TELEPASSPORT INC, S-1/A, 1997-03-20

TELEPASSPORT INC
S-1/A, 1997-03-20
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997

REGISTRATION NO. 333-20977

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 1

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

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

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

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

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

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

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

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

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

COPIES TO:

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

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

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

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

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

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

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

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
===================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Common Stock, $.01 par
value....................... 5,750,000(2) $16.00 $92,000,000 $27,878.79(3)
===================================================================================================================
</TABLE>

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

(2) Includes 750,000 shares of Class B Common Stock which may be issued upon
exercise of an over-allotment option granted to the U.S. Underwriters and
the Managers. See "Underwriting."

(3) Of this amount, $22,727.27 was previously paid.

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

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

================================================================================

<PAGE> 2

EXPLANATORY NOTE

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

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

SUBJECT TO COMPLETION, DATED MARCH 20, 1997

5,000,000 Shares

TelePassport Inc.
[LOGO]

Class B Common Stock

($0.01 par value)

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

All the shares of Class B Common Stock, par value $0.01 per share (the "Class B
Common Stock"), of TelePassport Inc. ("TelePassport" or the "Company") offered
hereby are being sold by the Company. Of the 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 $0.01 per share (the "Class A Common Stock") and
the Class B Common Stock (collectively, the "Common Stock"). The Class B Common
Stock and the Class A Common Stock are substantially identical, except for
disparity in voting power, 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."

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

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

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> 4

[MAP INSERTED ON INSIDE FRONT COVER FOLDOUT]

MAP -- reflecting the various locations in the United States, Europe and
Asia in which the Company has existing 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
and is installing telecommunications systems.
<PAGE> 5

[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> 6

PROSPECTUS SUMMARY

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

THE COMPANY

GENERAL

TelePassport is a provider of international telecommunications services.
The Company conducts business on a global basis with a principal focus on small
and medium-sized businesses and residential customers with significant
international long distance traffic in the United Kingdom, Germany, Austria,
Switzerland and other targeted areas of Europe, 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.

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<PAGE> 7

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 which 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 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 its
revenues, and the Company became 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, to the extent A.T. NET offers customized
calling cards and prepaid debit cards for its customers, the Company will
provide such cards and will supply the related national and international long
distance services to such cardholders, and that A.T. NET and Asahi Telecom are
required 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 nine bases: two 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 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 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
100 countries and for other supra-national food, health, fiscal and labor
organizations (collectively, the "UN Arrangements"). The Company believes

4
<PAGE> 8

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, Italy and other targeted areas of Europe,
and in Japan and other targeted Asian countries, will enable the Company
to take advantage of deregulation in these markets;

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

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

5
<PAGE> 9

- 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.
will be merged with TelePassport Inc. and all the outstanding shares and
interests in USFI, Inc. and USFI-Japan, L.L.C. will be contributed to
TelePassport Inc. From and after the date of the Reorganization, all the assets
and business of USFI, Inc. and USFI-Japan, L.L.C. will be owned and conducted by
TelePassport Inc. and such entities 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> 10

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); for research and development and 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."
Proposed NNM Symbol.................. TEPP
</TABLE>

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

(1) Includes: (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> 11

SUMMARY FINANCIAL DATA

The summary Statement of Operations Data, Other Financial Data and Balance
Sheet Data as of and for the years ended December 31, 1994, 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.............................................. $ (2,511) $ (3,407) $ (1,401) $ (10,805)
======== ======== ======== ========
Net loss per common share(3).......................... $ (0.33) $ (0.45) $ (0.19) $ (1.43)
Weighted average common shares and equivalents........ 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.................................. 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> 12

NOTES TO SUMMARY FINANCIAL DATA

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

(2) This item represents the Company's equity in the net loss of its joint
venture with Asahi Telecom. In March 1997, pursuant to the A.T. NET
Agreements, the Company sold its interest in the joint venture to Asahi
Telecom. 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 and the application of the
estimated net proceeds therefrom and the issuance of 340,000 shares of Class
B Common Stock in connection with the Acquisitions. See "Use of Proceeds,"
"Capitalization" and "Business -- Acquisitions."

