender as used herein shall be
deemed to include the masculine and feminine; the masculine to include the
feminine and neuter; the feminine to include the masculine and neuter; the
singular to include the plural; and the plural to include the singular. This
Sublease shall not be binding upon Sublandlord for any purpose whatsoever unless
and until Sublandlord has delivered to Subtenant a fully executed duplicate
original hereof. The captions appearing in this Sublease have been inserted for
the convenience only and shall not control or affect or be deemed part of this
Sublease or control or affect the meaning or construction of any of the terms,
conditions or provisions hereof.

B. (i) Except as may be expressly provided herein to the
contrary, wherever in this Sublease Sublandlord's consent or approval is
required, if Sublandlord shall delay, refuse or condition such consent or
approval, Subtenant in no event shall be entitled to make, nor shall Subtenant
make, any claim, and Subtenant hereby waives any claim, for money damages (nor
shall Subtenant claim any money damages by way of set-off, counterclaim

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<PAGE> 32
or defense) based upon any claim or assertion by Subtenant that Sublandlord
unreasonably withheld delayed or conditioned its consent or approval.
Subtenant's sole remedy shall be an action or proceeding to enforce any such
provision, for specific performance, injunction or declaratory judgment, and
such remedy shall be availabe only in those cases where Sublandlord has
expressly agreed in writing not to unreasonably withhold its consent or where as
a matter of law Sublandlord may not unreasonably withhold its consent.

(ii) If Subtenant disputes the reasonableness of Sublandlord's
decision to refuse to consent to or approve a sublease to which Sublandlord has
expressly agreed in Subparagraph 9C hereof not to unreasonably withhold its
consent or approval, then such dispute shall be settled and finally determined
by arbitration in the City of New York in accordance with the following
provisions hereof. Within five (5) business days next following the giving of
any notice by Subtenant to Sublandlord stating that it wishes such dispute to be
so determined, Sublandlord and Subtenant shall each give notice to the other
setting forth the name and address of an arbitrator designated by the party
giving such notice. If either party shall fail to give notice of such
designation within said five (5) business days, then the arbitrator to be chosen
by such party shall be chosen in the same manner as hereinafter provided for the
appointment of the third arbitrator in the case where the two arbitrators chosen
hereunder are unable to agree upon such appointment. The two arbitrators shall
designate a third arbitrator. If the two arbitrators shall fail to agree upon
the designation of a third arbitrator within five (5) business days after the
designation of the second arbitrator, then either party may apply to the
American Arbitration Association or any successor organization thereto ("AAA")
for the designation of such arbitrator; provided, however, nothing contained
herein shall be construed to require submission of any dispute to AAA. All
arbitrators shall be persons who shall have had at least ten (10) years
experience in the business of operating or managing commercial real estate in
the Borough of Manhattan and shall be related to neither Sublandlord nor
Subtenant. The three arbitrators shall conduct such hearings as they deem
appropriate, making their determination in writing and giving notice to
Sublandlord and Subtenant of this determination within five (5) business days,
if at all possible, after the designation of the third arbitrator; the
concurrence of any two of said arbitrators shall be binding upon Sublandlord and
Subtenant. Any award of the arbitrators shall be limited to a determination as
to whether Sublandlord acted reasonably in withholding any such consent.
Judgment upon any award rendered in any arbitration held pursuant to this
Subparagraph 20B may be entered in any court having jurisdiction. However, the
determination in any arbitration held pursuant to this Subparagraph 20B shall be
final and binding upon Sublandlord and Subtenant, whether or not a judgment
shall be entered in any court. Each party shall pay its own counsel fees

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<PAGE> 33
and expenses, if any, in connection with any arbitration under this Subparagraph
20B, and each party shall pay the fees and expenses of the one of the two
original arbitrators appointed by or for such party and the fees and expenses of
the third arbitrator shall be borne by the parties equally.

21. Valid Authority. A. Subtenant hereby represents and warrants to
Sublandlord that:

(i) Subtenant is duly organized, validly existing and in good
standing under the laws of the State of New York, and has the full right and
authority to enter into this Sublease; and

(ii) The execution, delivery and performance of this Sublease
by Subtenant: (a) has been duly authorized, (b) does not conflict with any
provisions of any instrument which Subtenant is a party or by which Subtenant is
bound, and (c) constitutes a valid, legal and binding obligation of Subtenant.

B. Sublandlord hereby represents and warrants to Subtenant that:

(i) Sublandlord is duly organized, validly existing and in
good standing under the laws of the State of New York, and has the full right
and authority to enter into this Sublease; and

(ii) The execution, delivery and performance of this Sublease
by Sublandlord: (a) has been duly authorized, (b) subject to the terms of the
Overlease, does not conflict with any provisions of any instrument to which
Sublandlord is a party or by which Sublandlord is bound, and (c) constitutes a
valid, legal and binding obligation of Sublandlord.

