TELEPASSPORT INC, 424A, 1997-04-01

TELEPASSPORT INC
424A, 1997-04-01
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1
Filed pursuant to Rule 424(a)
Registration No. 333-20977

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 MARCH 31, 1997

5,000,000 Shares
TelePassport Inc.
[LOGO]

Class B Common Stock

($.01 par value)

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

All the shares of Class B Common Stock, par value $.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 5,000,000 shares of Class B Common
Stock being offered, 4,000,000 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 1,000,000 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 $.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, transferability 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 and Restated
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 and after
giving effect to certain acquisitions, the Company's current stockholders
collectively will own 100% of the outstanding Class A Common Stock, which will
represent 92.7% of the combined voting power of the Company. Accordingly, the
holders of the Class A Common Stock will have the ability to elect all 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
$14.00 and $16.00 per share. For information relating to the factors to be
considered in determining the initial public offering price, see "Underwriting."

The shares of Class B Common Stock have been approved for inclusion on The
Nasdaq Stock Market's National Market ("NNM") under the symbol "TEPP," subject
to official notice of issuance.

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

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 750,000 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> 2

[MAP INSERTED ON INSIDE FRONT COVER FOLDOUT]

MAP -- reflecting the various locations in the United States, Europe and
Asia in which the Company currently has switching facilities and intends to
locate additional switching facilities over the next three years. The map also
reflects United States Air Force--Europe bases where the Company has installed,
is installing and plans to install telecommunications systems.

<PAGE> 3

[LARGE TELEPASSPORT LOGO]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

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> 4

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, in Japan and other targeted
Asian countries and in certain countries of southern Africa. The Company has
also commenced efforts to sell national telecommunications services in certain
of these areas.

The Company is developing 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 and has switching facilities in 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. The construction
of a state-of-the-art international gateway switching center and network
management facility in New Jersey is substantially completed and will 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 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. Switching
facilities are expected to be installed in Frankfurt, Milan, Naples, Paris and
Zurich by the end of 1997. 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

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> 5

Co., Ltd. ("Japan Telecom") and 9.0% by NEC Corporation ("NEC"), and is an agent
for Japan Telecom's long distance services and a distributor of NEC PBXs 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 K.K. ("A.T. NET"). In an effort to enhance its presence in the Japanese
telecommunications market, in March 1997, the Company, together with A.T. NET
and Asahi Telecom, entered into a series of agreements (the "A.T. NET
Agreements"). Pursuant to the A.T. NET Agreements, the Company, in replacement
of the joint venture, became the carrier of international long distance traffic
for A.T. NET, Asahi Telecom and their respective affiliates. The Company also
sold its interest in the joint venture to Asahi Telecom and purchased certain
equipment and other assets of the joint venture, including the rights to the
joint venture's non-Japanese and private line customers, which accounted for
approximately 10% of the joint venture's revenues. In addition, under the A.T.
NET Agreements, the Company is entitled to 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 A.T.
NET Agreements also provide that, if A.T. NET offers customized calling cards
and prepaid debit cards to its customers, the Company will provide such cards
and will supply the related national and international long distance services to
cardholders. Further, under the A.T. NET Agreements, A.T. NET and Asahi Telecom
are required, to the extent permitted by applicable law, to enter into
arrangements to provide to the Company's customers those services permitted by
A.T. NET's Special Type II registration, which would effectively permit the
Company to provide additional telecommunications services in Japan. In addition,
the Company has exercised an option to acquire a 10% ownership interest in A.T.
NET and the Company is entitled to designate one representative to A.T. NET's
board of directors. The Company believes that its relationship with Asahi
Telecom and ownership interest in A.T. NET provide the Company with both a
greater opportunity to competitively penetrate the Japanese market and advance
the TelePassport brand and an added competitive advantage with respect to its
wholesale business by allowing it to originate and terminate international
traffic cost effectively from and to major metropolitan areas of Japan. 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 14 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 two bases in Germany and one base in Italy and has
received requests for pricing ("RFPs") for eight bases: one in Germany, five in
the United Kingdom, one in Spain and one in Turkey. The Company has completed
the installation of telecommunications systems providing voice and data service
to temporary lodging facilities at the Ramstein and Rhein Main USAFE bases in
Germany. The Company expects to complete the installation of systems at nine
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 a supplier of call reorigination services for
offices of certain United Nations ("UN") agencies and their affiliates in over
65 countries and for other supra-national

4
<PAGE> 6

food, health, fiscal and labor organizations (collectively, the "UN
Arrangements"). The Company believes that the services it provides to these
organizations help to develop its customer base by establishing a high profile
in local regions surrounding their offices.

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 March 1997, the Company entered into agreements to
acquire all the capital stock of each of Telepassport GmbH ("TelePassport
Germany"), its independent agent in Germany, and TelePassport Telekom GmbH
("TelePassport Austria"), its independent agent in Austria (collectively, the
"Agent Acquisitions"). 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 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 principally in Naples and
Milan, Italy, as well as telecommunications equipment (the "Intelenet
Agreement"). The acquisition of these assets (the "Intelenet Acquisition") will
provide the Company with an immediate customer base in the Milan and Naples
markets, which should enable the Company thereafter to expand the TelePassport
Network into additional cities in Italy. Also, in March 1997, the Company
entered into an agreement (the "HCL Agreement") to acquire all the capital stock
of Hercules Consultants, Limited ("HCL"), an alternative network access
consultant and installer of PBXs in the United Kingdom. The Company anticipates
that the acquisition of HCL (the "HCL Acquisition" and, together with the Agent
Acquisitions, the "Acquisitions") will expand the Company's existing customer
base in the United Kingdom through the marketing of TelePassport services to
HCL's customers, and will enable the Company to offer an integrated package of
PBXs and TelePassport services in the United Kingdom.

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 $36.6 million in 1996. The number of customers (at the
end of the period) and billable minutes, respectively, increased from 9,118 and
11.9 million in 1994 to 12,378 and 32.8 million in 1995 and 15,683 and 53.5
million in 1996.

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 development 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;

5
<PAGE> 7

- 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 markets;

- 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.

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)
development of 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 L.L.C. and its operating subsidiaries (collectively, the
"TelePassport Companies"). USFI, Inc., the Company's principal operating
subsidiary, was incorporated in New York in January 1993. Prior to the effective
date of the registration statement of which this Prospectus is a part, the
Company will complete the Reorganization pursuant to which TelePassport L.L.C.
and USFI-Japan, L.L.C. will be merged with TelePassport Inc. and all the
outstanding shares in USFI, Inc. will be contributed to TelePassport Inc. From
and after the date of the Reorganization, all the assets and businesses of the
TelePassport Companies will be owned and conducted by TelePassport Inc., and
USFI, Inc. and all of the subsidiaries of TelePassport L.L.C. will become wholly
owned subsidiaries of TelePassport Inc. 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> 8

THE OFFERING

<TABLE>
<S> <C>
Class B Common Stock offered hereby:
U.S. Offering...................... 4,000,000 shares
International Offering............. 1,000,000 shares
----------
Total Offering.................. 5,000,000 shares
==========
Common Stock to be outstanding after
the Offering:
Class A Common Stock............... 7,350,000 shares
Class B Common Stock............... 5,340,000 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 and after giving effect to the
Acquisitions, the Company's current stockholders will
own 100% of the outstanding Class A Common Stock, which
will represent 92.7% 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 and HCL); and for general corporate and working
capital purposes. See "Risk Factors--Substantial Capital
Requirements; Need for Additional Financing to Complete
Network Expansion; Uncertainty of Additional Financing;
Broad Discretion Over Use of Proceeds" and "Use of
Proceeds."
NNM Symbol........................... TEPP
</TABLE>

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

(1) Includes an aggregate of 340,000 shares of Class B Common Stock to be issued
in connection with the Acquisitions as follows: (i) 66,667 shares of Class B
Common Stock to be issued in connection with the HCL Acquisition; (ii)
253,333 shares of Class B Common Stock to be issued in connection with the
acquisition of TelePassport Germany, including 80,000 shares of Class B
Common Stock to be issued and held in escrow subject to vesting over 36
months; and (iii) 20,000 shares of Class B Common Stock to be issued in
connection with the acquisition of TelePassport Austria and held in escrow
subject to vesting over 36 months (in each case, assuming that the initial
public offering price of the Class B Common Stock is the mid-point of the
range indicated on the front cover of this Prospectus). Excludes: an
aggregate of 1,903,500 shares of Class B Common Stock, consisting of (i)
886,390 shares of Class B Common Stock reserved for issuance upon exercise
of options outstanding as of the date of this Prospectus under the Company's
Long Term Incentive Plan (the "Long Term Incentive Plan"); and (ii)
1,017,110 shares of Class B Common Stock reserved for issuance pursuant to
options to be issued in the future under the Long Term Incentive 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 6,090,000. See "Business--Acquisitions," "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> 9

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, 1995 and 1996 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. 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 not included herein. 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
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, --------------------------------------------
1993 1994 1995 1996
----------------- ------------ ----------- -----------
(in thousands, except share, per share and other operating data)
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Telecommunications revenue............................ $ 2,085 $ 12,775 $ 27,643 $ 36,550
Costs and expenses:
Cost of telecommunications services................. 1,367 8,907 20,075 29,880
Selling expenses.................................... 349 1,687 2,579 3,800
General and administrative expenses................. 2,848 5,173 5,349 8,804
Non cash compensation............................... -- -- -- 2,718
Depreciation and amortization....................... 32 100 395 714
-------- -------- -------- --------
Total costs and expenses.............................. 4,596 15,867 28,398 45,916
-------- -------- -------- --------
Loss from operations.................................. (2,511) (3,092) (755) (9,366)
Other income (expense) and minority interest(1)....... -- (315) 57 14
Equity in net loss of foreign joint venture(2)........ -- -- (703) (1,453)
-------- -------- -------- --------
Net loss(2)........................................... $ (2,511) $ (3,407) $ (1,401) $ (10,805)
======== ======== ======== ========
Net loss per common share(2)(3)....................... $ (0.33) $ (0.45) $ (0.19) $ (1.43)
Weighted average common shares and equivalents(3)..... 7,546,805 7,546,805 7,546,805 7,546,805

OTHER FINANCIAL DATA:
EBITDA(4)............................................. $ (2,479) $ (3,307) $ (1,006) $ (10,091)
Net cash (used in) operating activities............... (1,529) (1,669) (74) (1,620)
Net cash (used in) investing activities............... (293) (318) (2,219) (3,754)
Net cash provided by financing activities............. 1,875 2,252 2,396 6,045
Capital expenditures and investments.................. 293 304 2,080 3,537

OTHER OPERATING DATA:
Billable minutes(5)................................... -- 11,930,671 32,758,910 53,501,247
Customers(6).......................................... 4,107 9,118 12,378 15,683
Switching facilities(6)............................... 1 1 3 4
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
AS OF ---------------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(7)
------------ ----------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................. $ (2,584) $ (6,504) $ 57,588
Property and equipment, net........................... 1,974 5,194 5,598
Total assets.......................................... 7,003 13,880 87,670
Stockholders' (deficit) equity........................ (1,838) (2,338) 68,972
</TABLE>

(footnotes on following page)

8
<PAGE> 10

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. In March 1997, pursuant to the A.T. NET
Agreements, the Company sold its interest in the joint venture to Asahi
Telecom. Had the sale occurred as of January 1, 1996, the equity in net loss
of foreign joint venture of $1,453,000 for the year ended December 31, 1996
would have been eliminated and the pro forma net loss and net loss per
common share would have been $9,352,000 and $1.24, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Japan and Asahi Telecom."

(3) Net loss per common and common equivalent share is based on the weighted
average number of shares of common stock outstanding during each period, as
adjusted for the effects of the application of Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") No. 83. Pursuant to SAB No. 83,
options granted within one year of the Company's initial public offering
which have an exercise price less than the initial public offering price are
treated as outstanding for all periods presented (using the treasury method
at the initial public offering price) even though the effect is to reduce
the loss per share.

(4) 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.

(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, the application of the estimated
net proceeds therefrom and the Acquisitions and the acquisition of a 10%
interest in A.T. NET as follows:

<TABLE>
<CAPTION>
ADJUSTMENTS FOR
ACQUISITIONS AND ADJUSTMENTS TO
ACQUISITION OF 10% GIVE EFFECT
INTEREST IN A.T. NET TO THE OFFERING
--------------------- ---------------
<S> <C> <C>
Working capital (deficit)................ $(4,158) $68,250
Property and equipment, net.............. 404 --
Total assets............................. 5,540 68,250
Stockholders' equity..................... 3,060 68,250
</TABLE>

See "Use of Proceeds," "Capitalization" and "Business--Acquisitions."

9
<PAGE> 11

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.

LIMITED OPERATING HISTORY; HISTORY OF NEGATIVE EBITDA; ACCUMULATED DEFICIT AND
INCREASING
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 and increasing net losses. EBITDA for the years ended December 31,
1994, 1995 and 1996 was negative $3.3 million, negative $1.0 million and
negative $10.1 million, respectively. The Company has accumulated net losses
from inception in February 1993 through December 31, 1996, of $18.1 million.
Losses have resulted principally from operating losses including 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 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 CAPITAL REQUIREMENTS; NEED FOR ADDITIONAL FINANCING TO COMPLETE
NETWORK EXPANSION; UNCERTAINTY OF ADDITIONAL FINANCING; BROAD DISCRETION OVER
USE OF PROCEEDS

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 equipment financing, will be sufficient to finance its capital
requirements through the end of 1998. The Company plans to

10
<PAGE> 12

install up to 30 additional switching facilities during the next three years.
The net proceeds of the Offering, however, will not be sufficient to fund all 30
planned switching facilities. After the end of 1998, or sooner if conditions
make it necessary, the Company will be required to seek additional debt or
equity financing to fund its capital requirements. Such financing potentially
includes 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 will 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."

Approximately $23.3 million, or 34.1% 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."

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.

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

11
<PAGE> 13

violations of a country's laws or regulations, even if such violations have been
or are subsequently 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."

Since June 1995, 18 countries have formally notified the Federal
Communications Commission (the "FCC") that call reorigination services violate
their laws. FCC policy provides that foreign governments that satisfy certain
conditions may request FCC assistance in enforcing their laws against call
reorigination providers based in the United States. Of these 18 countries, two
countries have requested assistance from the FCC in enforcing their prohibitions
on call reorigination within their respective territories. The Company has
customers in 17 of these countries, including one country that has requested
that the FCC take action against the Company. The customers in these 17
countries accounted for an aggregate of approximately 6.0% of telecommunications
revenues in 1996. While the FCC has not initiated any action to date, there can
be no assurance that it will not take action in the future. The FCC has held
that it would consider enforcement action against companies based in the United
States engaged in call reorigination by means of uncompleted call signalling in
countries where such services are expressly prohibited. Enforcement action could
range from an order to cease providing call reorigination services in such
country, to the imposition of one or more restrictions on the Company's FCC 214
Authorizations (as defined herein) to monetary fines. See "Regulation of the
International Telecommunications Industry."