9
<PAGE> 13

RISK FACTORS

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

LIMITED OPERATING HISTORY; HISTORY OF NEGATIVE EBITDA; ACCUMULATED DEFICIT AND
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,
1996, 1995 and 1994 was negative $10.5 million, negative $1.0 million and
negative $3.3 million, respectively. The Company has accumulated net losses from
inception in February 1993 through December 31, 1996, of $19.3 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

10
<PAGE> 14

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 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 $23.5 million, 34.4% 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

11
<PAGE> 15

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 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). 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

12
<PAGE> 16

Authorizations") under Section 214 ("Section 214") of the Communications Act of
1934 (the "Communications Act"). The Company has been granted FCC 214
Authorizations to: (i) provide switched international telecommunications
services through the resale of switched services of United States carriers; (ii)
provide global facilities-based service between the United States and all
international points, except Cuba (currently excluded by the FCC); and (iii)
resell international private lines interconnected with the PSTNs in the United
States and those countries determined by the FCC to afford resale opportunities
equivalent to those available under United States law. To date, such
interconnected private line resale has been permitted by the FCC only to four
countries: Canada, the United Kingdom, Sweden and New Zealand. The FCC may
expand the number of countries to which the Company may provide such services if
the FCC determines that additional countries afford equivalent resale
opportunities to those available under United States law. The Company has no
control over when, or with respect to which countries, the FCC will make any
such determinations. The Company's business plan provides for the installation
of switching facilities in certain countries which are currently deemed
"non-equivalent" by the FCC. The Company plans to connect these facilities,
including the 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.

13
<PAGE> 17

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 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 general rules regarding the granting of telecommunications
licenses. At the request of certain countries, 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 member states to consider such future administrative costs, license
fees in those states that include such expenses may be higher than typical
license fees currently charged. To the extent such fees are substantially higher
than typical licensing fees, the Company may be required to divert funds
originally designated for other uses to the payment of such 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. 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."

14
<PAGE> 18

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

Germany

The Company 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

15
<PAGE> 19

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

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Japan

The Company owns and operates an international gateway switching center in
Tokyo that is connected to the New York international gateway switching center
by IPLCs leased by the Company currently for the purpose of transmitting signals
from Japan to the United States to trigger call reorigination service. In Japan,
the Company offers direct access and call reorigination services, as well as
customized calling card and debit card services, and acts as a wholesaler of
switched minutes providing international call termination services to other
telecommunications carriers and resellers. The Company intends to install
switching facilities in additional metropolitan areas in Japan connected via
leased private lines to provide international and national long distance
services with switched and dedicated access. In addition, to reduce transmission
costs associated with leasing private lines and to provide additional capacity
between the United States and Japan, the Company is exploring the acquisition of
one or more IRUs for the transmission of international traffic between its Tokyo
switching facility and the Company's international gateway switching center 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 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 Posts and Telecommunications. The Company believes that
its agents in South Africa that supply customers with automatic dialing devices
for the provision of the Company's call reorigination services have obtained the
required licenses. The loss or limitation of such licenses by the Company's
agents could have a material adverse effect on the Company's operations,
financial condition and results of operations.

No assurance can be given that any future changes in or additions to laws,
regulations, government policy or administrative rulings will not have a
material adverse effect on the Company's operations, financial condition and
results of operations. In addition, if, after the repeal of Section 78 of the SA
Post Office Act becomes effective, the Company determines it is required to
obtain a license, there can be no assurance that

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<PAGE> 21

the Minister of Posts, Telecommunications and Broadcasting would take the
required action of inviting the Company to make a license application. In that
case, the Company's failure to obtain a license could have a material adverse
effect on the Company's ability to expand its operations in South Africa and
could materially adversely affect the Company's operations, financial condition
and results of operations. See "Business--Services" and "Regulation of the
International Telecommunications Industry."