22. Failure to Give Possession. Except as hereinafter explicitly
provided, if Sublandlord is unable to give possession of the Sublease Premises
to Subtenant on the Commencement Date, because of the holding-over or retention
of possession of any subtenant, under-subtenant or other occupant (including
Sublandlord) or for any other reason, Sublandlord shall not be subject to any
liability for filure to give possession on said date and the validity of this
Sublease shall not be impaired under such circumstances, nor shall the same be
construed to extend the term of this Sublease, but the Fixed Rent shall be
abated (provided that Subtenant is not responsible for the inability to obtain
possession) until Sublandlord shall have delivered possession of the Sublease
Premises to Subtenant. Notwithstanding anything in this Sublease to the
contrary, if Subtenant shall be responsible for the inability to obtain
possession (including, without limitation, by reason of Subtenant's failure to
comply with the terms of Paragraph 23

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<PAGE> 34
hereof), then Subtenant's obligation to pay rent under this Sublease shall be
accelerated to the date that Subtenant would have otherwise obtained possession
of the Sublease Premises whether or not the Commencement Date shall have
occurred or this Sublease shall come into effect. Notwithstanding the foregoing,
if Sublandlord fails to tender possession of the Sublease Premises to Subtenant
on or before March 15, 1993 and Subtenant is not responsible for such failure,
then, subject to the second succeeding sentence, Subtenant shall be entitiled to
a credit against the Fixed Rent first coming due after Sublandlord tenders
possession of the Sublease Premises equal to $250.00 for each day after March 1,
1993 that Sublandlord shall continue to fail to tender possession of the
Sublease Premises; provided, however, if Sublandlord shall tender possession of
the Sublease Premises on other than the first day of a month there shall be
added to such credit an amount equal to $250.00 for each day from and after the
day on which Sublandlord tenders such possession until the day that is the last
day of the month in which Sublandlord shall make such tender; and, provided
further, however, if Subtenant shall have the right to terminate this Sublease
under this Paragraph 22 and shall exercise such right in accordance with the
terms hereof and this Sublease shall be so terminated, then such credit shall be
calculated as though Sublandlord had tendered possession of the Sublease
Premises on the day on which Subtenant shall have exercised such right and
Sublandlord shall pay the amount of such credit to Subtenant. Sublandlord shall
vacate the Sublease Premises as soon as practicable after Sublandlord's new
premises in Harrison, New York are complete in accordance with all applicable
requirements for legal occupancy and ready for occupancy for business, and shall
thereupon tender possession of the Sublease Premises on the Commencement Date
assuming the conditions to the effectiveness of this Sublease set forth in
Paragraph 23 hereof have been met. If Sublandlord shall fail to tender
possession of the Sublease Premises on or before March 31, 1993, then Subtenant
shall have the right to terminate this Sublease on thirty (30) days' notice, and
this Sublease shall terminate thirty (30) days after the giving of such notice
unless Sublandlord shall have tendered possession of the Sublease Premises to
Subtenant before the expiration of such thirty (30 ) days. Upon such termination
of this Sublease, Sublandlord shall refund any and all amount deposited
hereunder, and thereafter this Sublease shall be null and void and neither party
shall have any rights or obligations hereunder. The remedies herein reserved to
Subtenant for Sublandlord's failure to deliver possession of the Sublease
Premises shall (unless Sublandlord shall have failed, prior to termination of
this Sublease, to vacate the Sublease Premises despite the completion and
readiness for occupancy of Sublandlord's new premises in the manner hereinabove
described) be the exclusive remedies of Subtenant therefore. The provisions of
this Paragraph are intended to constitute "an express provision to the contrary"
within the meaning of Section 223-a of the New York Real Property Law.

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<PAGE> 35
23. Consent of Overlandlord under the Overlease. This Sublease shall
have no effect (and if necessary the Commencement Date but not the Expiration
Date shall be extended) until Overlandlord shall have given its written consent
hereto in accordance with the terms of the Overlease. Subtenant agrees
immediately to provide to Sublandlord for delivery to Overlandlord such
financial and other information concerning Subtenant (and any guarantor of
Subtenant's obligations hereunder) and its (or their) principals and business
operations as Overlandlord may reasonably request. Sublandlord shall submit this
Sublease and such information promptly upon execution or receipt (as the case
may be) for Overlandlord's approval. If Overlandlord does not give its consent
to this Sublease for any reason whatsoever other than Subtenant's failure to
provide information reasonably requested by Overlandlord, within thirty (30)
days after the date hereof, then either party may elect to cancel this Sublease
by giving notice to the other party after the expiration of said 30-day period,
but prior to the giving of said consent by Overlandlord to this Sublease.
Subtenant acknowledges that Subtenant will be required to execute and deliver
such consent as a condition precedent to the execution thereof by Overlandlord.
Subtenant agrees that Subtenant shall promptly execute and deliver to
Sublandlord Overlandlord's consent to this Sublease. After Sublandlord receives
such consent executed by Subtenant, Sublandlord shall execute and deliver same
to Overlandlord. Notwithstanding anything to the contrary contained in this
Paragraph 23, in the event that Overlandlord (either directly or through its
attorneys) shall have forwarded a form of consent to Sublandlord within said
30-day period, but such consent shall not have been executed by all parties
thereto for any reason whatsoever, then said 30-day period shall be extended by
an additional period of thirty (30) days, during which period Sublandlord and
Subtenant shall diligently and in good faith take all reasonable acts necessary
to obtain said consent. If either party shall have given notice of cancellation
to the other party (in accordance with the provisions of this Paragraph 23),
then: (i) Sublandlord shall not be obligated to take any further action to
obtain such consent, (ii) Sublandlord shall refund to Subtenant the installment
of Fixed Rent paid by Subtenant, as well as the security (if any) deposited by
Subtenant, at the execution of this Sublease, and (iii) this Sublease shall
thereupon be deemed null and void and of no further force and effect, and
neither of the parties hereto shall have any rights or claims against the other.
Notwithstanding the foregoing, if Subtenant fails to execute and deliver
Overlandlord's form of consent to this Sublease (and such form shall be
substantially in the form annexed hereto as Exhibit B) or to provide requested
information within five (5) days of Sublandlord's delivery thereof to Subtenant,
or Overlandlord's request therefor, as the case may be, Subtenant shall have no
further right to cancel this Sublease, and Sublandlord shall have the option to
cancel this Sublease, retaining the security deposited hereunder and first
installment of Fixed Rent

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<PAGE> 36
theretofore received as liquidated damages and not as a penalty, or to pursue
and obtain in any court of competent jurisdiction such legal or equitable
(including mandatory or injunctive) relief as may be appropriate under the
circumstances.