In February 1997, the World Trade Organization ("WTO") announced that 69
countries, including the United States, Japan, Switzerland, South Africa and all
of the member states of the European Union ("EU"), reached an agreement (the
"WTO Agreement") to facilitate competition in telecommunications services. Under
the WTO Agreement, beginning in 1998, such countries are expected to allow
access to their domestic and international markets to competing
telecommunications providers, allow foreign ownership interests in existing
telecommunications providers and establish regulatory schemes to develop and
implement policies to accommodate telecommunications competition. To join the
WTO Agreement, each country submitted a written offer to the WTO agreeing to
implement certain changes, which offer was subject to the acceptance by the WTO.
Although each of these countries has agreed to make certain changes to increase
competition in its respective markets, there can be no assurance that these
countries will enact the legislation required to implement the changes set forth
in the offers, or implement any legislation which may be enacted, in a timely
manner or at all. See "Risk Factors -- Competition" and "Regulation of the
International Telecommunications Industry."

United States

The Company owns and operates an international gateway switching center in
New York. The London switching facility and the Tokyo international gateway
switching facility are connected to the New York international gateway switching
center by international private line circuits ("IPLC") leased from other
carriers. In accordance with 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

12
<PAGE> 14

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 Vienna and Japan switching
facilities, via IPLCs to its international gateway switching facility in New
Jersey (once it becomes operational in mid-1997), interconnecting with PSTNs at
both ends. The 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 FCC 214
Authorization 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.

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 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

13
<PAGE> 15

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
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."

In March 1997, the EU's Telecommunications Council approved a directive
setting forth guidelines regarding the granting of telecommunications licenses.
At the request of certain countries, including Germany, the EU agreed to issue a
declaration allowing member states to base their respective license fees on
present, as well as estimated future, administrative costs incurred in the
management, control and enforcement of individual licenses. As a result of
authorizing the member states to consider future administrative costs, license
fees in those member states that choose to include future expenses may be
substantially higher than typical license fees currently charged. Specific
license fee amounts under this directive have not yet been proposed by the
respective member states. However, if fees proposed by Germany or other member
states in which the Company will be required to obtain licenses are
substantially higher than typical licensing fees, the Company may be required to
divert funds originally designated for other uses to the payment of these
license fees. Alternatively, the Company could curtail its operations in those
member states that charge excessive fees. The curtailment of all or a portion of
the Company's existing or planned operations in the EU 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 expects to
commence 1-XXX service from the United Kingdom during the second quarter of
1997, subject to application and receipt from the authorities of an available
three-digit number. 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

14
<PAGE> 16

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 plans to install a switching facility in Frankfurt, Germany, by
the end of 1997. The Company intends, subject to FCC rules, to connect this
facility by leased IPLCs to its international gateway switching center in New
Jersey when it becomes fully operational later this year. 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. The Company plans to connect such additional
facilities by IPLCs to its New Jersey international gateway switching center
when it becomes fully operational later this year, 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, 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. The Company plans to install a switching facility in
Zurich by the end of 1997. Upon deregulation of the Swiss telecommunications
market and subject to FCC rules, the

15
<PAGE> 17

Company plans to expand operations in Switzerland through the installation of
additional switching facilities in other metropolitan areas of Switzerland and
connect these and the Zurich facility via IPLCs to its international gateway
switching center in New Jersey, when it becomes fully operational later this
year, 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. The Draft Law is
currently being reviewed by the Swiss Parliament and 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 services to CUGs in Austria. The Company
intends to connect via IPLCs the switching facility in Vienna to the
international switching facility in New Jersey when it becomes fully operational
later this year, subject to FCC rules. 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 certain certifications for telecommunications
equipment and that providers of telecommunications services, other than voice
telephony, which is currently reserved for the Austrian ITO, notify the Austrian
telecommunications authority of their services. 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

16
<PAGE> 18

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 in
New Jersey, when it becomes fully operational later this year, 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 national and
international services in Japan. In addition, the A.T. NET Agreements provide
that A.T. NET and Asahi Telecom, to the extent permitted by applicable law, will
enter into arrangements to provide to the Company's customers those services
permitted by 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 any failure to enter into arrangements with A.T. NET
and Asahi Telecom, could have an adverse effect on the Company's ability to
expand its operations in Japan and could 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 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 Communications. 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 Communications
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."

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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 of
nontraditional carriers which own infrastructure; and (iv) alternative carriers.
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 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. In February 1997, the WTO
announced that 69 countries, including the United States, Japan, Switzerland,
South Africa and all of the member states of the EU, entered into the WTO
Agreement, which is expected to result in greater competition from new market
entrants and existing telecommunications service providers in such markets. See
"-- Substantial Government Regulation" and "Regulation of the International
Telecommunications Industry."

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 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

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<PAGE> 20

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 plans to upgrade existing facilities and add switching
facilities in up to 30 cities during the next three years. By the end of 1997,
the Company plans to upgrade existing and install additional switching
facilities in the New York metropolitan area, the United Kingdom, Austria and
Japan and install switching facilities in Frankfurt, Milan, Naples, Paris and
Zurich. The expansion of the TelePassport Network and the number of cities in
which the Company actually installs switching facilities will depend upon many
factors, including the availability of additional capital, cost, regulatory
developments, the Company's ability to penetrate new markets, competition and
the Company's results of operations. There can be no assurance that the Company
will be able to add services, upgrade or install switching facilities in all 30
cities currently planned or expand its geographic markets to include all or any
of such locations, that existing regulatory barriers to its current or future
operations will be reduced or eliminated or that the Company will be able to
expand and develop the TelePassport Network successfully. The Company may be
required to decrease the number or change the mix of locations presently
targeted for expansion of the TelePassport Network. See "--Substantial
Government Regulation; and --Substantial Capital Requirements; Need for
Additional Financing to Complete Network Expansion; Uncertainty of Additional
Financing; Broad Discretion Over Use of Proceeds," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

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 in those cities in which the Company owns
switching facilities. Although the Company has been successful to date in
obtaining interconnect arrangements, there can be no assurance that the Company
will be able to maintain such arrangements or obtain additional arrangements as
the Company expands the TelePassport Network into additional countries. 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

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<PAGE> 21

International Operations" and "Business--Business Strategy; --The TelePassport
Network; and --Competition."

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, in Japan and other targeted
Asian countries and in certain countries of southern Africa. 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. In addition, the Company will be required to hire a substantial number
of additional management and other employees in the United States and abroad.
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. There can also be no assurance that the
Company will be successful in hiring qualified personnel to implement its growth
strategy or that it will be able to rapidly and efficiently integrate its new
personnel with its existing workforce. 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 March 1997, the Company entered into 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
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 agreements to acquire TelePassport
Germany and TelePassport Austria concurrently with the closing of the Offering.
There can be no assurance that the Agent Acquisitions will result in increased
sales or an expanded customer base for the Company. Pursuant to the Intelenet
Agreement, the Company acquired an option from Intelenet, a reseller of
telecommunications services in Italy, to purchase Intelenet's customer accounts
principally in Naples and Milan, Italy, as well as certain telecommunications
equipment. The Company has also entered into an agreement to acquire HCL, an
alternative network access consultant and installer of PBXs

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<PAGE> 22

in the United Kingdom. There can be no assurance that such acquisitions will
enable the Company to effectively penetrate the Italian market or result in
increased sales in the United Kingdom. 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 --Acquisitions."

RELIANCE ON THIRD PARTIES FOR LEASED CAPACITY

The Company does not currently own any of the telecommunications
transmission lines that connect the TelePassport Network. 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 IPLCs from MCI Communications Corporation ("MCI") and British
Telecommunications plc ("BT") and the respective ITO or other carrier 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-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. In
general, under VAT rules, most businesses are permitted to offset the VAT
charged to them with the VAT that they charge to their customers, while
residential customers and certain categories of businesses, such as banks and
insurance companies, cannot offset the VAT and therefore must bear the cost of
the tax. 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 with
respect to residential customers, certain categories of businesses that are not
permitted to offset VAT and businesses that are unable to offset the entire VAT
for which they are liable.

The EC has proposed legislation, to be followed no later than 1999 by an
amendment to the VAT Directive, to specifically impose VAT on telecommunications
services supplied within the EU by carriers based outside of the EU. Until such
time as the final legislation is adopted, the EC has proposed interim rules
allowing EU member states to make the European purchasers of the services liable
for the VAT and to collect VAT directly from such users, which, in almost all
cases, are expected to be businesses. Under the interim rules, EU based
businesses that purchase telecommunications services from non-EU based carriers
will be required to self-account for VAT on such services and pay VAT directly
to the authorities, except to the extent that businesses can offset the VAT.
Germany has already begun to collect VAT from users of 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 and all non-EU based carriers supplying services to users located in
the EU will be required to register in one or more EU member states and collect
and pay the VAT themselves. To the extent that the Company's services are, and
in the future become, subject to VAT, the Company's competitive price advantage
with respect to those EU businesses and other customers required to pay VAT will
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."

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<PAGE> 24

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 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 competes 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 the services of such personnel
as a group 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 "-- Risks Associated
with Management of Growth and Implementation of Growth Strategy" and
"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 92.7% of the combined voting power of the
Company (91.8% 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."

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.

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<PAGE> 25

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 and after
giving effect to the Acquisitions, the Company will have 12,690,000 shares of
Common Stock outstanding (13,440,000 shares if the over-allotment option is
exercised in full). In addition, the Company has reserved for issuance 886,390
shares of Class B Common Stock upon exercise of options granted under the Long
Term Incentive Plan.

The 5,000,000 shares of Class B Common Stock offered in the Offering
(5,750,000 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 7,350,000 outstanding shares of Class A Common Stock
are, and the 340,000 shares of Class B Common Stock to be issued in connection
with the Acquisitions 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 Long Term Incentive 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 and Restated Certificate of
Incorporation authorizes the issuance of 1,000,000 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 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.

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<PAGE> 26

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 Long Term Incentive Plan), all Incentive Awards
(as defined therein) under the Long Term Incentive Plan will become immediately
vested and exercisable. The employment agreement and Long Term Incentive 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 Class B
Common Stock and may adversely affect the market price of the Class B Common
Stock. See "Management--Employment Agreements; and -- Long Term Incentive Plan."

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.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements." Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or the industry to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions; prospects for the industry;
competition; changes in business strategy or development plans; the loss of key
personnel; the availability of capital; and other factors referenced in this
Prospectus, including, without limitation, under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.

25
<PAGE> 27

USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be
approximately $68.3 million ($78.7 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 $40 million of the net proceeds
for network upgrade and expansion, including the installation of switching
facilities and investments in fiber optic cable, and $5 million for integration
of distribution through acquisitions, for acquisitions of businesses or for
investments in joint ventures or strategic alliances (including $0.5 million for
the Acquisitions and $3.0 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. The balance of
the net proceeds ($23.3 million) 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 ($10.4
million) 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; and --Potential Difficulties Associated With Implementing TelePassport
Network Expansion Strategy." For a discussion of the Company's future capital
requirements and the sources of funds therefor over the next three years, see
"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.

26
<PAGE> 28

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 December 31, 1996, the Company had a (deficit in) net tangible book
value of $(3.0) million, or $(.41) per share of Common Stock. Assuming that the
sale of the shares of Class B Common Stock hereunder had occurred on December
31, 1996 and without taking into account any change in net tangible book value
after December 31, 1996, other than the sale of the shares of Class B Common
Stock in the Offering, the pro forma net tangible book value of the Company as
of December 31, 1996 would have been approximately $65.2 million or $5.28 per
share of Common Stock (assuming that the initial public offering price of the
Class B Common Stock is the mid-point of the range indicated on the front cover
of this Prospectus). See "Capitalization." This represents an immediate increase
in tangible book value of $5.69 per share of Common Stock held by existing
holders of shares of Common Stock and an immediate dilution of $9.72 per share
of Class B Common Stock to new investors. The following table illustrates this
dilution per share of Common Stock (assuming that the initial public offering
price of the Class B Common Stock is the mid-point of the range indicated on the
front cover of this Prospectus):

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Class B Common
Stock............................................................. $15.00
(Deficit in) net tangible book value per share of Common Stock at
December 31, 1996................................................. $(.41)
Increase in net tangible book value per share of Class B Common
Stock attributable to the Offering................................ 5.69
------
-
Pro forma net tangible book value per share of Common Stock after
the Offering...................................................... 5.28
-------
Dilution per share of Common Stock to new investors................. $ 9.72
=======
</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 $5.78 per share, the increase in net tangible book value per
share would be $6.19 and the dilution to persons who purchase shares of Class B
Common Stock in the Offering would be $9.22 per share (assuming that the initial
public offering price of the Class B Common Stock is the mid-point of the range
indicated on the front cover of this Prospectus).

The following table sets forth, on a pro forma basis as of December 31,
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
(assuming that the initial public offering price of the Class B Common Stock is
the mid-point of the range indicated on the front cover of this Prospectus):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 7,350,000 59.5% $13,074,000 14.8% $ 1.78
New investors.............. 5,000,000 40.5 75,000,000 85.2 15.00
--------- ------ --------- ------
Total.................... 12,350,000 100.0% $88,074,000 100.0%
========= ====== ========= ======
</TABLE>

The foregoing table excludes the exercise of all stock options issued prior
to the date of this Prospectus under the Long Term Incentive Plan and the
issuance of shares in connection with the Acquisitions. To the extent that any
options granted or to be granted are exercised in the future at prices which are
below the initial public offering price, there will be further dilution to new
investors. See "Management--Long Term Incentive Plan."

27
<PAGE> 29

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of December 31, 1996, and as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom (including $3.5 million for
the Acquisitions and the acquisition of a 10% interest in A.T. NET) of $68.3
million (assuming that the initial public offering price of the Class B Common
Stock is the mid-point of the range indicated on the front cover of this
Prospectus). 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 DECEMBER 31, 1996
---------------------------------------
ACTUAL AS ADJUSTED
----------------- -----------------
(dollars in thousands)
<S> <C> <C>
Cash...................................... $ 1,088 $ 65,888
======= =======
Current portion of capital lease
obligations............................. $ 61 $ 61
======= =======
Long-term portion of capital lease
obligations............................. $ 289 $ 289
Stockholders' equity (deficit):
Preferred stock
$.01 par value, zero and 1,000,000
shares authorized; zero and zero
issued and outstanding,
respectively(1)...................... -- --
Class A Common Stock
$.01 par value, 9,000,000 shares
authorized; 7,350,000 issued and
outstanding(1)....................... 74 74
Class B Common Stock
$.01 par value, 20,000,000 shares
authorized; zero and 5,340,000 issued
and outstanding,
respectively(1)(2)................... -- 53
Additional paid-in-capital(2)(3)........ 15,718 70,126
Accumulated deficit(2)(3)............... (18,124) --
Deferred compensation(2)................ -- (1,275)
Cumulative translation adjustment....... (6) (6)
------- -------
Total stockholders' equity (deficit)...... (2,338) 68,972
------- -------
Total capitalization................. $ (2,049) $ 69,261
======= =======
</TABLE>

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

(1) See "Description of Capital Stock."