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

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<PAGE> 22

carriers and alliances could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Services."

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

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

POTENTIAL DIFFICULTIES ASSOCIATED WITH IMPLEMENTING TELEPASSPORT NETWORK
EXPANSION STRATEGY

The successful implementation of its switched access expansion strategy
will require the Company, among other things, to continue to expand and develop
the TelePassport Network. Expansion and development of the TelePassport Network
are necessary to enable the Company to meet customer requirements and to
increase the volume of traffic, which is fundamental to achieving economies of
scale on the TelePassport Network and to the Company's overall financial
success. The Company 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 as 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 agreements, there can be no assurance that the Company
will be able to maintain such agreements or obtain additional agreements 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

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<PAGE> 23

transmitted over other carriers' networks rather than over the TelePassport
Network, these calls will be more costly to the Company.

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

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

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<PAGE> 24

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 to
purchase the customer accounts and certain telecommunications equipment from a
reseller of telecommunications services principally in Milan and Naples, Italy.
The Company has also entered into an agreement to acquire HCL, an alternative
network access consultant and installer of PBXs 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"), British
Telecommunications plc ("BT"), International Digital Communications Inc. ("IDC")
and the respective ITO in each country in which the Company has a switching
facility. The Company's profitability depends, in part, on its ability to obtain
and utilize leased capacity on a cost-effective basis. Generally, the Company
leases lines pursuant to one-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

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<PAGE> 25

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."

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, is 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.

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<PAGE> 26

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

DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS

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

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NO DIVIDENDS

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

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of shares of Common Stock by existing stockholders pursuant to
Rule 144 ("Rule 144") promulgated under the Securities Act of 1933 (the
"Securities Act"), or otherwise, could have an adverse effect on the price of
the shares of Class B Common Stock. Upon completion of the Offering 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
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

24
<PAGE> 28

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

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

Further, the new employment agreement to be executed with Mr. Pearson will
contain provisions which will require the Company to make certain payments to
Mr. Pearson in certain instances if his employment is terminated following a
"Change in Control" (as defined therein). In the event of a Change of Control of
the Company (as defined in the 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.

25
<PAGE> 29

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 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. In addition, $1.0 million of
the net proceeds will be used for research and development, and 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> 30

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> 31

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 (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 5,260,000 issued
and outstanding,
respectively(1)(2)................... -- 53
Additional paid-in-capital(3)........... 15,718 70,126
Accumulated deficit(3).................. (18,124) --
Deferred compensation................... -- (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) Includes: (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."

(3) 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> 32

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.......................................... $ (2,511) $ (3,407) $ (1,401) $ (10,805)
=========== =========== ========== =========
Net loss per common share(3)...................... $ (0.33) $ (0.45) $ (0.19) $ (1.43)
Weighted average common shares and equivalents.... 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.............................. 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> 33

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.

30
<PAGE> 34

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 $17.3 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. will be merged with TelePassport Inc. and the Principals will contribute
to TelePassport Inc. all the outstanding shares and interests in USFI, Inc. and
USFI-Japan, L.L.C. From and after the closing date of this Offering, all the
assets and business of USFI, Inc. and USFI-Japan, L.L.C. 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> 35

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 100
countries and has since entered into service contracts with other supra-national
organizations. In May 1996, the Company was awarded the USAFE Contract in
Germany. In March 1995, the Company formed a joint venture with Asahi Telecom to
provide international long distance services in Japan. In March 1997, the
Company, Asahi Telecom and A.T. NET entered into the A.T. NET Agreements, which
supersede the joint venture. 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.