24. First Right to Sublease. A. During the Term, provided Subtenant
shall not be in default after any applicable grace or notice provided in this
Sublease in the payment of Fixed Rent, additional rent or any other sum or any
other material obligation of Subtenant hereunder, Sublandlord shall apprise
Subtenant of any bona-fide third party written offer ("Third Party Offer") to
sublease all or a portion of the eleventh (11th) floor of the Building that is
acceptable to Sublandlord. The Third Party Offer shall state the term of the
sublease, the fixed rent and recurring items of additional rent, the rent
concessions, if any, the construction allowance, if any, the work letter, if any
and the space to be sublet (the "Offered Space") but need not be binding on the
offeror even if accepted by Sublandlord. Subject to receipt of Overlandlord's
consent under the Overlease, provided Subtenant shall not then (or upon the
commencement of the subletting of the Offered Space) be in default after any
applicable grace or notice provided in this Sublease in the payment of Fixed
Rent, additional rent or any other sum or any other material obligation of
Subtenant hereunder, Subtenant shall have the right to sublease all, but not
part of, the Offered Space on the same terms and conditions as are contained in
such Third Party Offer and otherwise on the terms and conditions herein
contained (except that Subtenant shall not be entitled to any free rent or other
concessions herein provided and the second, third and fourth sentences of
Paragraph 22 hereof shall be deemed deleted). If Subtenant exercises such right,
at the request of Sublandlord, Subtenant shall execute a sublease prepared by
Sublandlord's counsel substantially in the form hereof, modified to reflect the
terms set forth in the Third Party Offer and this Subparagraph 24A, but neither
Sublandlord's failure to make such request nor Subtenant's failure to so execute
such a sublease shall relieve Subtenant from its obligations with respect to
subletting of the Offered Space. In the event Subtenant does not, by notice,
exercise its right to sublet the Offered Space no later than 5:00 p.m., Eastern
Time, on the date that is the third calendar day next after Sublandlord gives
Subtenant notice of the Third Party Offer, Subtenant's right to sublet the
Offered Space shall teminate and be of no further force or effect, and
Sublandlord shall be free to lease such Offered Space to any other party on such
terms as Sublandlord in its sole discretion shall determine. Except as provided
in Subparagraph 24B hereof, Subtenant's rights pursuant to the terms of this
Subpargagraph 24A shall apply only to the initial subletting of space on the
eleventh (11th) floor of the Building.

B. During the Term, provided Subtenant shall not be in default after
any applicable grace or notice provided in

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<PAGE> 37
this Sublease in the payment of Fixed Rent, additional rent or any other sum or
any other material obligation or Subtenant hereunder, Sublandlord shall notify
Subtenant of any space on the eleventh (11th) floor of the Building which
Sublandlord wishes to sublease after the initial subletting thereof by
Sublandlord. Such notice shall state the term of the proposed subletting, the
fixed rent and recurring items of additional rent, the rent concessions, if any,
the construction allowance, if any, the work letter, if any and the space to be
sublet. Subject to receipt of Overlandlord's consent under the Overlease,
provided Subtenant shall not then (or upon the commencement of the subletting)
be in default after any applicable grace or notice provided in this Sublease in
the payment of Fixed Rent, additional rent or any other sum or any other
material obligation of Subtenant hereunder, Subtenant shall have the right to
sublease all, but not part of, the space specified in Sublandlord's notice on
the terms and conditions contained in Sublandlord's notice and otherwise on the
terms and conditions contained herein (except that Subtenant shall not be
entitled to any free rent or other concession herein provided and the second,
third and fourth sentences of Paragraph 22 hereof shall be deemed deleted). If
Subtenant exercises such right, at the request of Sublandlord, Subtenant shall
execute a sublease prepared by Sublandlord's counsel substantially in the form
hereof, modified to reflect the terms set forth in Sublandlord's notice and this
Subparagraph 24B, but neither Sublandlord's failure to make such request nor
Subtenant's failure to so execute such sublease shall relieve Subtenant from its
obligations with respect to the subletting of the space specified in
Sublandlord's notice. If Subtenant does not, by notice, exercise its right to
sublet said space by no later than 5:00 p.m. Eastern Time, on the date that is
thirty (30) calendar days next after Sublandlord gives its notice to Subtenant,
Subtenant's right to sublet the space specified in Sublandlord's notice shall
terminate and be of no further force or effect, and Sublandlord shall be free to
lease such space to any other party or such terms as Sublandlord in its

34-A
<PAGE> 38
discretion shall determine; provided, however, before Sublandlord accepts an
offer to sublease all (but not part of) such space for a net effective rent
(i.e. the sum of (i) fixed rent, plus additional rent and other charges, minus
(ii) any rent concessions, construction allowance and cost of any work letter,
all as determined by Sublandlord) for less than 90% of the net effective rent
contained in the aforesaid notice form Sublandlord to Subtenant, Sublandlord
shall give Subtenant notice of such offer and Subtenant shall have a first right
to sublet such space on the terms and conditions set forth in Subparagraph 24A.