(2) As adjusted column includes an aggregate of 340,000 shares of restricted
Class B Common Stock valued at $4.3 million (of which $1.3 million is
deferred compensation) to be issued in connection with the Acquisitions as
follows: (i) 66,667 shares of Class B Common Stock to be issued in
connection with the HCL Acquisition; (ii) 253,333 shares of Class B Common
Stock to be issued in connection with the acquisition of TelePassport
Germany, including 80,000 shares of Class B Common Stock to be issued and
held in escrow subject to vesting over 36 months; and (iii) 20,000 shares of
Class B Common Stock to be issued in connection with the acquisition of
TelePassport Austria and held in escrow subject to vesting over 36 months
(in each case, assuming that the initial public offering price of the Class
B Common Stock is the mid-point of the range indicated on the front cover of
this Prospectus). Excludes: an aggregate of 1,903,500 shares of Class B
Common Stock, consisting of (i) 886,390 shares of Class B Common Stock
reserved for issuance upon exercise of options outstanding as of the date of
this Prospectus under the Company's Long Term Incentive Plan; and (ii)
1,017,110 shares of Class B Common Stock reserved for issuance pursuant to
options to be issued in the future under the Long Term Incentive 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 6,090,000. See "Business--Acquisitions," "Management," "Shares Eligible
for Future Sale" and "Underwriting."

(3) As adjusted column reflects an adjustment to additional paid-in-capital and
accumulated deficit upon termination of the "S" corporation election of
USFI, Inc. and certain of the TelePassport Companies in connection with the
Reorganization.

28
<PAGE> 30

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, 1995 and 1996
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. 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 not included herein. 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>
FEBRUARY 12, 1993 FISCAL YEAR ENDED DECEMBER 31,
(INCEPTION) TO --------------------------------------------
DECEMBER 31, 1993 1994 1995 1996
----------------- ------------ ------------ ----------
(in thousands, except share, per share and other operating data)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Telecommunications revenue........................ $ 2,085 $ 12,775 $ 27,643 $ 36,550
Costs and expenses:
Cost of telecommunications services............. 1,367 8,907 20,075 29,880
Selling expenses................................ 349 1,687 2,579 3,800
General and administrative expenses............. 2,848 5,173 5,349 8,804
Non cash compensation........................... 2,718
Depreciation and amortization................... 32 100 395 714
------- ------- ------- -------
Total costs and expenses.......................... 4,596 15,867 28,398 45,916
------- ------- ------- -------
Loss from operations.............................. (2,511) (3,092) (755) (9,366)
Other income (expense) and minority interest(1)... -- (315) 57 14
Equity in net loss of foreign joint venture(2).... -- -- (703) (1,453)
------- ------- ------- -------
Net loss(2)....................................... $ (2,511) $ (3,407) $ (1,401) $ (10,805)
======= ======= ======= =======
Net loss per common share(2)(3)................... $ (0.33) $ (0.45) $ (0.19) $ (1.43)
Weighted average common shares and
equivalents(3).................................. 7,546,805 7,546,805 7,546,805 7,546,805

OTHER FINANCIAL DATA:
EBITDA(4)......................................... $ (2,479) $ (3,307) $ (1,006) $ (10,091)
Net cash (used in) operating activities........... (1,529) (1,669) (74) (1,620)
Net cash (used in) investing activities........... (293) (318) (2,219) (3,754)
Net cash provided by financing activities......... 1,875 2,252 2,396 6,045
Capital expenditures and investments.............. 293 304 2,080 3,537

OTHER OPERATING DATA:
Billable minutes(5)............................... -- 11,930,671 32,758,910 53,501,247
Customers(6)...................................... 4,107 9,118 12,378 15,683
Switching facilities(6)........................... 1 1 3 4
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
AS OF ---------------------------
DECEMBER 31, AS
1995 ACTUAL ADJUSTED(7)
------------ ------------ ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................... $ (2,584) $ (6,504) $ 57,588
Property and equipment, net....................... 1,974 5,194 5,598
Total assets...................................... 7,003 13,880 87,670
Stockholders' (deficit) equity.................... (1,838) (2,338) 68,972
</TABLE>

(footnotes on following page)

29
<PAGE> 31

NOTES TO SELECTED FINANCIAL DATA

(4) 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.

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

(7) As adjusted to give effect to the Offering, the application of the estimated
net proceeds therefrom and the Acquisitions and the acquisition of a 10%
interest in A.T. NET as follows:

See "Use of Proceeds," "Capitalization" and "Business--Acquisitions."

30
<PAGE> 32

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, in Japan and other targeted Asian countries and
in certain countries of southern Africa. The Company has also commenced efforts
to sell national telecommunications services in certain of these areas.

The Company's principal operating subsidiary, USFI, Inc., was incorporated
in January 1993. The Company has been principally funded through the date of
this Prospectus by an aggregate of $17.6 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. To date, the
Company has incurred negative EBITDA and substantial net losses. EBITDA for the
years ended December 31, 1994, 1995 and 1996 was negative $3.3 million, negative
$1.0 million and negative $10.1 million, respectively. The Company has
accumulated net losses from inception in February 1993 through December 31,
1996, of $18.1 million and had working capital deficits of $2.3 million, $2.6
million and $6.5 million as of December 31, 1994, 1995 and 1996, respectively.
Losses have resulted principally from operating losses including 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.

The Company 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 L.L.C. and its operating subsidiaries. Prior to the effective date
of the registration statement of which this Prospectus is a part, TelePassport
L.L.C. and USFI-Japan, L.L.C. will be merged with TelePassport Inc. and the
Principals will contribute to TelePassport Inc. all the outstanding shares in
USFI, Inc. From and after the closing date of this Offering, all the assets and
businesses of the TelePassport Companies will be owned and conducted by
TelePassport Inc. 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 reported directly to their equity owners for inclusion in their tax
returns. 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. Due to the
rapid and significant technological advancements which are characteristic of the
telecommunications industry, the Company may be required to make additional
investments to replace or

31
<PAGE> 33

upgrade its equipment to implement new technologies as they become available.
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 telecommunications service providers in Japan. In
June 1993, the Company became a supplier of call reorigination services for the
offices of certain United Nations agencies and their affiliates in over 65
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 March 1997, the
Company, Asahi Telecom and A.T. NET entered into the A.T. NET Agreements, which
supersede the joint venture. Pursuant to the A.T. NET Agreements, the Company
will provide directly the international long distance services that were
previously provided by the joint venture. Under the A.T. NET Agreements, Asahi
Telecom purchased the Company's 51% interest in TelePassport Japan and the
Company purchased TelePassport Japan's rights to foreign and private line
customers, which accounted for approximately 10% of TelePassport Japan's
revenues, the private line equipment associated with such customers and certain
other assets. Had the sale of the Company's interest in the joint venture
occurred as of January 1, 1996, the equity in net loss of foreign joint venture
of $1.5 million for the year ended December 31, 1996 would have been eliminated
and the pro forma net loss and net loss per common share would have been $9.4
million and $1.24, respectively. Further, the Company has exercised its option
to acquire a 10% ownership interest in A.T. NET for approximately $3.0 million.
The Company's ownership interest in A.T. NET will be accounted for under the
cost method. After giving effect to the sale of the Company's interest in the
joint venture to Asahi Telecom and exercise of the option, upon payment of the
option exercise price, the Company's equity in the accumulated net loss of the
joint venture, net of investment and long term advances ($1.8 million as of
December 31, 1996), will be recorded as a reduction of its investment in A.T.
NET. Had the A.T. NET Agreements been in effect as of January 1, 1996, there
would not have been a significant effect on the Company's results of operations
for the year ended December 31, 1996.

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 year ended December 31, 1996, call reorigination revenue
represented $23.8 million, or 65.0%, of the Company's telecommunications revenue
and wholesale services represented $12.2 million, or 33.3%, of
telecommunications revenue. The remainder of the Company's telecommunications
revenue during the year, $0.6 million, or 1.7%, was derived from a VPN contract
with certain UN organizations which was terminated in the first quarter of 1997.
During the year ended December 31, 1996, telecommunications revenue was derived
from services provided in the following locations: Europe 47.4%; North America
23.4%; southern Africa 17.9%; Japan 9.9%; 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 the
expansion of the TelePassport Network, as well as through the 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 are
deregulated and the Company expands the TelePassport Network into those markets,
the Company will seek to transfer its customers to facilities-based

32
<PAGE> 34

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.

In March 1997, the Company entered into agreements to acquire all the
capital stock of each of TelePassport Germany, its independent agent in Germany,
and TelePassport Austria, its independent agent in Austria, which together
provided the Company with 20.9% of its telecommunications revenue for the year
ended December 31, 1996. The Agent Acquisitions are expected to be consummated
concurrently with the closing of the Offering. In connection with the Agent
Acquisitions, the Company will record $1.3 million of deferred compensation
expense which will be amortized over the 36 month period during which the shares
of Class B Common Stock to be issued in connection with the Agent Acquisitions
will vest. The Company's telecommunications revenue will not be significantly
affected as a result of the change in the status of each of TelePassport Germany
and TelePassport Austria from independent agents to wholly owned subsidiaries of
the Company.

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, to the
extent EU member states impose VAT on telecommunications services provided to EU
customers by telecommunications providers located outside of the EU, such as the
Company, the Company may need to further reduce prices of services offered to
certain 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. For example, 69
countries recently entered into the WTO Agreement with the goal of increasing
competition among telecommunications providers in those markets beginning in
1998. The Company believes, however, that any decreases in prices as a result of
deregulation and increased competition 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. See "Regulation of the International
Telecommunications Industry."

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
are not otherwise transmitted over the 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

33
<PAGE> 35

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 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

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Telecommunications revenue. Telecommunications revenue increased $8.9
million, or 32.3%, to $36.6 million for the year ended December 31, 1996 from
$27.6 million for the year ended December 31, 1995. This increase was
attributable primarily to the increase in billable minutes, which increased 20.7
million, or 63.1%, to 53.5 million billable minutes for the year ended December
31, 1996 from 32.8 million billable minutes for the year ended December 31,
1995. Telecommunications revenue derived from retail customers increased
approximately $3.0 million, or 14.4%, to $23.8 million for the year ended
December 31, 1996 from $20.8 million for the year ended December 31, 1995, while
telecommunications revenue derived from

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wholesale customers increased $5.3 million, or 76.8%, to $12.2 million for the
year ended December 31, 1996 from $6.9 million for the year ended December 31,
1995. The remainder of the Company's telecommunications revenue during the year
ended December 31, 1996, $0.6 million, was derived from a VPN contract with
certain UN organizations. The increase in telecommunications revenue during the
year ended December 31, 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 $9.8 million, or 48.8%, to $29.9 million for the year ended December
31, 1996 from $20.1 million for the year ended December 31, 1995, and, as a
percent of telecommunications revenue, increased to 81.8% for year ended
December 31, 1996 from 72.6% for the year ended December 31, 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 the 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 $1.2 million, or 47.3%, to
$3.8 million for the year ended December 31, 1996 from $2.6 million for the year
ended December 31, 1995, and as a percent of telecommunications revenue,
increased to 10.4% for the year ended December 31, 1996 from 9.3% for the year
ended December 31, 1995. For the years ended December 31, 1996 and 1995, selling
expenses were primarily comprised of commissions paid to independent agents,
payroll and other benefit costs and travel costs associated with the sales and
marketing department. The increase in selling expenses was primarily
attributable to increased commissions of $0.8 million associated with the
increase in telecommunications revenue for year ended December 31, 1996 as
compared to the year ended December 31, 1995. The increase in selling expenses
as a percent of telecommunications revenue during 1996 was attributable to
increased commission rates payable to certain agents in connection with
increases in telecommunications revenue generated by those agents.

General and administrative expenses. General and administrative expenses
increased $3.5 million, or 64.6%, to $8.8 million for the year ended December
31, 1996 from $5.3 million for year ended December 31, 1995, and, as a
percentage of telecommunications revenue, increased to 24.1% for the year ended
December 31, 1996 from 19.4% for the year ended December 31, 1995. For the years
ended December 31, 1996 and 1995, general and administrative expenses were
primarily comprised of salary and benefit costs, consulting expenses and other
overhead costs associated with headquarters and network operations. The increase
in general and administrative expenses (both actual and as a percentage of
telecommunications 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.

Non cash compensation. The Company incurred compensation expenses in
connection with its incentive plans of $2.7 million for the year ended December
31, 1996. There was no noncash compensation charge in 1995.

Depreciation and amortization. Depreciation and amortization increased to
$0.7 million for year ended December 31, 1996 from $0.4 million for the year
ended December 31, 1995. The 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

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<PAGE> 37

minutes for the year ended December 31, 1994. Telecommunications revenue derived
from retail customers increased $10.3 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. For the years ended December 31, 1995 and 1994, selling
expenses were primarily comprised of commissions paid to independent agents and
payroll and other benefit costs. 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. For the years ended December 31, 1995 and
1994, general and administrative expenses were primarily comprised of salary and
benefit costs, consulting expenses and other overhead costs associated with
headquarters and network operations. 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 December 31, 1996,
losses since inception totaled $18.1 million, and were $2.5 million, $3.4
million, $1.4 million and $10.8 million in 1993, 1994, 1995 and 1996,
respectively.

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 $13.1 million
through December 31, 1996 and are $17.6 million through the date of this
Prospectus. In June 1995, a consortium of five Japanese banks extended a $5.0
million line of credit (the "Joint Venture Loan") to TelePassport Japan

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Co., Ltd. ("TelePassport Japan"). The Joint Venture Loan is without recourse to
the Company, bears interest at the Japanese prime rate and is payable on demand.
As of December 31, 1996, the outstanding principal balance of the Joint Venture
Loan was $3.5 million and the applicable interest rate was 1.6%. Pursuant to the
A.T. NET Agreements, the Company sold its interest in TelePassport Japan to
Asahi Telecom and, accordingly, Asahi Telecom assumed the outstanding
obligations of TelePassport Japan, including the Joint Venture Loan. 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
2002 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 ($1.6) million in 1996. Net cash
provided by financing totaled $1.9 million in 1993, $2.3 million in 1994, $2.4
million in 1995, and $6.0 million in 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 $3.8 million in 1996, of which $3.5 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 December 31, 1996, the Company had $1.1 million in cash, although the
Company had a working capital deficit of $6.5 million. The Company had working
capital deficits of $2.3 million and $2.6 million as of December 31, 1994 and
1995.

The Company estimates that it will require approximately $135 million to
fund its anticipated capital requirements over the next three years. This amount
includes an estimated $65 million in capital expenditures, $5 million for the
acquisition of businesses or for investment in joint ventures and strategic
alliances (including $0.5 million for the Acquisitions and $3.0 million for the
acquisition of a 10% interest in A.T. NET) and $65 million for working capital
requirements and general corporate purposes including general and administrative
expenses and the funding of operating losses. The Acquisitions are not expected
to require substantial additional capital investments in the future. 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 $135 million of capital required, approximately $68.3 million ($78.7
million if the overallotment option is exercised in full) will be funded by the
Offering (assuming an initial public offering price of the Class B Common Stock
at the mid-point of the range indicated on the front cover of this Prospectus)
and approximately $15 million is expected to be funded by equipment financing.
The Company currently estimates that the net proceeds of the Offering, together
with the equipment financing, will be sufficient to finance its capital
requirements through the end of 1998. For the balance of the capital required,
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 currently expected. See "Risk Factors--Substantial Capital
Requirements; Need for Additional Financing to Complete Network Expansion;
Uncertainty of Additional Financing; Broad Discretion Over Use of Proceeds; 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 outgoing minutes
of use in 1995, up from $21.7 billion in revenues and 16.7 billion outgoing
minutes of use in 1986, representing compound annual growth rates of 11% and
15%, respectively. Based on recent trends, TeleGeography, Inc., an independent
research and publishing company, projects that revenues will approach $75.5
billion by the year 2000 with the volume of traffic expanding to 107.3 billion
outgoing minutes of use. 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 outgoing minutes of use in
1995. AT&T Corp. ("AT&T"), DT, MCI, BT and France Telecom S.A. ("France
Telecom") 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 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 February 1997, 69 countries, including the United States, Japan,
Switzerland, South Africa and all of the member states of the EU, entered into
the WTO Agreement with the goal of increasing competition among
telecommunications providers in such markets beginning in 1998. 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

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the country of origination, and the second international long distance carrier
transports the call to a local exchange in the country of termination.