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 is expected to terminate 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 services,
and, as a result, the Company anticipates that the percentage of
telecommunications revenue derived from dedicated or switched access services
will increase and the percentage of telecommunications revenue from call
reorigination services will decrease. The Company believes, however, that call
reorigination services will continue to be a significant source of revenue. The
Company intends to continue to focus on providing telecommunications services to
small and medium-sized businesses and residential customers with significant
international long distance traffic, as well as expanding the resale of switched
minutes to other telecommunications carriers and resellers on a wholesale basis.
In addition, the Company intends to continue targeting supra-national and
governmental organizations.

Prices in the international long distance telecommunications industry in
many of the countries in which the Company provides its services have declined
in recent years due to increased competition and

32
<PAGE> 36

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 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 administra-

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tive 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.

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. While the Company does not presently use financial hedging
instruments to offset exchange rate risk, it may elect to do so in the future.
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. See "Risk
Factors--Foreign Exchange Rate Risks."

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 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, 1996. 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

34
<PAGE> 38

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 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

35
<PAGE> 39

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 $17.3 million through the date of this
Prospectus. In June 1995, a consortium of five Japanese banks extended a $5
million line of credit (the "Joint Venture Loan") to TelePassport Japan 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 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 ($1.7) 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

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<PAGE> 40

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 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 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 minutes of use
in 1995, up from $21.7 billion in revenues and 16.7 billion minutes of use in
1986, representing compound annual growth rates of 11% and 15%, respectively.
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 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 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 the industry, increases in international business travel,
privatization of ITOs, and growth of computerized transmission of voice and data
information. These trends have sharply increased the use of, and reliance upon,
telecommunications services throughout the world. The Company believes that at
the same time, businesses and residential customers have encountered higher
prices with poorer quality and service which were, and in some cases still are,
characteristic of many ITOs. Demand for improved service has created
opportunities for private industry to compete in the international
telecommunications market. Increased competition, in turn, has spurred a
broadening of products and services, and new technologies have contributed to
improved quality and increased transmission capacity and speed.

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

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 which 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 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 its revenues, and the Company became 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,

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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,
to the extent A.T. NET offers customized calling cards and prepaid debit cards
for its customers, the Company will provide such cards and will supply the
related national and international long distance services to such cardholders,
and that A.T. NET and Asahi Telecom are required 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 nine bases: two 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
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 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 100
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;

- 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. 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. In addition, the Company publishes
industry-related articles on technology and trends in relevant publications to
increase exposure and build its corporate image.

Wholesale Services

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

Strategic Relationships

The Company will continue to pursue joint ventures and strategic
relationships in order to sell its telecommunications services in selected
markets. The Company believes that these relationships may expedite or expand
penetration into a particular market. For example, the Company's relationship
with Asahi Telecom has provided the Company with a telecommunications partner
with access to established distribution in the Japanese market. 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 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 is installing switches
at Japan Telecom node sites, enabling Asahi Telecom to provide, through A.T.
NET, its wholly owned subsidiary, one of Japan's first integrated national and
international long distance services. A.T. NET primarily targets small and
medium-sized Japanese companies located in Tokyo, Osaka, Nagoya and other
Japanese cities and supplies national and international long distance services
at prices which the Company believes are typically below those of Japan's
dominant national and international long distance carriers. TelePassport Japan
provided all international long distance services to A.T. NET.

In an effort to enhance its presence in the Japanese telecommunications
market and strengthen its relationship with Asahi Telecom, in 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 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 nine bases: two 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 Air Force Bases, and contains an off-base population of more than
50,000 Americans.

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

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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 100 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, BT and IDC. 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 long distance service in
Japan. In other markets, the Company works with multiple national long distance

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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, ATM, X.25 packet switching and ISDN. These
technologies assist in optimizing the use of bandwidth, which

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can effectively lower operational costs. See "Risk Factors--Potential
Difficulties Associated with Implementing TelePassport Network Expansion
Strategy."

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

INFORMATION SYSTEMS

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

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

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

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

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

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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 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.

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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. The Company has also
applied to register the mark MasterCall in countries where its services are
marketed under this brand.