C. Subtenant shall fully and faithfully comply with the terms,
covenants and conditions of each and every sublease between Subtenant and
Sublandlord.

IN WITNESS WHEREOF, Sublandlord and Subtenant have duly executed this
Sublease as of the day and year first written above.

SUBLANDLORD:

UNITED STATES TENNIS ASSOCIATION
INCORPORATED

By:
------------------------------------
Name: M. Marshall Happer, III
Title: Executive Director

SUBTENANT:

U.S. FIBERCOM NETWORK, INC.

By:
------------------------------------
Name: Seth R. Davis
Title: President & CEO

-35-

<PAGE> 1
Exhibit 10.11

LICENSE AGREEMENT

THIS AGREEMENT, made as of this 6th day of November, 1996 between 48th
AMERICAS COMPANY, a New York partnership, having an office at 950 Third Avenue,
New York, New York ("Licensor"), and USFI, Inc., a New York corporation having
an office at 1212 Avenue of the Americas, New York, New York ("Licensee").

W I T N E S S E T H :

WHEREAS, Licensee desire to use and occupy part of the Ninth (9th)
floor, as shown by diagonal markings on the attached rental plan (the "Licensed
Premises"), in the building known as 1212 Avenue of the Americas, New York, New
York (the "Building") for executive and general office use; and

WHEREAS, Licensor is willing to allow Licensee to use and occupy the
Licensed Premises upon the terms, covenants and conditions hereinafter set
forth.

NOW, THEREFORE, in consideration of the covenants herein contained,
Licensor and Licensee covenant and agree as follows:

FIRST: (a) Subject to and in accordance with the terms and conditions
of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby
accepts from Licensor, a license to use and occupy the Licensed Premises for a
period (the "License Period") commencing on November 20, 1996 (the "License
Commencement Date") and ending (unless sooner terminated pursuant to any of the
terms or provisions of this Agreement or pursuant to law) on February 28, 1997.

(b) Notwithstanding anything contained herein to the contrary, Licensor
may terminate this License Agreement at any time, with cause (including but not
limited to any default by Licensee hereunder), immediately by giving notice to
Licensee. If Licensor is unable to give possession of the Licensed Premises on
the License Commencement Date because of the holding-over or retention of
possession of any tenant, undertenant or occupant of the Licensed Premises, or
for any other reason beyond Licensor's reasonable control, Licensor shall not be
subject to any liability for failure to give possession on said date and the
validity of this License Agreement shall not be impaired under such
circumstances, nor shall the same be construed in any wise to extend the License
Period. In such event, the License Commencement Date shall be postponed until
the earlier of (i) the date on which possession of the Licensed Period is
delivered by Licensor, or (ii) the date on which Licensee first occupies the
Licensed Premises. The foregoing provisions are intended to constitute "an
express provision to the contrary" within the meaning of Section 223-a of the
New York Real Property Law.
<PAGE> 2

SECOND: As consideration for the licensing of the Licensed Premises by
Licensor to Licensee, Licensee shall pay to Licensor, at the office of Licensor
or at such other place as Licensor may designate, in advance on the first day of
each month during the License Period (except that the License Fee for the month
of December, 1996 shall be paid upon execution of this Agreement), the sum of
Three Thousand Eight Hundred Thirty-five and 00/100 Dollars ($3,835.00) per
month, which amount shall hereinafter be referred to as the "License Fee". The
License Fee shall be paid by Licensee to Licensor without any offset,
counterclaim or deduction whatsoever. Notwithstanding anything contained herein
to the contrary, in the event the License Commencement Date occurs prior to
December 1, 1996, there shall be no License Fee payable for any part of
November 1996.

THIRD: Licensee shall use the Licensed Premises for general and
executive offices and for no other purpose in accordance with all of the terms,
covenants and conditions of this Agreement.

FOURTH: Licensee shall not make any changes in or to the Licensed
Premises without Licensor's prior written consent in all instances, except that
Licensee may install telephone lines in the Licensed Premises.

FIFTH: This Agreement does not and shall not be deemed to constitute a
lease or conveyance of the Licensed Premises to Licensee or confer upon Licensee
any right, title, estate or interest in the Licensed Premises. This Agreement
grants Licensee a personal privilege to use and occupy the Licensed Premises for
the License Period on the terms and conditions set forth herein.

SIXTH: Licensee shall not assign, transfer or otherwise encumber this
Agreement or the License nor permit any other person or entity to use or occupy
the Licensed Premises.

SEVENTH: Licensee represents that it has made a thorough inspection of
the Licensed Premises and agrees to take same in its "as-is" condition on the
License Commencement Date and agrees that Licensor shall have no obligation to
alter, decorate or otherwise prepare the Licensed Premises for Licensee's use
and occupancy.

EIGHTH: Licensor shall have no obligation whatsoever to provide any
services to the Licensed Premises, except that Licensor shall (i) provide
elevator service between the ground floor of the building and the floor on which
the Licensed Premises is located by either one (1) freight or passenger elevator
which shall be subject to call and (ii) furnish electric current to the Licensed
Premises solely through existing fixtures therein.

NINTH: Licensee hereby acknowledges that Licensor has granted Licensee
the right to use and occupy the Licensed Premises with the express understanding
that Licensor shall have no

2
<PAGE> 3
liability to Licensee whatsoever for any theft, vandalism or other damage which
may occur to items stored by Licensee in the Licensed Premises. Licensee hereby
releases and discharges Licensor, its employees and agents, from any liability
or obligation whatsoever with respect to any damage occurring in or about the
Licensed Premises for any reason whatsoever.