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

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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.

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
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, in Japan and other targeted
Asian countries and in certain countries of southern Africa. The Company has
also commenced efforts to sell national telecommunications services in certain
of these areas.

The Company is developing 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 and switching facilities in 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. The construction of
a state-of-the-art central switching center and network management facility in
New Jersey is substantially completed and will 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 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. Switching
facilities are expected to be installed in Frankfurt, Milan, Naples, Paris and
Zurich by the end of 1997. 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 "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "--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. In
March 1995, the Company and Asahi Telecom began operating a joint venture that
provided international long distance services in Japan. Asahi Telecom is owned
33.5% by Japan Telecom and 9.0% by NEC, and is an agent for Japan Telecom's long
distance services and a distributor of NEC PBXs 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
March 1997, the Company, together with A.T. NET and Asahi Telecom, entered into
the A.T. NET Agreements. Pursuant to the A.T. NET Agreements, the Company, in
replacement of the joint venture, became the carrier of international long
distance traffic for A.T. NET, Asahi Telecom and their respective affiliates.
The Company also sold its interest in the joint venture to Asahi Telecom and
purchased certain equipment and other assets of the joint venture, including the
rights to the joint venture's non-Japanese and private line customers, which
accounted for approximately 10% of the joint venture's revenues. In addition,
under the A.T. NET Agreements, the Company is entitled to 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

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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 A.T.
NET Agreements also provide that, if A.T. NET offers customized calling cards
and prepaid debit cards to its customers, the Company will provide such cards
and will supply the related national and international long distance services to
cardholders. Further, under the A.T. NET Agreements, A.T. NET and Asahi Telecom
are required, to the extent permitted by applicable law, to enter into
arrangements to provide to the Company's customers those services permitted by
A.T. NET's Special Type II registration, which would effectively permit the
Company to provide additional telecommunications services in Japan. In addition,
the Company has exercised an option to acquire a 10% ownership interest in A.T.
NET and the Company is entitled to designate one representative to A.T. NET's
board of directors. The Company believes that its relationship with Asahi
Telecom and ownership interest in A.T. NET provide the Company with both a
greater opportunity to competitively penetrate the Japanese market and advance
the TelePassport brand and an added competitive advantage with respect to its
wholesale business by allowing it to originate and terminate international
traffic cost effectively from and to major metropolitan areas of Japan. 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 14 USAFE bases. Under the terms of the USAFE
Contract, the Company, to date, has received delivery orders for two bases in
Germany and one base in Italy and has received RFPs for eight bases: one in
Germany, five in the United Kingdom, one in Spain and one in Turkey. The Company
has completed the installation of telecommunications systems providing voice and
data service to the temporary lodging facilities at the Ramstein and Rhein Main
USAFE bases in Germany. The Company expects to complete the installation of
systems at nine 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 a supplier of call reorigination
services for offices of certain UN agencies and their affiliates in over 65
countries and for other supra-national food, health, fiscal and labor
organizations. The Company believes that the services it provides to these
organizations help to develop its customer base by establishing a high profile
in local regions surrounding their 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 March 1997, the Company entered into agreements to
acquire all the capital stock of each of TelePassport Germany, its independent
agent in Germany, and TelePassport Austria, its independent agent in Austria.
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 January 1997, the Company
entered into the Intelenet Agreement pursuant to which

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Intelenet granted the Company an option to purchase Intelenet's customer
accounts principally in Naples and Milan, Italy, and telecommunications
equipment. The Intelenet Acquisition will provide the Company with an immediate
customer base in the Milan and Naples markets which should enable the Company
thereafter to expand the TelePassport Network into additional cities in Italy.
Also, in March 1997, the Company entered into the HCL Agreement to acquire all
the capital stock of HCL, an alternative network access consultant and installer
of PBXs in the United Kingdom. The Company anticipates that the HCL Acquisition
will expand the Company's existing customer base in the United Kingdom through
the marketing of TelePassport services to HCL's customers, and will enable the
Company to offer an integrated package of PBXs and TelePassport services in the
United Kingdom.

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;

- The development 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;

- 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 markets;

BUSINESS STRATEGY

- Expanding the TelePassport Network. The Company seeks to deliver high
quality, reliable telecommunications services using its developing
state-of-the-art TelePassport Network. The Company has substantially
completed the construction of an advanced international gateway switching
center and network management facility in New Jersey to replace its
international gateway switching center 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 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. Switching facilities are
expected to be installed in Frankfurt, Milan, Naples, Paris and Zurich by
the end of 1997. 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--Substantial Capital Requirements; Need For Additional
Financing to Complete Network

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Expansion; Uncertainty of Additional Financing; Broad Discretion Over Use
of Proceeds;--Potential Difficulties Associated with Implementing
TelePassport Network Expansion Strategy; and--Rapid Changes in Technology
and Customer Requirements," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources" 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 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. In March 1997, the Company entered into agreements to
acquire TelePassport Germany and TelePassport Austria, the Company's
independent agents in Germany and Austria, respectively. 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
"--Acquisitions."

- 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

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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 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. Accordingly, in January 1997 the Company acquired an option
to purchase Intelenet's customer accounts and telecommunications
equipment and in March 1997, the Company entered into the HCL Agreement
to acquire HCL. 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" and "--Acquisitions."

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 telecommunications 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.

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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. In March 1997, the
Company entered into agreements to acquire TelePassport Germany and TelePassport
Austria, its independent agents in Germany and Austria, respectively,
concurrently with the closing of the Offering. See "--Acquisitions."

In addition, the Company seeks to enter new markets and expand operations
in existing markets by acquiring complementary businesses with established
customer bases in targeted locations. In January 1997, the Company entered into
the Intelenet Agreement to acquire Intelenet's customer accounts, principally in
Naples and Milan, Italy, and telecommunications equipment. The Intelenet
Acquisition will provide the Company with an immediate customer base to gain
entry initially into the Milan and Naples markets, and thereafter expand the
TelePassport Network into additional cities in Italy. In March 1997, the Company
entered into the HCL Agreement to acquire HCL, an alternative network access
consultant and installer of PBXs in the United Kingdom. The Company anticipates
that the acquisition of HCL will expand the Company's existing customer base in
the United Kingdom by providing the opportunity for TelePassport services to be
marketed and sold to HCL's customers, as well as enabling the Company to offer
an integrated package of PBXs and TelePassport services in the United Kingdom.
See "--Acquisitions."

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. 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 12.8%,
17.9% and 5.0% for the year ended December 31, 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

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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.

Wholesale Services

The Company employs a 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 a full-time
sales representative based in New York to manage the Company's United States
carrier relationships. In addition, the Company employs a full-time sales
representative and a 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 forums and seminars
and Company employees speak 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. The Company has
also entered into a relationship with a vendor of PBXs and related equipment in
Austria whereby such vendor promotes the Company's services to its customers and
prospective customers as part of an integrated package. Such relationships are
also being pursued with organizations offering similar services in 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,

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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 $23.8 million, or 65.0%, of the
Company's telecommunications revenue for the year ended December 31, 1996, as
compared to $20.8 million, or 75.4%, 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 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 $1.7
million, or 4.6%, of the Company's telecommunications revenue for the year ended
December 31, 1996, which included sales of $0.6 million derived from a VPN
contract with certain UN organizations and sales of retail services of $1.1
million (also included in the $23.8 million above). The Company did not have any
such sales during the corresponding period in 1995. Wholesale services accounted
for $12.2 million, or 33.3%, of the Company's telecommunications revenue for the
year ended December 31, 1996, as compared to $6.8 million, or 24.6%, 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 international gateway in the New York metropolitan area
"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

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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 currently offers this service in New York, and plans to
introduce this service in the United Kingdom
(as a 1-XXX service) 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, a Japanese company, as a joint venture to

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sell international long distance services in Japan. In April 1995, the Company
installed an international gateway switching center at its Tokyo office to,
among other things, provide 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, an agent for Japan Telecom long distance services and a distributor of
NEC PBXs in Japan, performed all sales and marketing for TelePassport Japan. The
joint venture has been owned 51% by the Company and 49% by Asahi Telecom, and as
of December 31, 1996, had approximately 800 customers, consisting principally of
small and medium-sized businesses, and generated an aggregate of $4.0 million of
revenues since its inception. Japan Telecom owns 33.5% and NEC owns 9.0% of
Asahi Telecom.

In February 1996, Asahi Telecom entered into an agreement with Japan
Telecom, its network provider, under which Asahi Telecom installs 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
provided 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 March 1997, the
Company, together with A.T. NET and Asahi Telecom entered into the A.T. NET
Agreements under which the Company took the place of the joint venture as the
provider of international long distance services to A.T. NET, Asahi Telecom and
their respective affiliates. Under a reciprocal reselling arrangement, the
Company is also 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, to the extent that A.T. NET offers customized
calling cards and prepaid debit cards for its customers, the Company will supply
the related national and international long distance services to such
cardholders. See "Regulation of the International Telecommunications Industry."
Under the terms of the A.T. NET Agreements, the Company, A.T. NET and Asahi
Telecom will enter into a sales and marketing agreement pursuant to which the
Company, as an agent for A.T. NET, will have the non-exclusive right to sell and
market A.T. NET services in return for commissions based on a percentage of
revenues generated by those customers of A.T. NET for which the Company is an
agent.

As part of the A.T. NET Agreements, the Company has exercised an option to
purchase for $3.0 million shares representing, in the aggregate, a 10% ownership
interest in A.T. NET. The purchase price is payable at any time prior to May 31,
1997 and the Company intends to pay the purchase price from the net proceeds of
the Offering. The Company is also entitled to designate one representative to
A.T. NET's five-member board of directors for so long as the Company acts as the
provider of international long distance services for A.T. NET. The A.T. NET
Agreements also provide that A.T. NET and Asahi Telecom, to the extent permitted
by applicable law, will enter into arrangements to provide to the Company's
customers those services permitted by A.T. NET's Special Type II registration
which would effectively permit the Company to provide additional
telecommunications services in Japan. See "Use of Proceeds" and "Regulation of
the International Telecommunications Industry."

Under the A.T. NET Agreements, Asahi Telecom purchased the Company's 51%
interest in TelePassport Japan and the Company purchased TelePassport Japan's
rights to foreign and private line customers, which accounted for approximately
10% of TelePassport Japan's revenues, the private line equipment associated with
such customers and certain other assets. Asahi Telecom assumed TelePassport
Japan's outstanding debt, which was $3.5 million as of December 31, 1996.

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The Company believes that its relationship with Asahi Telecom and ownership
interest in A.T. NET 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.

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 generated. The USAFE Contract
contains a standard government "termination for convenience" clause pursuant to
which the AF NAF 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 two bases in Germany and one base in Italy and has received RFPs
for eight bases: one in Germany, five in the United Kingdom, one in Spain and
one in Turkey. The temporary lodging facilities on the 14 bases covered by the
USAFE Contract house an aggregate of 3,733 rooms. The Company has completed the
installation of telecommunications systems providing service to the temporary
lodging facilities at the Ramstein and Rhein Main Air Force Bases in Germany.
The Company expects to complete the installation of systems at nine 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 military 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 USAFE bases, including the Ramstein and
Rhein Main USAFE bases, and contains a population of approximately 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.

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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 a supplier of call reorigination
services for certain UN agencies and their affiliates in over 65 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 Company leases IPLCs from MCI and, BT and the respective ITO or
other carrier in each country in which the Company has a switching facility. The
TelePassport Network currently has international gateway switching centers in
New York and Tokyo. In addition, the Company has switching facilities in 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. The construction
of a state-of-the-art international gateway switching center and network
management facility in New Jersey, which will replace the New York gateway, is
substantially completed. The Company intends to further develop the TelePassport
Network by upgrading existing facilities and by adding switching facilities in
up to 30 cities over the next three years, depending on the availability of
additional financing. 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. By the end of 1997, the Company plans to expand the TelePassport
Network by upgrading existing and installing additional switching facilities in
the New York metropolitan area, the United Kingdom, Austria and Japan and
installing switching facilities in Frankfurt, Milan, Naples, Paris and Zurich.
The Company anticipates that over the next three years, it will install
additional switching facilities in California, Ireland, Spain, France, Italy,
Denmark, Germany, Belgium, Sweden and the Netherlands. 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 "Risk Factors--Substantial Capital Requirements; Need for
Additional Financing to Complete Network Expansion; Uncertainty of Additional
Financing; Broad Discretion Over Use of Proceeds; and --Potential Difficulties
Associated With Implementing Telepassport Network Expansion Strategy," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" 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, 1995, and 1996, respectively, MCI supplied
45.5%, 36.1% and 20.5%, WorldCom Inc. ("WorldCom") supplied 46.8%, 28.2% and
7.5%, and Cable & Wireless International, Inc. ("CWI") supplied 5.1%, 32.6% and
29.3% 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 is entitled to resell, at preferred rates, 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

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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 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 Technologies Inc.'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,

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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-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."

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

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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.

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; 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."

In February 1997, the WTO announced that 69 countries, including the United
States, Japan, Switzerland, South Africa and all of the member states of the EU,
entered into the WTO Agreement with the goal of increasing competition for
telecommunications services in such markets. Under the WTO Agreement, beginning
in 1998, such countries are expected to allow access to their domestic and
international markets to competing telecommunications providers, allow foreign
ownership interests in existing telecommunications providers and establish
regulatory schemes to develop and implement policies to accommodate
telecommunications competition. Implementation of the WTO Agreement is expected
to result in greater competition from new market entrants and existing
telecommunications providers in these markets. See "Risk Factors -- Substantial
Government Regulation; and -- Competition" and "Regulation of the International
Telecommunications Industry."

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

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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 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 Telepassport brand for its products
and services by registration of the Telepassport trademark, 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 13 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. 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 an 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 fee for the temporary
space is $3,835 per month and the agreement, as extended, expires on March 31,
1997, subject to further extension by the Company upon 30 days' notice.

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

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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 of $1,500, subject to adjustment. In
Tokyo, the Company leases space for offices and its switching facility for an
annual rent of approximately $211,000, 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.

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."

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 parties have agreed to
stay the litigation pending arbitration of the claim as provided by the service
agreement between the parties. The Company believes that the outcome of this
proceeding will not have a material adverse effect on the Company's cash flow,
financial condition or results of operations.

The Company is not currently a party to any other material litigation.