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. will be merged with TelePassport Inc. and all the
outstanding shares and interests in USFI, Inc. and USFI-Japan, L.L.C will be
contributed to TelePassport Inc. From and after the date of the Reorganization,
all the assets and business of USFI, Inc. and USFI-Japan, L.L.C. will be owned
and conducted by TelePassport Inc. As consideration for the contribution of
their interests in USFI, Inc. and USFI-Japan, L.L.C., the 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 93.2% 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.

In March 1997, the Company entered into the HCL Agreement with the
shareholders of HCL to purchase of 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. 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 this Offering for an aggregate price equal to (i) the cost of
Intelenet's equipment, less $10,000, which is payable in cash upon exercise of
the option, and (ii) an amount, payable in three installments, equal to a
percentage of the revenues generated by Intelenet's customers in three of the
nine months following the installment of new switching facilities. The Company
has also agreed to enter into a one-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
a license for the construction and operation of any telecommunications
equipment. A license may be refused on the basis of certain public policy rules.
Currently, the Austrian ITO generally maintains a monopoly over the fixed public
telecommunications network and voice telephony. The government is considering
the Austrian Proposed Legislation incorporating the EU directives to liberalize
the provision of voice telephony services and infrastructures by January 1998.
The Austrian Proposed Legislation would, in effect, end this monopoly, and
require dominant providers to grant interconnectivity on a nondiscriminatory
basis. Under the proposed law, in general, telecommunications services would be
subject only to a notification requirement, but a license would be required for
the provision of voice telephony services. Under the 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> 69

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 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> 70

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
Posts, Telecommunications and Broadcasting (the "South African Minister") via
notice in the Government Gazette. Under the SA Telecommunications Act, Telkom is
currently the only entity which has been granted a license to provide, among
other things, public switched telecommunication services, local access
telecommunication services and public pay telephone services. The initial term
of Telkom's license is 25 years. Although no date has been specified 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 Posts and Telecommunications. 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> 71

MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- ---- ------------------------------------------------------
<S> <C> <C>
Stephen E. Myers 48 Chairman of the Board
James D. Pearson 42 President, Chief Executive Officer and Director
Francis J. Mount 54 Executive Vice President and Chief Operating Officer
John C. Brizendine 52 Executive Vice President
Jan Piazza 42 Vice President, Sales and Marketing
Paul K. Heun 36 Vice President, Network Services
R. Gordon Mills 63 Chief Financial Officer and Secretary
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> 72

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 a 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> 73

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> 74

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, for a period of years after termination of the
agreement, compete with or solicit any employee or agent of the Company or any
of the Company's affiliates. The agreement will be terminable only for "Cause"
(as defined in the agreement). In the event of a "Change of Control" (as defined
in the agreement), Mr. Pearson will be entitled to receive a payment in the
amount of 24 months base salary. Under the agreement, Mr. Pearson shall 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 maximum number of shares which may be the
subject of options and stock appreciation rights granted in any calendar year to
an eligible individual shall not exceed shares.

The 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. The maximum dollar amount of
Incentive Awards constituting performance-based compensation that may be granted
to an eligible individual during any calendar year shall not exceed .

In case of a Change of Control Event (as defined in the 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> 75

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 Agent Acquisitions and the acquisition of HCL, 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 406,939 5.5 5.5 5.5 5.2
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 * 1.6 100
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%
as a group (9 persons total) (11) Class B Common Stock 194,791 * 3.5% * 93.2%
</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 37,479 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),
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 4,165 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> 76

(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 41,644 shares of Class A
Common Stock currently issuable upon exercise of the Pearson Option (as
hereafter defined), but excludes 166,574 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> 77

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. See "Use of Proceeds."

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."

As of the date of this Prospectus, 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 $2.50 per share. The option to purchase 20% of the shares is immediately
exercisable and the remainder vests at a rate of 20% per year over the next four
years, subject to accelerated vesting under certain circumstances. See
"Principal Shareholders."