TENTH: (a) Licensee shall, throughout the License Period, at its own
cost and expense, but for the mutual benefit of Licensor and Licensee, maintain
General Public Liability Insurance against claims for personal injury, death or
property damage occurring upon, in or about the Licensed Premises, such
insurance to afford protection to the limit of not less than $1,000,000 in
respect of personal injury or death and damage to property in respect of any one
occurrence. The certificate of Insurance shall specifically have the indemnity
clause referred to in paragraph (b) of this Article typed on said certificate
evidencing that the "hold harmless" clause has been issued. Licensee shall
furnish to Licensor certificates of such policies and provide for the insurance
carrier's endorsements and such policy shall not be terminated without the (10)
days' prior written notice to Licensor.

(b) Licensee shall indemnify and save harmless Licensor and its agents
against and from (i) any and all claims against Licensor of whatever nature
arising from any act, omission or negligence of Licensee, its contractors,
licensees, agents, servants, employees, invitees or visitors, (ii) all claims
against Licensor arising from any accident, injury or damage whatsoever caused
to any person or to the property of any person and occurring during the License
Period in or about the Licensed Premises, and (iii) any breach, violation or
non-performance of any covenant, condition or agreement in this Agreement set
forth and contained on the part of the Licensee to be performed. This indemnity
and hold harmless agreement shall include indemnity for and against any and all
liability, fines, suits, demands, costs and expenses of any kind or nature
incurred or in connection with any such claim or proceeding brought thereon, and
the defense thereof.

ELEVENTH: At the expiration or sooner termination of the License
Period, Licensee shall remove its personal property and, if requested by
Licensor, any additions, alterations, or improvements made by Licensee from the
Licensed Premises and Licensee shall restore the Licensed Premises and the
Building to their original condition as existed prior to the License
Commencement Date.

TWELFTH: Any personal or other property remaining in or about the
Licensed Premises after the expiration of the License Period shall, at the
option of Licensor, either be deemed property of the Licensor, without payment
therefor, or may be removed from the Licensed Premises by Licensor, at
Licensee's expense.

3
<PAGE> 4

THIRTEENTH: Licensee represents and warrants that it has not dealt with
any broker (other than Newmark & Company Real Estate, Inc.) In negotiating of
this Agreement and agrees to indemnify and hold Licensor harmless from any
claims or damages by reason of any breach of the foregoing representation.

FOURTEENTH: All bills, notices and communications desired or required
to be given by either party hereunder shall be given, if to Licensee, by
personal delivery to Licensee, or sent by certified mail, return receipt
requested, to the address set forth above (and shall be deemed given upon
personal delivery or mailing as aforesaid), and, if to Licensor, sent by
certified mail, return receipt requested, to the address first hereabove given
and to Kipp-Stawski Management Group (Attention: Director of Property
Management) at 565 Fifth Avenue, New York, New York 10017, or at such other
address as either party may hereafter designate by written notice to the other.

FIFTEENTH: The provisions hereof shall be binding upon the parties
hereto and their respective successors and assigns.

IN WITNESS WHEREOF, Licensor and Licensee have executed this Agreement
as of the date hereinabove set forth.

Witness: USFI, INC., Licensee
________________________________ By: _______________________________
Name: Francis. J. Mount
Title: Executive Vice President and
Chief Operating Officer

Witness: 48th AMERICAS COMPANY, Licensor
By: Kipp-Stawski Management Group

________________________________ By: _______________________________

<PAGE> 1
Exhibit 10.12

VOYAGER <LOGO>
N E T W O R K S , I N C
60 HUDSON STREET
MEZZANINE NORTH
NEW YORK, NEW YORK 10013
212 571 2000 Fax: 212 571 2036

COLLOCATION AND FACILITIES MANAGEMENT
SERVICE AGREEMENT

The terms and conditions upon which VOYAGER NETWORKS, INC. (VNI) located at 60
Hudson Street F1: M-16 New York, N.Y. 10013, U.S.A. will lease certain space and
provide to USFI, Inc. ("USFI") located at 1212 Avenue of the Americas FL: 12th
New York, N.Y. 10036, Collocation and Facilities Management Services throughout
the United States on this 22nd day of May, 1995, are defined as follows:

1. RESPONSIBILITIES AND UNDERTAKINGS

(a) VNI Shall provide full space for USFI-related Equipment.
USFI's space will be in VNI's Collocation Center located on
the mezzanine floor (north) of 60 Hudson Street, New York, New
York and will consist of approximately 160 square feet of
space. All Charges will be in accordance with Attachment (A)
hereto. VNI understands and agrees that the space will be
utilized by USFI for housing switching and other
telecommunications equipment to be installed therein by USFI
and that USFI may have one or more persons occupy such space
based upon VNI's business hours in accordance with subsection
1(f). VNI represents that the space is suitable for such
purpose and that adequate air conditioning and electric power
are available in the space for the purpose for which USFI
intends to use the space. USFI Agrees it will not resell their
collocation space to any other entities.

(b) In addition to the Space, upon the request of USFI, to extent
available, VNI shall provide additional space for USFI-related
equipment in the VNI Collocation Center. Additional space will
be provided by VNI in single rack or cabinet increments. A
rack or cabinet is defined as a volume no greater than 23
inches wide, 28 inches deep and 84 inches high. The height and
depth specifications are physical limitations of VNI's
Collocation Center and cannot be exceeded. A rack or cabinet
in excess of 23 inches in width will be considered to be
multiple racks or cabinets. A rack, cabinet, or equipment
enclosure of a width less than 23 inches will still be
considered a complete rack under this agreement.
<PAGE> 2

(c) USFI shall be deemed the sole owner of its equipment installed
at VNI's Collocation Center located at 60 Hudson Street, New
York, New York, whether in the area described in 1(a) or 1(b).