THE REORGANIZATION

USFI, Inc., the principal operating subsidiary of the Company, was
incorporated in January 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 L.L.C. 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 effective date of the registration statement of which this Prospectus is
a part, TelePassport L.L.C. and USFI-Japan, L.L.C. will be merged with
TelePassport Inc. and all the outstanding shares in USFI, Inc. will be
contributed to TelePassport Inc. From and after the date of the Reorganization,
all the assets and businesses of the Telepassport Companies will be owned and
conducted by TelePassport Inc. As consideration for the contribution of their
interests in USFI, Inc., the current equity owners of the TelePassport Companies
will receive an aggregate of 7,348,000 shares of Class A Common Stock which,
combined with their current stockholdings, will constitute 100% of the
outstanding Class A Common Stock, and which will represent 92.7% of the combined
voting power of the Company upon completion of the Offering (and after giving
effect to the Acquisitions). See "Description of Capital Stock."

ACQUISITIONS

In March 1997, the Company entered into an agreement with Georg F. Hofer
("Hofer"), the sole stockholder of its German independent agent TelePassport
Germany, to purchase all of the outstanding capital

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stock of TelePassport Germany concurrently with the closing of this Offering.
The purchase price is $0.2 million in cash payable at the closing and that
number of shares of Class B Common Stock equal to $3.8 million divided by the
initial public offering price per share. Shares of Class B Common Stock equal to
$2.6 million will be issued to Hofer at the closing and the remaining shares
will be deposited into escrow to vest ratably over a period of 36 months,
subject to certain conditions. The Company will also grant Hofer options under
the Long Term Incentive Plan to purchase shares of Class B Common Stock equal to
0.25% of the shares outstanding on the closing date of the Offering, as well as
certain piggyback registration rights. In addition, Hofer and TelePassport
Germany will enter into a three-year employment agreement. See "Related Party
Transactions" and "Description of Capital Stock." Also in March 1997, the
Company entered into an agreement with Hofer and the other stockholders of
TelePassport Austria to purchase all the capital stock of TelePassport Austria,
its independent agent in Austria, concurrently with the closing of the Offering.
The purchase price for the TelePassport Austria stock is that number of shares
of Class B Common Stock equal to $0.3 million divided by the per share initial
public offering price, all of which will be deposited into escrow to vest
ratably over a period of 36 months, subject to certain conditions. In addition,
two of the sellers will enter into three-year employment agreements with
TelePassport Austria. All of the shares of Class B Common Stock to be issued in
connection with the Agent Acquisitions will be "restricted securities." as that
term is defined in Rule 144.

In March 1997, the Company entered into the HCL Agreement with the
shareholders of HCL to purchase all the capital stock of HCL within 30 days
after the closing of this Offering (the "HCL Closing"). The purchase price for
80% of the HCL shares consists of $0.3 million in cash plus that number of
shares of Class B Common Stock equal to $1.0 million divided by the initial
public offering price, all of which is payable at the HCL Closing. The purchase
price for the remaining 20% of the HCL shares (the "HCL Final Payment") is
payable after the third year (or, at the option of sellers, the fourth year)
following the HCL Closing in cash or Class B Common Stock, at the Company's
option, in an amount equal to 20% of HCL's annual revenues for such year, as
calculated pursuant to the HCL Agreement. All of the shares of Class B Common
Stock to be issued in connection with the HCL Acquisition will be "restricted
securities," as that term is defined in Rule 144. In addition, the Company will
make a capital contribution to HCL of $250,000 at the HCL Closing. The Company
has also agreed to enter into a three-year employment agreement with one of the
HCL shareholders to manage the HCL operations. The HCL Final Payment will be
forfeited if such employment is terminated by the employee without cause or by
the Company with cause prior to the date such payment is due.

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, principally in Milan and Naples, and
telecommunications equipment. The option is exercisable until 30 days after the
closing of the 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-year employment agreement with the president
of an affiliate of Intelenet. See "Risk Factors--Risks Associated With
Acquisitions, Investments and Strategic Alliances."

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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.

Since June 1995, 18 countries have formally notified the FCC that call
reorigination services violate their laws. FCC policy provides that foreign
governments that satisfy certain conditions may request FCC assistance in
enforcing their laws against United States call reorigination providers. Of
these 18 countries, two countries have requested assistance from the FCC in
enforcing their prohibitions on call reorigination within their respective
territories. The Company has customers in 17 of these countries, including one
country which has requested that the FCC take action against the Company. The
customers in these 17 countries accounted for an aggregate of approximately 6.0%
of telecommunications revenue in 1996. To date, the FCC has not initiated any
action against the Company. The Company believes that, even if it was required
to cease operating in one or more of such markets, there would not be a material
adverse effect on the Company's business, financial condition or results of
operations. See "Risk Factors -- Substantial Government Regulation."

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.

In February 1997, the WTO announced that 69 countries, including the United
States, Japan, Switzerland, South Africa and all of the member states of the EU,
entered into the WTO Agreement. Under the WTO Agreement, beginning in 1998, such
countries are expected to allow access to their domestic and international
markets to competing telecommunications providers, allow foreign ownership
interests in existing telecommunications providers and establish regulatory
schemes to develop and implement policies to accommodate telecommunications. The
WTO Agreement will provide an opportunity for new market entrants, such as the
Company, to acquire and operate telecommunications switching facilities in
certain of these countries, several of which presently do not permit the
provision of facilities-based services in competition with services provided by
the incumbent telecommunications providers. See "Risk Factors -- Substantial
Government Regulation; and -- Competition."

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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 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. See
"Risk Factors -- Substantial Government Regulation."

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

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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. 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 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 2000 were granted to Ireland and Portugal,
each of which believes it has a less developed network, and requests for
extensions have been submitted by Luxembourg, Spain and Greece. 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

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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 and supplied by
non-EU based carriers. Under interim rules, Germany has already begun to impose
VAT on such services effective January 1, 1997. Under the rules, 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. To the extent that the Company's services are and in the future
become subject to VAT, the Company's competitive price advantage will be
reduced. 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.

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

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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 and other operators to connect to such systems. Such
conditions are not generally imposed on ISR licenses. However, ISR licenses, in
most circumstances, provide for "relevant connectable system status" with
respect to BT and other large public operators, giving ISR operators a right to
connect to the networks of the large public operators and enjoy wholesale, as
opposed to retail, rates with respect to interconnection tariffs and charges.
The Company's license provides for "relevant connectable system status" with
respect to BT, which entitles the Company to interconnect with BT's systems at
wholesale, as opposed to retail, rates with respect to interconnection tariffs
and charges subject to the continuing consent of the DGT. The DGT has recently
issued a policy statement indicating that, due to the diminishing need to
guaranty relevant connectable system status at wholesale rates as a result of
increasing competition, ISR operators who have applied for their licenses after
February 5, 1996 will not automatically receive relevant connectable system
status. Rather, such status will be granted only to those ISR operators that
contribute significantly to competition in the United Kingdom's international
telecommunications market and then only until such time as full competition in
such market is established. ISR operators, such as the Company, who applied for
their licenses prior to February 5, 1996 will continue to have relevant
connectable system status subject to the determination by the DGT to revoke such
status.

Wholesale 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 intends to introduce into telecommunications licenses a fair
trading provision prohibiting licensees from engaging in anti-competitive
behavior. It is not presently clear when such conditions will be introduced into
the Company's license, but such conditions are likely to be submitted to the
Company for inclusion in its license during 1997. A violation of such a
provision by a licensee, such as entering into a telecommunications cartel,
could lead to loss of the license. BT was unsuccessful in recent litigation
challenging the authority of the DGT to impose such a condition. 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.

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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. To the extent that alliance participants are also part of monopolies in
Germany's energy market, which is still not open for competition, such companies
could potentially create 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."

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

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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."

Austria

The Company's services in Austria are subject to the Austrian
Telecommunications Act. In general, the Austrian Telecommunications Act requires
certain certifications for telecommunications equipment and that providers of
telecommunications services, other than voice telephony, which is currently
reserved for the Austrian ITO, notify the telecommunications authority, known as
the Fernmeldebehorde, of their services. 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 proposed 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 Japanese 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.

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<PAGE> 67

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, or 20% in the case of NTT and
KDD, of the outstanding shares. The Japanese Ministry has announced a proposal
to amend the Japanese Law to eliminate the restrictions on foreign ownership of
Type I telecommunications carriers, except with respect to NTT and KDD, in which
foreign ownership will continue to be restricted to less than 20%. The amendment
is expected to become effective in January 1998.

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 national and international 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 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 A.T. NET Agreements provide that
A.T. NET and Asahi Telecom, to the extent permitted by applicable law, will
enter into arrangements to provide to the Company's customers those services
permitted by A.T. NET's Special Type II registration. The Company's registration
as Special Type II carrier would permit the Company to provide additional
national and international 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
SA 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

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<PAGE> 68

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 law does, however,
require a license for the connection, operation and maintenance of automatic
dialing devices 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. It is
uncertain how and whether, if at all, the licensing provisions contained in
Section 32 and accompanying Section 34, once promulgated, will affect the
provision of the Company's call reorigination services.

Once Section 34 of the SA Telecommunications Act is promulgated, 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
Communications (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 by statute 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.

The SA Telecommunications Act established a new telecommunications
regulatory authority called the South African Telecommunications Regulatory
Authority ("SATRA"). Although the members of SATRA were appointed by
presidential proclamation and took office on February 3, 1997, SATRA is not yet
fully operational and the regulation of the telecommunications industry is in
the meantime managed by the Department of Communications. 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
are 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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<PAGE> 69

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 55 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
Charles Hoepper 47 Vice President, Finance
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 and the 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, Ms. Piazza was Director of Sales Administration and
Customer Service for Argo Communications, a then

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<PAGE> 70

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. It is anticipated that Mr. Mills will become Controller of the Company
subsequent to the closing of the Offering. 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.

Charles Hoepper has been Vice President, Finance, of the Company since
March 1997. It is anticipated that Mr. Hoepper will become Chief Financial
Officer of the Company subsequent to the closing of the Offering. From 1991 to
1997, Mr. Hoepper was employed by Suburban Propane L.P., a natural propane
distributor, most recently as its Chief Financial Officer. From 1985 to 1991,
Mr. Hoepper was Director of Finance at MCI.

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 six persons. Upon the closing of the Offering, the Board will
consist of three members and have three 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, at least two of whom 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 Long Term Incentive Plan. See
"Management--Long Term Incentive 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

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<PAGE> 71

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.

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 Long Term Incentive 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 and appointment of additional
directors will consist of three directors, at least two of whom are neither
officers nor employees of

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<PAGE> 72

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 per annum base salary of
$175,000, plus a minimum annual bonus of $100,000. The agreement will provide
that Mr. Pearson shall not compete with the Company or any of the Company's
affiliates during the term of the agreement or solicit any employee or agent of
the Company or any of the Company's affiliates during the term and for a period
of one year after termination of the agreement. The agreement will be terminable
by the Company only for "Cause" and by Mr. Pearson for "Good Reason" (as such
terms are defined in the agreement). In the event of a "Change of Control" (as
defined in the agreement) or termination for "Good Reason," Mr. Pearson will be
entitled to receive a payment in the amount of his base annual salary plus his
most recent annual bonus. Under the agreement, Mr. Pearson shall devote to the
Company's affairs substantially all of his business time and attention.

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, Jan Piazza as Vice President, Sales and Marketing and Charles Hoepper
as Chief Financial Officer. The agreements will be terminable by either party in
accordance with the terms thereof, and provide for base salaries of $150,000,
$110,000, $100,000 and $175,000, respectively, plus annual bonuses generally
based on performance. The agreements 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.

LONG TERM INCENTIVE PLAN

In 1997, the Board of Directors adopted the Long Term Incentive Plan and,
prior to the Offering, the Company's stockholders will approve the Long Term
Incentive Plan. The primary purpose of the Long Term Incentive 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 employees, officers, directors
and consultants of the Company.

The Long Term Incentive Plan is administered by a committee, as defined in
the Long Term Incentive 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 Long Term Incentive Plan may not exceed
1,903,500 shares; 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 considered in
applying the foregoing limitation.

The Long Term Incentive 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.

In case of a Change of Control Event (as defined in the Long Term Incentive
Plan), (i) all restrictions on restricted stock awarded under the Long Term
Incentive Plan will expire, and (ii) all stock options outstanding under the
Long Term Incentive Plan will become immediately vested and exercisable.

As of the date of this Prospectus, Incentive Awards to purchase an
aggregate of 886,390 shares of Class B Common Stock will be issued and
outstanding pursuant to the Long Term Incentive 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 Long Term Incentive Plan.

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<PAGE> 73

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
and the issuance of 340,000 shares of Class B Common Stock in connection with
the Acquisitions, 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(2) POWER(2)(3)
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 (4)............... Class A Common Stock 6,210,015 84.5% 84.5% 84.5% 78.8%
Class B Common Stock -- -- --
Michael C. Anderson (5)............ Class A Common Stock 730,590 9.9 9.9 9.9 9.3
Class B Common Stock -- -- --
James D. Pearson (6)............... Class A Common Stock 434,701 5.9 5.9 5.9 5.6
Class B Common Stock 55,673 * 1.0
Francis J. Mount (7)............... Class A Common Stock -- -- -- -- --
Class B Common Stock 50,041 * **
John C. Brizendine (8)............. Class A Common Stock -- -- -- -- --
Class B Common Stock 89,077 * 1.6
Jan Piazza (9)..................... Class A Common Stock -- -- -- -- --
Class B Common Stock -- -- --
Paul K. Heun (10).................. Class A Common Stock -- -- -- -- --
Class B Common Stock -- -- --
Directors and executive officers... Class A Common Stock 7,305,900 99.4% 99.4% 99.4% 93.2%
as a group (9 persons total) (11) Class B Common Stock 194,791 * 3.5%
</TABLE>

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

* Notwithstanding an aggregate of 886,390 shares issuable upon exercise of a
like number of options granted pursuant to the Long Term Incentive Plan, zero
shares of Class B Common Stock are outstanding prior to the Offering.

** Represents less than 1%.

(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) Assumes 7,350,000 shares of Class A Common Stock outstanding prior to and
after the Offering, and zero and 5,340,000 shares of Class B Common Stock
outstanding, respectively, prior to and after the Offering.

(3) 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."

(4) The address for Mr. Myers is 249 Royal Palm Way, Suite 301, Office D, Palm
Beach, Florida 33480. Includes 62,465 shares of Class A Common Stock
representing Mr. Myers' portion of the shares underlying the currently
exercisable portion of the Pearson Option (as hereafter defined), 5,000
shares of Class A Common Stock held in trust for the benefit of Mr. Myers
and his children and 186,300 shares of Class A Common Stock held in two
separate trusts for the benefit of members of Mr. Myers' family, the
trustee of such trusts having the right to transfer the shares to other
trusts, the beneficiaries of which may include such family members or
others, as well as Mr. Myers. See "Related Party Transactions."

(5) The address for Mr. Anderson is 249 Royal Palm Way, Suite 301, Office D,
Palm Beach, Florida 33480. Includes 6,941 shares of Class A Common Stock
representing Mr. Anderson's portion of the shares underlying the currently
exercisable portion of the Pearson Option (as hereafter defined). See
"Related Party Transactions."

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<PAGE> 74

(6) The address for Mr. Pearson is 28 West Grand Avenue, Montvale, New Jersey
07645. Includes 55,673 shares of Class B Common Stock issuable upon
exercise of a like number of vested options granted to Mr. Pearson pursuant
to the Long Term Incentive Plan. Also includes 69,406 shares of Class A
Common Stock currently issuable upon exercise of the Pearson Option (as
hereafter defined), but excludes 138,812 shares underlying such option
which are not currently exercisable. See "Related Party Transactions."