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> 79

similar 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> 80

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> 81

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 7,350,000 shares of
Class A Common Stock outstanding and 12,690,000 shares of Common Stock
outstanding (13,440,000 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 shares of Class B Common Stock sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by "affiliates" of the Company
within the meaning of Rule 144 under the Securities Act ("Rule 144"). The
outstanding shares of Class A Common Stock are "restricted securities," as that
term is defined under Rule 144, and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption provided by Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be "affiliates" of the
Company, who has beneficially owned his or her shares for at least two years
since the later of the date of the acquisition of the securities from the
Company or from an affiliate is entitled to sell within any three-month period
that number of restricted securities that does not exceed the greater of one
percent of the then outstanding shares of securities of the same class or the
average weekly trading volume of such securities during the four calendar weeks
immediately preceding such sale, or the filing of notice of proposed sale, if
required, subject to the availability of adequate current public information
about the Company. After three years have elapsed since the later of the date
the securities were acquired from the Company or from an affiliate of the
Company, such shares may be sold without limitation by persons who are not
affiliates of the Company at the time of sale and have not been affiliates of
the Company for at least three months under Rule 144(k). 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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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 Commission a registration
statement under the Securities Act relating to, any additional shares of Common
Stock or securities convertible into or exchangeable or exercisable for any
shares of Common Stock, or securities convertible into or exchangeable or
exercisable for any shares of Common Stock, or disclose the intention to make
any such offer, sale, pledge, disposal or filing, without the prior written
consent of Credit Suisse First Boston Corporation, except, in the case of the
Company, issuances pursuant to the 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> 87

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.

Application has been made to list the shares of Class B Common Stock on the
Nasdaq National Market under the symbol "TEPP."

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> 88

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> 89

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> 90

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> 91

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> 92

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> 93

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> 94

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> 95

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> 96

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> 97

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> 98

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 merged into
TelePassport and the stock of USFI and USFI-Japan 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.

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> 99

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 shareholders 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> 100

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> 101

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> 102

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> 103

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 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. In addition, options for 258,881
shares were granted at an exercise price of $4.50 per share (see Note 5) and
options for 27,509 shares were granted at an exercise price of $6.50 per share.

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> 104

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 initial public offering of the
Company's common stock. The purchase price consists of $200,000 in cash and
173,333 shares of common stock. In addition, 80,000 shares of common stock 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
$300,000 in cash and 66,667 shares of 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.
The purchase price consists of 20,000 shares of common stock, all of which will
be deposited into escrow to vest ratably over a period of 36 months.

F-13
<PAGE> 105

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> 106

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> 107

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> 108

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> 109

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> 110

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> 111

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> 112

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> 113

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> 114

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> 115

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

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
($0.01 par value)

PROSPECTUS

Credit Suisse First Boston

Smith Barney Inc.

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

<PAGE> 116

ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS

SUBJECT TO COMPLETION, DATED MARCH 20, 1997

5,000,000 Shares

TelePassport Inc.
[LOGO]
Class B Common Stock

($0.01 par value)

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

All the shares of Class B Common Stock, par value $0.01 per share (the "Class B
Common Stock"), of TelePassport Inc. ("TelePassport" or the "Company") offered
hereby are being sold by the Company. Of the 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 Company's common stock has been designated into two classes, consisting of
Class A Common Stock, par value $0.01 per share (the "Class A Common Stock") and
the Class B Common Stock (collectively, the "Common Stock"). The Class B Common
Stock and the Class A Common Stock are substantially identical, except for
disparity in voting power, 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.
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."

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

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

<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 (Europe) Limited Smith Barney Inc.

The date of this Prospectus is , 1997.

<PAGE> 117

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]

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 INDUSTRIAL 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....... 77
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS OF
COMMON STOCK........................ 78
SUBSCRIPTION AND SALE................. 81
LEGAL MATTERS......................... 84
EXPERTS............................... 84
ADDITIONAL INFORMATION................ 85
GLOSSARY OF TERMS..................... 86
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>

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

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

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."