(d) VNI currently employs and will continue to employ technical
staff, sufficient and capable, to maintain and manage
technical communication collocation facilities. Upon the
request of USFI, VNI technical staff will perform necessary
technical work related specifically to USFI-owned or leased
equipment and/or services to USFI customers facilities on a
"time and material" basis as set forth on Attachment (A).

(e) Requests for all additions, moves, or changes, must be in
written form from USFI to VNI. Upon such request, VNI will use
all means to effectuate such additions, moves or changes.

(f) USFI personnel shall have access to its equipment at the
Collocation Center, 24 hours per day, seven days a week. VNI
agrees that by January 1, 1996, it will maintain a person,
with technical skills capable of servicing all Collocation
Center Customers 24 hours per day, Monday through Saturday.
Until then, it will maintain such a person at least from 8:00
a.m. to 6:00 p.m. during weekdays (both before and after
January 1, 1996). VNI will maintain the availability of a
technical person on call as set forth on Attachment (A). Such
person shall provide access to the Collocation Center and the
services requested within two hours of any call.

2. PAYMENT

(a) The monthly charges for all Services used shall be payable in
U.S. dollars within 30 days from the date of VNI's invoice
therefore. Payment shall be remitted to VNI at the address or
wired to the account set forth in subsection (11.) herein, and
will not be deemed to have been made until the funds are
received by VNI.

(b) Any payment (including monthly service charges due under this
section or any other amount due hereunder) not made when due
will be subject to a late charge of 1 1/2% per month.

(c) Upon the expiration of the Initial Service Term (as specified
in subsection -9, VNI shall have the right to adjust rates
upon 120 days notice to USFI in accordance with the (Cost of
Living) contained in subsection (9).

2
<PAGE> 3

3. HOURLY RATE FOR ADDITIONAL SERVICES

(a) When VNI field personnel assistance is requested by USFI for
resolution or coordination of problems, USFI agrees to pay VNI
a per hour rate set forth in Attachment (A) hereto.

(b) For any services which it may require, UAFI shall contact VNI
Customer Service as specified in subsection (11.) herein.

4. INTERCONNECT TO USFI PRIVATE LINE CUSTOMERS

(a) All costs and arrangements for local interconnect to the VNI
Collocation Center shall be subject to Attachment (A) and will
be USFI's responsibility, unless otherwise agreed to by the
parties in writing. USFI facilities management personnel must
coordinate with VNI in the exchange of technical information
relating to the interface circuitry and the local interconnect
in order to provide Connecting Facilities Assignment ("CFA")
prior to making Customer's interface arrangements. In
addition, for Services provided hereunder, USFI agrees to
provide VNI notice of at least ten (10) working days prior to
the projection of service coming on line, along with a copy of
all Access Service Requests ("ASR's"), confirmations and
Design Layout Reports. Any delays occasioned by USFI's failure
to comply with the requirements of this section shall not
delay VNI's billing for services rendered. Coordination
regarding exchange of technical information relating to
interface circuitry and local interconnects shall be provided
to VNI as specified in subsection (11.) herein.

(b) At USFI's request in writing, VNI will arrange for USFI, at
USFI expense, local interconnects required to interface with
USFI Customer's facilities.

(c) Upon the written request of USFI, USFI will authorize and VNI
agrees to act as USFI's agent in the turning-up of local
Interconnects and to provide on-going loop maintenance between
VNI Collocation and any third-party facilities of USFI's
customers.

(d) All interconnects must be at the Ds3, Ds1 or Ds0 level
utilizing up to 28 T1's per Ds3, 24 ports per Ds1 and 8 ports
per Ds0. The interface point for VNI's Service will be VNI's
DSX's "CROSS-CONNECT".

3
<PAGE> 4
5. EQUIPMENT SYSTEM FORECAST

USFI agrees that it has or shall provide to VNI, with each Signed
Addendum to this Agreement, an initial one month forecast for equipment
system usage or new installations. In the event USFI anticipates a
significant change in systems volume or routing telecom patterns, an
updated forecast must be submitted to VNI, in writing, 30 days in
advance of such system usage, volume or routing telecom change.

6. FORCE MAJEURE

Neither Party shall be liable for any failure or delay in performance
caused by labor dispute, fire or other casualty, weather or natural
disaster, damage to facilities, the conduct of third parties, or other
cause beyond its reasonable control ("force majeure"), provided that if
such failure or delay shall continue for more than ten (10) days, USFI
shall have the right to terminate this Agreement by notice to VNI.

7. EMERGENCIES AND INTERRUPTIONS

In case of an interruption of any transmission services furnished
hereunder, VNI shall use reasonable diligence under the circumstances
to restore service. If VNI elects, it may substitute an equivalent
service. Except in the case of gross negligence, VNI's liability for
all mistakes, errors, omissions, interruptions, delays or defects in
transmission occurring in the course of engineering, installation and
operation of its system or the provision of Services shall in no event
exceed the charges paid by USFI for the period of time during which
mistakes, errors, omissions, interruptions, delays or defects in
transmission occurred. In no event shall VNI be liable for any special,
consequential or incidental damages. In the event USFI experiences a
service interruption for reasons other than Force Majeure which results
in the loss of 25% of USFI's traffic for a period of 3 hours or more,
or if VNI fails to provide service in accordance with industry
standards and fails to cure its failure within ten (10) days, USFI
shall have the right to terminate this agreement.