(7) The address for Mr. Mount is 1212 Avenue of the Americas, New York, NY
10036. Includes 50,041 shares of Class B Common Stock currently issuable
upon exercise of a like number of options granted to Mr. Mount pursuant to
the Long Term Incentive Plan, but excludes 42,007 shares underlying options
which are not currently exercisable. See "Management."

(8) The address for Mr. Brizendine is 1212 Avenue of the Americas, New York, NY
10036. Includes 89,077 shares of Class B Common Stock issuable upon
exercise of a like number of vested options granted to Mr. Brizendine
pursuant to the Long Term Incentive Plan. See "Management."

(9) The address for Ms. Piazza is 1212 Avenue of the Americas, New York, NY
10036. Does not include 50,000 shares of Class B Common Stock issuable upon
exercise of a like number of options granted to Ms. Piazza pursuant to the
Long Term Incentive Plan which are not currently exercisable. See
"Management."

(10) The address for Mr. Heun is 1212 Avenue of the Americas, New York, NY
10036. Does not include 30,000 shares of Class B Common Stock issuable upon
exercise of a like number of options to be granted to Mr. Heun pursuant to
the Long Term Incentive Plan which are not currently exercisable. See
"Management."

(11) Includes 194,791 shares of Class B Common Stock currently issuable upon
exercise of a like number of options under the Long Term Incentive Plan,
but excludes 214,507 shares underlying options which are not currently
exercisable.

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<PAGE> 75

RELATED PARTY TRANSACTIONS

On December 27, 1994, U.S. FiberCom Network, Inc., an inactive affiliate
under common control, was merged with and into the Company. For accounting
purposes, the transaction was treated as a contribution of the net assets of
U.S. FiberCom Network, Inc. to the Company and the assets were 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 U.S. 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 incurred by 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 years ended December 31, 1995 and 1996, the
Company's consolidated revenues included approximately $0.4 million and $3.4
million, respectively, for such services provided. See "Business--Japan and
Asahi Telecom."

In February 1997, the Company agreed to purchase certain equipment and
software from Network Equipment Technologies, Inc. ("NET"), subject to a certain
volume purchase and license agreement expected to be entered into in March 1997
(the "NET Purchase Agreement"). In February 1997, Stephen E. Myers, the
Company's Chairman of the Board, entered into an escrow agreement with NET and
the Company (the "NET Escrow Agreement") whereby Mr. Myers deposited $0.75
million (the "Escrow Deposit") with an escrow agent to secure the Company's
payment obligations under the proposed NET Purchase Agreement. Pursuant to the
terms of the NET Escrow Agreement, after delivery to the escrow agent of proper
notice that the Company has paid its obligations under the NET Purchase
Agreement, Mr. Myers will be entitled to the Escrow Deposit without interest
thereon.

In March 1997, the Company entered into an agreement to acquire all of the
capital stock of TelePassport Germany, its independent agent in Germany. At the
closing of such acquisition, TelePassport Germany will repay to Hofer, if it has
not already done so prior to such date, outstanding debt of up to $110,000. In
connection with the execution of the TelePassport Germany agreement, the Company
loaned TelePassport Germany $200,000 and agreed to lend TelePassport Germany an
additional $100,000 to $300,000, at the option of TelePassport Germany, prior to
the closing. The loan bears interest at the rate of 12% per annum and is
repayable in full on September 20, 1997. The Company will also grant Hofer
options to purchase shares of Class B Common Stock, as well as certain piggyback
registration rights. In addition, Hofer and TelePassport Germany will enter into
an employment agreement. See "Business--Sales and Marketing" and "Description of
Capital Stock."

Messrs. Myers and Anderson have granted to Mr. Pearson a seven-year option
to purchase an aggregate of 208,218 shares of Class A Common Stock (representing
3% of the outstanding shares of Common Stock owned by Messrs. Myers and Anderson
prior to the Offering) at an exercise price of $1.92 per share. The option to
purchase one-third of the shares is immediately exercisable and the remainder
vests one-third at June 30, 1998 and one-third at June 30, 1999. 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--Long Term Incentive 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 and after giving effect to the issuance
of 340,000 shares of Class B Common Stock in connection with the Agent
Acquisitions and the acquisition of HCL, the authorized capital stock of the
Company will consist of 9,000,000 shares of Class A Common Stock, 20,000,000
shares of Class B Common Stock and 1,000,000 shares of Preferred Stock, of which
7,350,000 shares of Class A Common Stock will be issued and outstanding,
5,340,000 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
and Restated Certificate of Incorporation and By-laws is a summary only and is
qualified in its entirety by the provisions of such documents, copies of each 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, convertibility and
transferability. 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. In the event any shares of
Class A Common Stock are transferred to any person or entity not affiliated (as
defined in the Amended and Restated Certificate of Incorporation) with the
transferor or the Company, then such shares shall automatically convert into a
like number of shares of 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 92.7% 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 and Restated Certificate of Incorporation authorizes the
issuance of 1,000,000 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.

REGISTRATION RIGHTS

In connection with the Company's acquisition of TelePassport Germany, its
independent agent in Germany, the Company has agreed to grant Hofer piggy-back
registration rights, subject to certain exceptions, for a period of two years
commencing six months after the closing of the Offering with respect to all of
the shares of Class B Common Stock issued to Hofer under the agreement. In
addition, the Company has granted

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<PAGE> 77

identical piggy-back registration rights to a stockholder with respect to 44,100
shares of Class B Common Stock issuable upon conversion of a like number of
shares of Class A Common Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

Certain provisions of the Delaware General Corporation Law and of the
Amended and Restated 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 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
92.7% 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 1,000,000 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 and Restated 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

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<PAGE> 78

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.

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. In addition, prior to the
effectiveness of the Offering, the Company will enter into indemnity agreements
with each of its officers and directors.

TRANSFER AGENT AND REGISTRAR

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

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<PAGE> 79

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering and after giving effect to the
Acquisitions, the Company will have 12,690,000 shares of Common Stock
outstanding (13,440,000 shares if the over-allotment option is exercised in
full) including 7,350,000 shares of Class A Common Stock and 5,340,000 shares of
Class B Common Stock (6,090,000 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 5,000,000 shares of Class B Common Stock (5,750,000 if the
over-allotment option is exercisable in full) 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
7,350,000 outstanding shares of Class A Common Stock are, and the 340,000 shares
of Class B Common Stock to be issued in connection with the Acquisitions will
be, "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). Effective April 29,
1997, an amendment to Rule 144 will 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 sales by
non-affiliates under 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 Long Term Incentive 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 (one year, upon the effective date of
the amendment to Rule 144). 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 Long Term Incentive 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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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 750,000 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

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<PAGE> 84

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
(Europe) 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 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, without the prior written
consent of Credit Suisse First Boston Corporation, except, in the case of the
Company, issuances pursuant to the Long Term Incentive Plan.

Credit Suisse First Boston Corporation, on behalf of the Underwriters, may
engage in over-allotment, stabilizing transactions, syndicate covering
transaction and penalty bids in accordance with Regulation M under the Exchange
Act. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the Class B Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit
Credit Suisse First Boston Corporation to reclaim a selling concession from a
syndicate member when Class B Common Stock originally sold by such syndicate
member is purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Class B Common

83
<PAGE> 85

Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on The Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.

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.

The shares of Class B Common Stock have been approved for inclusion on the
Nasdaq National Market under the symbol "TEPP," subject to official notice of
issuance.

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
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.

84
<PAGE> 86

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.

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, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, 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 years 1996 and
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 December 31,
1996 and 1995 and for the year ended December 31, 1996 and 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.

85
<PAGE> 87

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.

86
<PAGE> 88

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.

87
<PAGE> 89

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.

88
<PAGE> 90

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, 1995 and 1996........................ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995
and 1996......................................................................... F-4
Consolidated Statements of Stockholders' Deficit for the Years Ended December 31,
1994, 1995 and 1996.............................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996......................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7

TELEPASSPORT JAPAN CO., LTD.:
Independent Auditors' Report........................................................ F-14
Balance Sheets as of December 31, 1996 and 1995..................................... F-15
Statements of Operations for the Year Ended December 31, 1996 and the Period from
March 6, 1995 (Date of Incorporation) to December 31, 1995....................... F-16
Statements of Shareholders' Capital Deficiency for the Year Ended December 31, 1996
and the Period from March 6, 1995 (Date of Incorporation) to December 31, 1995... F-17
Statements of Cash Flows for the Year Ended December 31, 1996 and the Period from
March 6, 1995 (Date of Incorporation) to December 31, 1995....................... F-18
Notes to Financial Statements....................................................... F-19
</TABLE>

F-1
<PAGE> 91

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, 1996 and 1995, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for each of the three years in the period ended December 31, 1996. 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. The financial statements of TelePassport Japan Co., Ltd., an
unconsolidated 51% owned subsidiary (see Note 1), have been 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
their report.

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, for 1995 and 1996, the report of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and, for 1995 and 1996, 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, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.

Hackensack, New Jersey

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
March 19, 1997

F-2
<PAGE> 92

TELEPASSPORT INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................. $ 420 $ 1,088
Accounts receivable:
Customers, less allowance of $683 and $790......................... 3,852 4,332
Foreign joint venture.............................................. 304 1,838
Prepaid expenses and other current assets............................. 75 366
------- --------
Total current assets............................................... 4,651 7,624
Property and equipment, net (Note 3).................................... 1,974 5,194
Deferred costs, net of accumulated amortization of $20 and $58.......... 133 596
Goodwill, net of accumulated amortization of $5 and $14................. 122 113
Deposits................................................................ 123 353
------- --------
Total assets.................................................. $ 7,003 $ 13,880
======= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable...................................................... $ 4,797 $ 10,494
Accrued liabilities................................................... 1,845 1,788
Reseller deposits..................................................... 263 309
Capital lease obligations............................................. 3 61
Due to affiliates..................................................... 327 1,476
------- --------
Total current liabilities.......................................... 7,235 14,128
Capital lease obligations............................................... 289
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 1,801
Stockholders' deficit:
Preferred stock, $.01 par value, authorized 1,000,000 shares, none
issued.............................................................
Class A common stock, $.01 par value, authorized 9,000,000 shares;
issued and outstanding, 7,350,000 shares........................... 74 74
Class B common stock, $.01 par value, authorized 20,000,000 shares;
none issued........................................................
Additional paid-in capital............................................ 5,410 15,718
Accumulated deficit................................................... (7,319) (18,124)
Cumulative translation adjustment..................................... (3) (6)
------- --------
Total stockholders' deficit........................................ (1,838) (2,338)
------- --------
Total liabilities and stockholders' deficit................... $ 7,003 $ 13,880
======= ========
</TABLE>

See accompanying notes.

F-3
<PAGE> 93

TELEPASSPORT INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Telecommunications revenue............................. $ 12,775 $ 27,643 $ 36,550
Costs and expenses:
Cost of telecommunications services (Note 6)......... 8,907 20,075 29,880
Selling expenses..................................... 1,687 2,579 3,800
General and administrative expenses.................. 5,173 5,349 8,804
Non cash compensation (Note 5)....................... 2,718
Depreciation and amortization (Note 2)............... 100 395 714
------- ------- -------
Total costs and expenses..................... 15,867 28,398 45,916
------- ------- -------
Loss from operations................................... (3,092) (755) (9,366)
Other income (expense) -- net (Note 5)................. (315) 37 14
Equity in net loss of foreign joint venture............ (703) (1,453)
------- ------- -------
Loss before minority interest.......................... (3,407) (1,421) (10,805)
Minority interest...................................... 20
------- ------- -------
Net loss............................................... $ (3,407) $ (1,401) $ (10,805)
======= ======= =======
Net loss per common share.............................. $ (.45) $ (.19) $ (1.43)
======= ======= =======
Weighted average common shares outstanding............. 7,546,805 7,546,805 7,546,805
======= ======= =======
</TABLE>

See accompanying notes.

F-4
<PAGE> 94

TELEPASSPORT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
CLASS A PAID-IN ACCUMULATED TRANSLATION
COMMON STOCK CAPITAL DEFICIT ADJUSTMENT TOTAL
------------ ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994............... $ 74 $ 1,321 $ (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............. 74 4,251 (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 74...... 5,410 (7,319) (3) (1,838)
Capital contributions.................. 7,590 7,590
Compensation related to stock
options............................. 2,718 2,718
Net loss for 1996...................... (10,805) (10,805)
Foreign currency translation........... (3) (3)
--- ------- -------- --- -------
Balance at December 31, 1996............. $ 74 $ 15,718 $ (18,124) $(6) $(2,338)
=== ======= ======== === =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 95

TELEPASSPORT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................... $(3,407) $(1,401) $(10,805)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 100 395 714
Provisions for losses on receivables.................... 645 184 352
Non cash compensation................................... 2,718
Equity in net loss of foreign joint venture............. 703 1,453
Minority interest....................................... (20)
Changes in operating assets and liabilities:
Increase in accounts receivable from customers and
foreign joint venture.............................. (1,691) (2,788) (2,366)
(Increase) decrease in other current assets........... (37) 28 (291)
Increase in deposits.................................. (76) (230)
Increase in accounts payable and accrued expenses..... 2,505 2,644 5,640
Increase (decrease) in reseller deposits.............. 152 (6) 46
Increase in due to affiliates......................... 64 263 1,149
------ ------ ------
Net cash used in operating activities...................... (1,669) (74) (1,620)
INVESTING ACTIVITIES
Investment in/advances to TelePassport Japan............... (355)
Purchase of interest in Mastercall (net of cash
acquired)............................................... (70)
Purchase of equipment...................................... (304) (1,655) (3,537)
Increase in deferred costs................................. (14) (139) (217)
------ ------ ------
Net cash used in investing activities...................... (318) (2,219) (3,754)
FINANCING ACTIVITIES
Capital contributions (including $34 of cash of USFN in
1994)................................................... 1,919 1,159 6,332
Advances from affiliates................................... 333 1,258
Deferred costs in connection with initial public
offering................................................ (284)
Repayment of capital lease obligation...................... (21) (3)
------ ------ ------
Net cash provided by financing activities.................. 2,252 2,396 6,045
Effect of exchange rate changes on cash.................... (1) (3)
------ ------ ------
Increase in cash........................................... 265 102 668
Cash at beginning of year.................................. 53 318 420
------ ------ ------
Cash at end of year........................................ $ 318 $ 420 $ 1,088
====== ====== ======
</TABLE>

See accompanying notes.

F-6
<PAGE> 96

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996

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. In connection with the initial
public offering of the Company's common stock, TelePassport LLC and USFI-Japan,
LLC merged into TelePassport and the stock of USFI was contributed to
TelePassport (the "reorganization") (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 18%, and 10% and 13%, respectively, of total
1995 and 1996 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 and 1996, the Company had
letters of credit issued on its behalf from customers in the amount of
approximately $525,000 and $327,000, respectively.

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, the Company is
entitled to nominate four of the seven members of the board of directors and the
joint venture partner is entitled to nominate the remaining three members.
However, the terms of the shareholder agreement require a super majority vote of
the board with respect to significant matters affecting control of the joint
venture.