4
<PAGE> 5
8. DEFAULT

(a) Either Party shall be in default if it fails to timely perform
its obligations under this Agreement or any other agreement
with an affiliate of the other, or becomes the subject of any
proceedings under any bankruptcy or insolvency laws. Upon such
default by a Party (other than a service interruption as
described in Section 7 hereof) the other may, provide written
notice to the defaulting Party of such default, allowing
thirty (30) days, for the default to be cured. If the default
is not cured within that 30 days, the non-defaulting Party
may, upon ten (10) days' notice to the other, terminate this
Agreement, one or more Addenda hereto or any other agreement
in force between the Parties, and pursue all other available
remedies at law and in equity, all of which shall be
cumulative.

(b) If this Agreement or any Addendum is terminated by VNI during
the Initial Service Term or any Addendum thereto as a result
of USFI default or is terminated or repudiated by USFI. USFI
shall be liable for liquidated damages equal to 75% of the
monthly charge for the terminated Services for the remainder
of the Initial Service Term under the applicable Addendum, or
such other percentage as may be stated in the Addendum.

(c) Subsequent to termination of Services for cause and prior to
any reinstatement of VNI's Services to USFI, the parties shall
agree upon the amount of any reconnect charges, increase in
service rates and/or security deposit required hereunder; it
being understood, however, that in the event of termination,
VNI may sell the Services to others.

9. TERM OF THIS AGREEMENT

Unless sooner terminated as herein provided, the term of this Agreement
shall be for a 12 month period, commencing on this 1 day, of June 1995
(the "Initial service Term").

USFI shall have the option, to be exercised by notice to VNI given at
least thirty (30) days prior to the expiration of the initial one-year
term or any option term, to extend the term hereof for up to three (3)
additional two year periods upon the terms and conditions provided
herein. All option terms indicated above, will be subject to standard
"Cost of Living"

5
<PAGE> 6
index, increments based upon a March to March Year. The confidentiality
provisions of subsection (14-h.) herein shall survive termination of
this Agreement.

10. INDEMNIFICATION

USFI and VNI shall each indemnify the other against all loses, claims,
damages, expenses and liabilities (including reasonable attorneys' fees
and court costs) arising out of or relating to (I) personal injury or
property damage (including any damage to the facilities or equipment of
the other, any connecting carrier, or any other third party), caused by
any act, error or omission of, or any condition created by, either of
them or their respective employees, agents, equipment or other
property; or (II) any breach of any representation, warranty or
covenant made by either of them herein; or (III) claims by the
customers of either of them, or any other third parties with whom
either conducts business (to the extent that such claims arise out of
operations or activities hereunder).

11. NOTICES AND OTHER COMMUNICATIONS

(a) Unless written notice of a change is given to USFI, payments
to VNI shall be sent as follows:

VOYAGER NETWORKS, INC.
CITIBANK
8515 Fourth Avenue
Brooklyn, N.Y 11209
ABA Routing Number: 021000089
Account Number: 06453203

(b) Documentation and coordination regarding exchange of technical
information relating to interface circuitry and local
interconnects shall be sent to:

Gene Merkel
Network Manager
Voyager Networks, Inc.
60 Hudson Street M-16
New York, N.Y 10013 U.S.A.

(c) Telephone notification of need for assistance for resolution
or coordination of service problems shall be reported by USFI
to VNI's Customer Service Office at 800-622-3551 and by VNI to
USFI at (212) 703-0176.

(d) All other notices to VNI relating to this Agreement shall be
in writing and personally delivered, telecopied or sent by
certified mail, return

6
<PAGE> 7
receipt requested, or overnight courier service to:
Voyager Networks, Inc.
60 Hudson Street M-16
New York, N.Y. 10013 U.S.A.
Attention: Tammy Rich
Title: Director of Operations
Facsimile: 212-571-2036

(e) Unless written notice of a change is given by USFI to VNI, all
notices and other communications to USFI shall be in writing,
telecopied or sent by certified mail, return receipt
requested, or overnight courier service to its address as set
forth on the face of this Agreement or to facsimile number
212-719-2834, attention: James D. Pearson.

12. FUTURE OPPORTUNITIES:

USFI and VNI may elect to combine areas of expertise and customer base
to establish specific joint venture opportunities.

13. COMPLIANCE WITH LAWS

Each party shall comply with all federal, state and local laws with
respect to the Services and this Agreement. Each party agrees to
provide evidence of all necessary authorizations and approvals of
public authorities which the other may reasonably request.

14. MISCELLANEOUS

(a) This Agreement may not be assigned by either party in whole or
in part without the prior written consent of the other party,
which consent shall not be unreasonably withheld, except that
USFI and VNI shall have the right to assign this Agreement to
one of its affiliates and USFI shall have the right to assign
this Agreement in connection with the sale of all or
substantially all of its assets and to the lenders in
connection with any financing transaction to which it is a
party.

(b) This Agreement and any documents attached hereto constitute
the entire agreement between the parties and supersede all
prior agreements, whether written or oral, with respect to the
specific services being provided hereunder. In case of any
conflict between this Agreement and the terms of any documents
attached

<PAGE> 8
hereto, the terms of the documents attached shall control
insofar as the services covered thereby are concerned.

(c) This Agreement shall become effective when accepted by an
authorized officer of USFI and VNI. The negotiation of any
check representing a payment or security deposit under this
Agreement or any Addendum shall not in itself constitute an
acceptance thereof.

(d) The terms and provisions of this Agreement may only be waived,
modified or changed by an amendment in writing signed by both
parties hereto. No failure by either Party to insist upon the
other's performance of any obligation hereunder shall
constitute a waiver of the obligation and the parties may
require compliance with any such obligation at any time.

(e) If VNI or USFI institutes legal proceedings to enforce any
provisions hereof, in addition to any other relief awarded by
the court, the prevailing party shall be entitled to recover
its own reasonable attorneys fees and other associated costs.

(f) If any provision of this Agreement shall be determined to be
invalid or unenforceable, the remainder of the Agreement shall
continue in full force and effect.

(g) This Agreement shall be governed in all respects by the
internal laws of the State of New York. The parties hereby
subject themselves to the jurisdiction of the State of New
York, for the resolution of any dispute arising hereunder and
agree that venue in any suit filed in those courts shall be
proper.

(h) VNI shall not use or disclose, or allow its representatives,
agents or employees to use or disclose any information
concerning USFI, which any of them have learned or shall learn
in connection with this Agreement or the performance of any
service or obligation hereunder or pursuant hereto, including,
but not limited to, technical information, methods of doing
business, rate information, and information concerning terms
or customers except that VNI may release such information upon
written approval of USFI.

(i) VNI will use its best efforts to assist USFI for moving
equipment in and out of the premises, whether on weekends,
evenings or during the business day.

<PAGE> 9
IN WITNESS WHEREOF, the undersigned hereby acknowledge that they have read and
fully understand the foregoing Agreement and, further, that they agree to each
of the terms and conditions contained herein.

Accepted and Agreed by:

By: 5/22/95
------------------------------------- -------
Authorized Signature for USFI, Inc. DATE

PRINT:
---------------------------------

TITLE:
---------------------------------
Accepted and Agreed by:

By: 5/23/95
------------------------------------- -------
Barry Solomon for VOYAGER NETWORKS INC. DATE

TITLE: Chief Operating Officer
---------------------------------

By: 5/22/95
------------------------------------- -------
Paul Valenzuela of VOYAGER NETWORKS, INC. DATE

TITLE: Director of Telecom & Network Development
-----------------------------------------

<PAGE> 10
ATTACHMENT (A)

COLLOCATION SERVICE PROVIDE FOR USFI AT ITS REQUEST

1. Switch Partitioning

<TABLE>
<S> <C>
(A) Switch partitioning via Least Cost Routing
Which includes:
* Common Hardward Logic; --
* Software Configuration; --
* Custom Least Cost Routing profile; --
* One Switch T1 Port --
=========
$2,800.00 per month

(B) Additional Switch T1 Port interconnect: $275.00 per month
</TABLE>

(C) There is a one time installation of switch partition charge of $1,500.00.
(Includes cost of time and material - labor billed at $45.00/hr). This is
to be paid prior to installation of the switch partition.

2. Interconnection to Long Distance Carriers using VNI conduits is $225.00
per T-1, per month with % discounts equal to;

5 < 10 Carrier interconnects = 10% off list price
11 < 15 Carrier interconnects = 20% off list price
16 < ** Carrier interconnects = 30% off list price
*Discounts apply to all T-1 interconnects
*USFI is not required to use VNI for Long Distance
Interconnections.

3. Upon USFI request, VNI will provide USFI direct access to MFS, Teleport,
and NYNEX at no extra charge above the LEC charge.

4, USFI will directly contract for all Carrier Services it wishes to use.
VNI will coordinate all orders for USFI.

5. With USFI collocation space additional Customer POP Rack space will be
billed at a rate of $467.50 per month.

6. Additional UPS power will be billed at $125.00 per 10amp, per Month based
upon 10amps increments.

10
<PAGE> 11
7. VNI currently employs technical staff to maintain and manage the network
and other technical operations, USFI will have the option to allow VNI's
technical staff to perform necessary technical work related specifically
to USFI owned or leased equipment and/or services on a "time and
material" basis and equal to the hourly rate of $45.00. If any technical
work is under 15 minutes, there will be no charge.

8. All adds, moves, changes, for customer "POP" or request from USFI must
come in written form.

9. Access to the customer "POP" will be available during normal VNI business
hours. Off Hour Access must be scheduled in advance (except in the case
of an emergency) and supervised by an authorized VNI employee and will
result in an hourly rate charge of $45.00/hr to USFI. (2 hour minimum).

10. Partition of Space of approximately 160 sq feet with up to 40amps of
power will be at a cost of $4,600.00 per month.

11. Until VNI begins its 24hr services, USFI will pay VNI $1000.00 for 40hrs
of technical support per month. If USFI exceeds 40hrs, USFI agrees to pay
VNI $45.00 Per hour for all technical support. After VNI goes to 24hr
service, USFI will pay VNI $45.00 per hour for all technical support.

*$5,600.00 deposit required upon signing of the Collocation and Facilities
Management Service Agreement.

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 159
<SECURITIES> 0
<RECEIVABLES> 5,496
<ALLOWANCES> 625
<INVENTORY> 0
<CURRENT-ASSETS> 6,947
<PP&E> 3,558
<DEPRECIATION> 474
<TOTAL-ASSETS> 10,654
<CURRENT-LIABILITIES> 11,627
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,767
<TOTAL-LIABILITY-AND-EQUITY> 10,654
<SALES> 27,764
<TOTAL-REVENUES> 27,764
<CGS> 22,302
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,683
<LOSS-PROVISION> 625
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,769)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,814)
<EPS-PRIMARY> (2,407)
<EPS-DILUTED> 0

</TABLE>