Summarized financial information for TelePassport Japan as of December 31,
1995 and 1996 and for the period from March 6, 1995 (date of incorporation) to
December 31, 1995 and the year ended December 31, 1996 is as follows (in
thousands):

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Total assets....................................... $ 1,128 $ 3,111
Total liabilities.................................. 1,878 6,378
Telecommunications revenue......................... 418 3,531
Net loss........................................... 1,378 2,849
</TABLE>

TelePassport LLC was organized in May 1996 for the purpose of building an
international framework for USFI's operations.

F-7
<PAGE> 97

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996

1. ORGANIZATION AND NATURE OF BUSINESS (CONTINUED)

course of business. The Company plans on funding its anticipated capital
requirements to continue as a going concern from anticipated proceeds from the
initial public offering of its Common Stock. Alternatively should the public
offering not be completed as planned, the Company has obtained commitments from
its stockholders to provide the Company with sufficient financial support to
enable it to continue as a going concern.

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 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. Assets acquired pursuant to capital lease arrangements and 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
$98,000, $371,000 and $667,000 for the years ended December 31, 1994, 1995 and
1996, respectively.

Deferred Costs and Goodwill

Deferred costs include costs to obtain trademarks and certain
organizational costs and, as of December 31, 1996, $284,000 in connection with
the Company's initial public offering. 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 at the
time the services are rendered.

Income Taxes

Income taxes are accounted for under the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.

Net Loss Per Share

Net loss per common and common equivalent share is based on the weighted
average number of shares of common stock outstanding during each period, as
adjusted for the effects of the application of Securities and Exchange
Commission Staff Accounting Bulletin ("SAB") No. 83. Pursuant to SAB No. 83,
options granted within one year of the Company's initial public offering which
have an exercise price less than the initial

F-8
<PAGE> 98

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
public offering price are treated as outstanding for all periods presented
(using the treasury stock method at the initial public offering price) even
though the effect is to reduce the loss per share.

Basis of Consolidation

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

3. PROPERTY AND EQUIPMENT

Property and equipment is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Furniture and equipment............................. $ 892,009 $1,518,918
Switching equipment................................. 1,716,820 4,817,196
Leasehold improvements.............................. 89,425 59,587
---------- ----------
2,698,254 6,395,701
Less accumulated depreciation....................... 724,547 1,201,337
---------- ----------
$1,973,707 $5,194,364
========== ==========
</TABLE>

4. INCOME TAXES

Certain of the USFI Companies have elected to be taxed as "S" Corporations
for federal income tax purposes and, as such, any income or loss of such
companies were reported directly to the shareholders for inclusion in their tax
returns. Due to the reorganization (see Note 1), such USFI companies will no
longer be taxed as "S" Corporations and their tax attributes are assumed by the
Company. Therefore, additional deferred taxes will be recorded for the Company.
The components of deferred income tax assets and liabilities as of December 31,
1995 and 1996 would have been as follows if the reorganization had occurred as
of the respective dates:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
---------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS
Allowance for doubtful accounts.................................... $ 272,540 $ 315,527
Accrued liabilities................................................ 303,887 385,472
Accumulated amortization........................................... 3,286
NOL carryforwards.................................................. 426,860 1,163,446
---------- -----------
1,003,287 1,867,731
Less valuation allowance........................................... (928,176) (1,741,515)
---------- -----------
Total deferred tax assets.......................................... 75,087 126,216

DEFERRED TAX LIABILITIES
Accumulated depreciation........................................... (75,087) (126,216)
---------- -----------
Total deferred tax liabilities..................................... (75,087) (126,216)
---------- -----------
Net deferred tax assets............................................ $ -- $ --
========== ===========
</TABLE>

F-9
<PAGE> 99

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996

4. INCOME TAXES (CONTINUED)
At December 31, 1996, the Company has available net operating loss
carryforwards for New York City purposes of $13,146,000, which expire in
2009-2011.

Had the reorganization described above occurred and had the Company
operated as a 'C' Corporation, the reconciliation of the income tax computed at
the U.S. federal statutory rate to income tax expense would have been as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
----------- --------- -----------
<S> <C> <C> <C>
Tax (benefit) at U.S. statutory rate................. $(1,158,281) $(175,362) $(3,673,700)
State and local taxes, net of federal benefit........ (202,359) (30,637) (499,380)
Losses of foreign subsidiaries....................... 773,500
Non-deductible items................................. 5,675 6,116 5,059
Change in valuation allowance........................ 1,353,973 198,814 3,393,637
Other................................................ 992 1,069 884
----------- --------- -----------
$ -- $ -- $ --
=========== ========= ===========
</TABLE>

5. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office and switch site space under noncancellable
operating leases. In December 1996, the Company entered into a capital lease
agreement for switching equipment. The future minimum annual rental commitments
under capital and operating leases having terms in excess of one year as of
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- --------
<S> <C> <C>
1997................................................................. $ 609,000 $ 75,000
1998................................................................. 645,000 82,000
1999................................................................. 412,000 82,000
2000................................................................. 213,000 82,000
2001................................................................. 116,000 82,000
Thereafter........................................................... 6,000
---------- --------
Total minimum lease payments......................................... $1,995,000 409,000
==========
Less amount representing interest.................................... 59,000
--------
Present value of net minimum lease payments.......................... $350,000
========
</TABLE>

Rent expense was $260,000, $256,000 and $301,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.

Litigation

During 1994, the Company became 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) and was paid in 1996.

F-10
<PAGE> 100

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 flows, 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

Certain of the Company's subsidiaries have Incentive Plans which entitle
certain key employees to participate in certain distributions, if any, by the
Company of cash or property to two of the Company's principal stockholders.
Participation commences when the amount of distributions paid exceeds certain
stipulated amounts. No such distributions have been made. Based on the estimated
value of the Incentive Plans to such employees, the Company recorded $2,718,000
of compensation expense in 1996. In connection with the Company's initial public
offering (see Note 9), the Incentive Plans were terminated in 1997. In 1997, the
Board of Directors adopted the 1997 Long Term Incentive Plan (the "1997 Plan")
and, pursuant to the 1997 Plan, options to purchase 886,390 shares were granted
including options to purchase 258,881 shares of Class B common stock at an
exercise price of $4.50 per share to employees who previously participated in
the Incentive Plans (see Note 10.)

6. MAJOR SUPPLIERS

During 1996, 1995 and 1994, MCI, World Com, Inc. and Cable & Wireless
International, Inc. 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.

7. RELATED PARTIES

In March 1995, the Company entered into an agreement with TelePassport
Japan to provide international telecommunications services and to lease
switching equipment to TelePassport Japan. Telecommunications revenue for 1995
and 1996 include approximately $371,000 and $3,400,000 for services provided to
TelePassport Japan. The equipment under lease has a net book value of $140,000
and $186,000 at December 31, 1996 and 1995, respectively, 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 and 1996 are amounts due
to TelePassport Japan for carrier charges paid by TelePassport Japan on behalf
of the Company and 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.

F-11
<PAGE> 101

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996

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 for 1994 and $500 per employee for 1995 and 1996. Total Company
contributions were $7,000, $14,000 and $16,000 for the years ended December 31,
1994, 1995 and 1996, respectively.

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 Class B 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. LONG TERM INCENTIVE PLAN

In 1997, the Board of Directors adopted the 1997 Long Term Incentive Plan
(the "1997 Plan"). The 1997 Plan provides for the Compensation Committee (the
"Committee") to grant to qualified employees and directors of the Company
options to purchase shares of Class B Common Stock. Options may be granted by
the Committee to eligible persons in the form of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock awards,
performance units or shares and other stock-based compensation. As of the
effective date of the registration statement, options to purchase 600,000 shares
were granted at the initial offering price. Vested options for 258,881 shares
were granted at an exercise price of $4.50 per share (see Note 5). Options for
27,509 shares were granted at an exercise price of $6.50 per share, resulting in
deferred compensation expense of approximately $172,000 which will be amortized
over the four year vesting period.

11. BUSINESS SEGMENT

The Company operates in a single industry segment. For the years ended
December 31, 1994, 1995 and 1996 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>
YEAR ENDED
DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
North America............................... $ 1,484 $ 6,700 $ 8,579
Europe...................................... 7,189 13,976 17,310
Japan....................................... 2,440 2,057 3,611
Southern Africa............................. 1,088 4,285 6,532
South America............................... 574 625 518
------- ------- -------
$12,775 $27,643 $36,550
======= ======= =======
</TABLE>

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

F-12
<PAGE> 102

TELEPASSPORT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1996

12. SUBSEQUENT EVENTS

On March 12, 1997, the Company sold its 51% interest in TelePassport Japan
to Asahi Telecom ("Asahi") its joint venture partner for $217,000. The Company
also purchased equipment with a net book value of approximately $60,000 and
assumed certain customers of TelePassport Japan for total consideration of
$223,000. Concurrent with these transactions, the Company entered into a series
of agreements with Asahi, which included the option to purchase for $3,000,000 a
10% interest in A.T. Net, a wholly-owned subsidiary of Asahi. At the date of
sale, the Company's carrying value of its investment in TelePassport Japan was
negative. Upon exercise of the option and payment of the exercise price, the
Company intends to reduce the cost of its investment ($3,000,000) in A.T. Net by
the carrying value of its investment in TelePassport Japan at the date of sale.

In March 1997, the Company entered into an agreement to purchase 100% of
the outstanding capital stock of TelePassport GmbH, its German independent
agent, concurrent with the closing of the Company's initial public offering. The
purchase price consists of $200,000 in cash and 173,333 shares of Class B Common
Stock. In addition, 80,000 shares of Class B Common Stock representing deferred
compensation expense of $1,020,000 will be deposited in escrow to vest ratably
over a period of 36 months.

In March 1997, the Company entered into an agreement to purchase 100% of
the outstanding capital stock of Hercules Consultants, Limited ("HCL") within 30
days after the closing of the initial public offering. HCL is an alternative
network access consultant and installs and maintains telecommunication equipment
in the United Kingdom. The purchase price for 80% of the HCL shares consist of
$250,000 in cash and 66,667 shares of Class B Common Stock payable at the
closing.

Also, in March 1997, the Company entered into an agreement to purchase 100%
of the outstanding capital stock of TelePassport Telekom GmbH, its independent
agent in Austria, concurrent with the closing of the initial public offering.
Consideration for the purchase consists of 20,000 shares of Class B Common
Stock, representing deferred compensation expense of $255,000, which shares will
be deposited into escrow to vest ratably over a period of 36 months.

F-13
<PAGE> 103

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of TelePassport Japan Co., Ltd.
as of December 31, 1996 and 1995, and the related statements of operations,
shareholders' capital deficiency, and cash flows for the year ended December 31,
1996 and 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 audits.

We conducted our audits 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 audits provide 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, 1996 and 1995, and the results of its operations and its cash flows for the
year ended December 31, 1996 and 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 audits 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 are presented solely for the convenience of readers outside Japan.

/s/ DELOITTE TOUCHE TOHMATSU

Tokyo, Japan
February 7, 1997, except for Note 9, as to
which the date is March 4, 1997.

F-14
<PAGE> 104

TELEPASSPORT JAPAN CO., LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
THOUSANDS OF YEN
---------------------- U.S. DOLLARS
(NOTE 1)
DECEMBER 31 ------------
---------------------- DECEMBER 31,
1996 1995 1996
--------- --------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. Y 39,344 Y 4,858 $ 339,172
Accounts receivable:
Trade............................................. 34,090 14,011 293,879
Shareholder and affiliated companies (Note 3)..... 182,465 42,714 1,572,974
Other............................................. 26,442 5,736 227,948
Inventory............................................ 38,576 332,552
Prepaid expenses and other current assets............ 6,989 4,318 60,250
-------- -------- ----------
Total current assets......................... 327,906 71,637 2,826,775
-------- -------- ----------
ASSETS UNDER CAPITAL LEASES (Note 4)................... 39,682 36,503 342,086
Accumulated amortization............................. (9,860) (3,230) (85,000)
-------- -------- ----------
Net assets under capital leases.............. 29,822 33,273 257,086
-------- -------- ----------
TELEPHONE RIGHTS....................................... 2,283 2,278 19,681
-------- -------- ----------
REFUNDABLE LEASE DEPOSITS.............................. 135 7,615 1,164
-------- -------- ----------
ORGANIZATION COST...................................... 1,020 1,342 8,794
-------- -------- ----------
TOTAL........................................ Y 361,166 Y 116,145 $ 3,113,500
======== ======== ==========
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Short-term bank loans (Note 5)....................... Y 410,000 Y 62,000 $ 3,534,483
Current maturities of capital lease obligations (Note
4)................................................ 7,898 6,817 68,086
Accounts payable:
Trade............................................. 37,128 19,244 320,069
Shareholders and affiliated companies (Note 3).... 236,678 43,790 2,040,328
Other............................................. 282 275 2,431
Accrued expenses and other current liabilities....... 3,485 1,779 30,042
-------- -------- ----------
Total current liabilities.................... 695,471 133,905 5,995,439
LONG-TERM DEBT FROM SHAREHOLDERS (Note 3).............. 32,360 32,360 278,966
LONG-TERM CAPITAL LEASE OBLIGATIONS (Note 4)........... 21,769 27,032 187,664
-------- -------- ----------
Total liabilities............................ 749,600 193,297 6,462,069
-------- -------- ----------
COMMITMENTS (Notes 4 and 7)
SHAREHOLDERS' CAPITAL DEFICIENCY
Common stock, Y50 thousand par value -- authorized,
200 shares; issued and outstanding, 100 shares.... 52,000 52,000 448,276
Additional paid-in capital (Note 8).................. 570
Deficit.............................................. (440,434) (129,722) (3,796,845)
-------- -------- ----------
Total shareholders' capital deficiency....... (388,434) (77,152) (3,348,569)
-------- -------- ----------
TOTAL........................................ Y 361,166 Y 116,145 $ 3,113,500
======== ======== ==========
</TABLE>

See notes to financial statements.

F-15
<PAGE> 105

TELEPASSPORT JAPAN CO., LTD.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THOUSANDS OF YEN
-------------------------------
PERIOD FROM U.S. DOLLARS
MARCH 6, 1995 (NOTE 1)
(DATE OF ------------
YEAR ENDED INCORPORATION) YEAR ENDED
DECEMBER 31, TO DECEMBER 31, DECEMBER 31,
1996 1995 1996
------------ --------------- ------------
<S> <C> <C> <C>
NET SALES............................................. Y386,091 Y 39,382 $ 3,328,371
------------ --------------- ------------
COSTS AND EXPENSES (Note 3):
Direct costs........................................ 446,957 44,641 3,853,078
Selling, general and administrative expenses........ 231,901 121,015 1,999,147
------------ --------------- ------------
Total costs and expenses.................... 678,858 165,656 5,852,225
------------ --------------- ------------
Operating loss.............................. 292,767 126,274 2,523,854
------------ --------------- ------------
OTHER EXPENSES (Note 3):
Interest expenses -- net............................ 6,433 1,757 55,457
Other expenses -- net............................... 12,082 1,691 104,155
------------ --------------- ------------
Total other expenses........................ 18,515 3,448 159,612
------------ --------------- ------------
NET LOSS.............................................. Y311,282 Y 129,722 $ 2,683,466
========== ============ ==========
</TABLE>

See notes to financial statements.

F-16
<PAGE> 106

TELEPASSPORT JAPAN CO., LTD.

STATEMENTS OF SHAREHOLDERS' CAPITAL DEFICIENCY

<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)
Net loss..................................... (311,282)
Offset against deficit (Note 8).............. (570) 570
--- ------- ---- ---------
BALANCE, DECEMBER 31, 1996..................... 100 Y52,000 Nil Y(440,434)
=== ======= ==== =========
</TABLE>

<TABLE>
<CAPTION>
U.S. DOLLARS (NOTE 1)
---------------------------------------
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL DEFICIT
-------- ---------- -----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995............................. $448,276 $ 4,914 $(1,118,293)
Net loss............................................. (2,683,466)
Offset against deficit (Note 8)...................... (4,914) 4,914
-------- ------ ------------
BALANCE DECEMBER 31, 1996.............................. $448,276 Nil $(3,796,845)
======== ====== ============
</TABLE>

See notes to financial statements.

F-17
<PAGE> 107

TELEPASSPORT JAPAN CO., LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THOUSANDS OF YEN
--------------------------------
PERIOD FROM U.S. DOLLARS
MARCH 6, 1995 (NOTE 1)
(DATE OF ------------
YEAR ENDED INCORPORATION) YEAR ENDED
DECEMBER 31, TO DECEMBER 31, DECEMBER 31,
1996 1995 1996
------------ --------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss......................................... Y (311,282) Y(129,722) $ (2,683,466)
--------- --------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization.................................. 6,952 3,499 59,931
Changes in operating assets and liabilities:
Increase in accounts receivable............. (180,537) (62,461) (1,556,353)
Increase in inventory....................... (38,575) (332,543)
Increase in prepaid expenses and other
current assets........................... (2,670) (4,318) (23,017)
Increase in accounts payable................ 210,497 63,309 1,814,630
Increase in accrued expenses and other
current liabilities...................... 1,988 1,779 17,137
--------- --------- ----------
Total adjustments........................ (2,345) 1,808 (20,215)
--------- --------- ----------
Net cash used in operating activities.... (313,627) (127,914) (2,703,681)
--------- --------- ----------
INVESTING ACTIVITIES:
Payments for refundable lease deposits........... (7,615)
Refund of refundable lease deposits.............. 7,480 64,483
Payments of organization cost.................... (1,611)
Purchases of telephone rights.................... (5) (2,278) (43)
--------- --------- ----------
Net cash provided by (used in) investing
activities............................. 7,475 (11,504) 64,440
--------- --------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock........... 52,570
Borrowing of short-term bank loans............... 348,000 62,000 3,000,000
Borrowings of long-term debt from shareholders... 32,360
Repayments of capital lease obligations.......... (7,362) (2,654) (63,466)
--------- --------- ----------
Net cash provided by financing
activities............................. 340,638 144,276 2,936,534
--------- --------- ----------
NET INCREASE IN CASH............................... Y 34,486 Y 4,858 $ 297,293
--------- --------- ----------
CASH, BEGINNING OF PERIOD.......................... 4,858 41,879
--------- --------- ----------
CASH, END OF PERIOD................................ Y 39,344 Y 4,858 $ 339,172
========= ========= ==========
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid.................................... Y 3,172 Y 1,757 $ 27,345
NONCASH INVESTING AND FINANCING ACTIVITY:
Acquisition of assets under capital leases....... 3,179 36,503 27,405
</TABLE>

See notes to financial statements.

F-18
<PAGE> 108

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND
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 as of and for the
year ended December 31, 1996, is included herein solely for the covenience of
readers outside Japan and has been made at the rate of Y116=U.S.$1, the
approximate rate of exchange at December 31, 1996. The U.S. dollar amounts
should not be construed as a representation that the Japanese yen amounts could
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. Revenue Recognition -- Revenues from telephone services and related
direct costs are recognized in the period in which the services are rendered.

3. Inventory -- Inventory, which consists of in-bound ringer equipment, is
stated at the lower of cost or market, cost being determined on the average
method.

4. 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.

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

6. 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-19
<PAGE> 109

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. RELATED PARTY TRANSACTIONS

The balances and transactions with related parties as of December 31, 1996
and 1995, and for the year ended December 31, 1996 and the period from March 6,
1995 to December 31, 1995, are summarized as follows:

<TABLE>
<CAPTION>
THOUSANDS OF YEN U.S. DOLLARS
-------------------- ------------
1996 1995 1996
-------- ------- ------------
<S> <C> <C> <C>
Balances as of December 31:
Accounts receivable:
USFI.......................................... Y158,707 Y30,130 $ 1,368,164
ASAHI......................................... 12,584
A.T. NET Corporation.......................... 15,823 136,405
USFI-Network KK............................... 7,935 68,405
-------- ------- ------------
Total.................................... Y182,465 Y42,714 $ 1,572,974
======== ======= =========
Accounts payable:
USFI.......................................... Y197,444 Y37,783 $ 1,702,104
ASAHI......................................... 24,276 4,267 209,276
USFI-JAPAN.................................... 1,234 1,740 10,638
USFI-Network KK............................... 13,724 118,310
-------- ------- ------------
Total.................................... Y236,678 Y43,790 $ 2,040,328
======== ======= =========
Long-term debt:
USFI-JAPAN.................................... Y 16,180 Y16,180 $ 139,483
ASAHI......................................... 16,180 16,180 139,483
-------- ------- ------------
Total.................................... Y 32,360 Y32,360 $ 278,966
======== ======= =========
Transactions for the year ended December 31, 1996
and the period from March 6, 1995 to December 31,
1995:
Carrier charges -- USFI.......................... Y367,557 Y36,826 $ 3,168,595
======== ======= =========
Commission expense -- ASAHI...................... Y 49,111 Y 4,972 $ 423,371
Maintenance fee -- ASAHI......................... Y 13,600 $ 117,241
======== ======= =========
Dialer cost -- ASAHI............................. Y 3,600 $ 31,034
======== ======= =========
Debit card commission -- USFI.................... Y 3,175 $ 27,371
======== ======= =========
Collection fee -- A.T. NET Corporation........... Y 490 $ 4,224
======== ======= =========
Management fee expense:
USFI-JAPAN.................................... Y 1,198
ASAHI......................................... 1,151
-------- ------- ------------
Total.................................... Y 2,349
======== ======= =========
Interest expense:
USFI-JAPAN.................................... Y 1,135 Y 506 $ 9,784
ASAHI......................................... 1,135 496 9,784
-------- ------- ------------
Total.................................... Y 2,270 Y 1,002 $ 19,568
======== ======= =========
</TABLE>

F-20
<PAGE> 110

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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 year ended
December 31, 1996.

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. USFI-JAPAN and ASAHI exempted the
Company from payments of such management fees for the year ended December 31,
1996. Management fees for the period from March 6, 1995 to December 31, 1995 are
included in selling, general and administrative expenses in the accompanying
statements 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.

The Company pays maintenance fees and dialer cost to ASAHI for the services
of providing support to the customers, maintaining auto-dialers and operating
switching equipment under the service agreement dated April 1, 1996 between
ASAHI and the Company.

The Company receives commissions for handling sales of the prepaid card of
USFI at 35% of collections at an assumed exchange rate of Y100 per U.S. dollar.

Under the collecting agent agreement between the Company and A.T. NET
Corporation ("ATN"), a 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-Network KK
("USFI-NETWORK"), a Japanese corporation owned 100% by USFI Global Network
Services LLC which is an affiliate of USFI-JAPAN.

Under the shareholders' agreement, Y16,180 thousand ($139,483) 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.

F-21
<PAGE> 111

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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, 1996:

<TABLE>
<CAPTION>
YEAR ENDING THOUSANDS
DECEMBER 31 OF YEN U.S. DOLLARS
-------------------------------------------------------------- --------- ------------
<S> <C> <C>
1997........................................................ Y 8,902 $ 76,741
1998........................................................ 8,902 76,741
1999........................................................ 8,902 76,741
2000........................................................ 4,884 42,104
2001........................................................ 276 2,380
------- --------
Total minimum lease payments........................ 31,866 274,707
Less -- amount representing interest and estimated executory
costs.................................................... 2,199 18,957
------- --------
Present value of net minimum lease payments................. 29,667 255,750
Less -- current maturities.................................. 7,898 68,086
------- --------
Long-term capital lease obligations......................... Y21,769 $187,664
======= ========
</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, 1996.
Under the bank overdraft agreements, the Company can borrow up to the maximum
amount of Y450,000 thousand ($3,879,310).

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.

6. OPERATING LOSS CARRYFORWARDS

At December 31, 1996, the Company had net operating loss carryforwards of
Y434,528 thousand ($3,745,931) 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............................................ Y132,598 $ 1,143,086
2001............................................ 301,930 2,602,845
---------------- ------------
Total................................. Y434,528 $ 3,745,931
============= =========
</TABLE>

The following is the detail of deferred tax balances at December 31, 1996
and 1995:

<TABLE>
<CAPTION>
THOUSANDS OF YEN U.S. DOLLARS
---------------------- ------------
1996 1995 1996
--------- -------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued liabilities................... Y 888 $
Net operating loss carryforwards...... Y 217,264 61,368 1,872,966
------- --------
Total......................... 217,264 62,256 1,872,966
Valuation allowance..................... (217,264) (62,256) (1,872,966)
------- --------
Total......................... Nil Nil Nil
======= ========
</TABLE>

F-22
<PAGE> 112

TELEPASSPORT JAPAN CO., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. COMMITMENTS

Rent expenses for office premises and parking space under cancelable
long-term leases amounted to Y7,191 thousand ($61,991) and Y7,642 thousand for
the year ended December 31, 1996 and for the period from March 6, 1995 to
December 31, 1995, respectively.

8. ADDITIONAL PAID-IN CAPITAL

The Commercial Code of Japan requires at lease 50% of the issue price of
new shares, with a minimum of the par value thereof, to be designated as stated
capital as determined by resolution of the Board of Directors. Proceeds in
excess of amounts designated as stated capital are credited to additional
paid-in capital.

The Company may transfer portions of additional paid-in capital to stated
capital by resolution of the Board of Directors. Additional paid-in capital may
also be used to reduce deficit by resolution of the shareholders.

9. SUBSEQUENT EVENTS

Effective March 4, 1997, the Company, USFI-JAPAN, USFI, USFI-NETWORK, ASAHI
and ATN have executed the NTP purchase and sale agreement and certain other
agreements for the purpose of restructuring the domestic and international
telephone services provided in Japan by USFI and ASAHI and their affiliates.
Under the NTP purchase and sale agreement, ASAHI agreed to purchase from
USFI-JAPAN 51% of the common stock of the Company. Upon completion of this sale
transaction, the Company will become a wholly owned subsidiary of ASAHI. Also
under the agreement, the Company agreed to sell and transfer to USFI-NETWORK
twelve customer accounts, private line equipment for the transferred customers
and two employees for the aggregate consideration of Y26,217 thousand, which
would result in gain of approximately Y19,000 thousand in 1997. The revenues
from the transferred customers amounted to Y10,831 thousand in 1996.

Concurrently, the shareholders' agreement discussed in Note 2 and the
Private Label Reseller Agreement and the sales and marketing agreement with
ASAHI discussed in Note 3 have been terminated. The Company has newly executed a
reseller agreement with USFI-NETWORK, pursuant to which the Company will be
granted the right to resell certain USFI-NETWORK services.

F-23
<PAGE> 113

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

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................................. 26
Dividend Policy................................. 26
Dilution........................................ 27
Capitalization.................................. 28
Selected Financial Data......................... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 31
The International Telecommunications Industry... 38
Business........................................ 41
Regulation of the International
Telecommunications Industry................... 59
Management...................................... 68
Principal Stockholders.......................... 72
Related Party Transactions...................... 74
Description of Capital Stock.................... 75
Shares Eligible For Future Sale................. 78
Certain United States Tax Consequences to Non-
United States Holders of Common Stock......... 79
Underwriting.................................... 82
Notice to Canadian Residents.................... 84
Legal Matters................................... 85
Experts......................................... 85
Additional Information.......................... 86
Glossary of Terms............................... 87
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.

5,000,000 Shares

Class B Common Stock

($.01 par value)

PROSPECTUS
Credit Suisse First Boston

Smith Barney Inc.
- ------------------------------------------------------
<PAGE> 114

SUBJECT TO COMPLETION, DATED MARCH 31, 1997

5,000,000 Shares
TelePassport Inc.
[LOGO]
Class B Common Stock

($.01 par value)

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

All the shares of Class B Common Stock, par value $.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 5,000,000 shares of Class B Common
Stock being offered, 1,000,000 shares (the "International Shares") are initially
being offered by the Managers (as defined herein) outside the United States and
Canada (the "International Offering") and 4,000,000 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 shares of Class B Common Stock have been approved for inclusion on The
Nasdaq Stock Market's National Market ("NNM") under the symbol "TEPP," subject
to official notice of issuance.

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

<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 Smith Barney Inc.

The date of this Prospectus is , 1997.
<PAGE> 115

[LARGE TELEPASSPORT LOGO]

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> 116

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 (Europe) 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, on behalf of the
Managers and the U.S. Underwriters, expiring at the close of business on the
30th day after the date of this Prospectus, to purchase up to 750,000 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 (Europe)
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 (Europe) 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 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

82
<PAGE> 117

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 (Europe) 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 Class B Common Stock will not offer or sell any
shares of Class B Common Stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances 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 Class B 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, 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 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, without the prior written
consent of Credit Suisse First Boston Corporation, except, in the case of the
Company, issuances pursuant to the Long Term Incentive Plan.

Credit Suisse First Boston Corporation, on behalf of the Managers and the
U.S. Underwriters, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Class B Common Stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit Credit Suisse First Boston Corporation to reclaim
a selling concession from a syndicate member when the Class B Common Stock
originally sold by such syndicate member is purchased in a syndicate covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate covering transactions and penalty bids may cause the

83
<PAGE> 118

price of the Class B Common Stock to be higher than it would otherwise be in the
absence of such transactions. These transactions may be effected on The Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.

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.

The shares of Class B Common Stock have been approved for inclusion on the
Nasdaq National Market under the symbol "TEPP," subject to official notice of
issuance.

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 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 (Europe) 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 of Class B Common Stock being offered in the
Offering.

84
<PAGE> 119

LEGAL MATTERS

EXPERTS

85
<PAGE> 120

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 10
USE OF PROCEEDS....................... 26
DIVIDEND POLICY....................... 26
DILUTION.............................. 27
CAPITALIZATION........................ 28
SELECTED FINANCIAL DATA............... 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 31
THE INTERNATIONAL TELECOMMUNICATIONS
INDUSTRY............................ 38
BUSINESS.............................. 41
REGULATION OF THE INTERNATIONAL
TELECOMMUNICATIONS INDUSTRY......... 59

<CAPTION>
PAGE
-----
<S> <C>
MANAGEMENT............................ 68
PRINCIPAL STOCKHOLDERS................ 72
RELATED PARTY TRANSACTIONS............ 74
DESCRIPTION OF CAPITAL STOCK.......... 75
SHARES ELIGIBLE FOR FUTURE SALE....... 78
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF
COMMON STOCK........................ 79
SUBSCRIPTION AND SALE................. 82
LEGAL MATTERS......................... 85
EXPERTS............................... 85
ADDITIONAL INFORMATION................ 86
GLOSSARY OF TERMS..................... 87
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>

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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.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "SUBSCRIPTION AND SALE."