Alt-2
<PAGE> 118

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS (CONTINUED)]

SUBSCRIPTION AND SALE

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

<TABLE>
<CAPTION>
NUMBER OF
MANAGER INTERNATIONAL SHARES
------------------------------------------------------------ --------------------
<S> <C>
Credit Suisse First Boston (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

Alt-3
<PAGE> 119

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS (CONTINUED)]

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

Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Class B Common
Stock as may be mutually agreed upon. The price of any shares so sold will be
the public offering price less such amount agreed upon by Credit Suisse First
Boston (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 they will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any additional shares of Common Stock or securities convertible into or
exchangeable or exercisable for any shares of Common Stock, or disclose the
intention to make any such offer, sale, pledge, disposal or filing for a period
of 180 days after the date of this Prospectus without the prior written consent
of Credit Suisse First Boston Corporation, except, in the case of the Company,
issuances pursuant to the 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

Alt-4
<PAGE> 120

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS (CONTINUED)]

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 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.

Application has been made to list the shares of Class B Common Stock on the
NNM under the symbol "TEPP."

Alt-5
<PAGE> 121

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS (CONTINUED)]

Prior to the Offering, there has been no public market for the Class B
Common Stock. The initial public offering price for the 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.

Alt-6
<PAGE> 122

[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS (CONTINUED)]

LEGAL MATTERS

EXPERTS

Alt-7
<PAGE> 123

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

<TABLE>
<S> <C>
SEC filing fee............................................... $ 27,878.79
NASD, Inc. filing fee........................................ 9,700.00
NASDAQ listing fee........................................... 30,600.00
Transfer agent's fee......................................... 20,000.00
Printing and engraving expenses.............................. 250,000.00
Legal fees and expenses...................................... 600,000.00
Accounting fees and expenses................................. 250,000.00
Miscellaneous expenses....................................... 311,821.21
--------------
Total.............................................. $ 1,500,000.00
==============
</TABLE>

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

* To be provided by amendment

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

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

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

Reference is made to Section 7 of the Underwriting Agreement (Exhibit 1.1
to this Registration Statement) which provides for indemnification by the
Underwriters and their controlling persons, on the one hand, and of the
Registrant and its controlling persons on the other hand, against certain civil
liabilities, including liabilities under the Securities Act.

II-1
<PAGE> 124

ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES.

The Registrant was organized as a Delaware corporation on December 9, 1996.
Upon the completion of the Offering, the following stockholders will receive the
stated number of shares of Class A Common Stock of the Registrant pursuant to
the Reorganization:

<TABLE>
<S> <C>
Stephen E. Myers............................................... 6,210,015(1)
Michael C. Anderson............................................ 730,590(2)
James D. Pearson............................................... 365,295(3)
Seth Davis..................................................... 44,100
Total
</TABLE>

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

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

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

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

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

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS

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

<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
1.2* Form of Subscription Agreement.
2.1* Agreement of Merger between TelePassport LLC and TelePassport
Inc.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Amended and Restated By-Laws of the Registrant.
4.1 Specimen Stock Certificate for shares of Class B Common Stock.
4.2* Form of Lock-Up Agreement.
5.1* Opinion of Baer Marks & Upham LLP.
10.1 Agreement dated May 1, 1996, between the United States AF NAF
Purchasing Office and USFI, Inc.
10.2* Form of Independent Representative's Agreement.
10.3* The Registrant's Long Term Incentive Plan.
10.4* Form of Customer Wholesale Agreement.
10.5 Letter Agreement dated March 11, 1997, among Franz Hruby,
Wolfgang Schlick, Georg Hofer and TelePassport Telekom GmbH.
10.6 Share Purchase Agreement dated March 14, 1997, among USFI,
Inc., Stephen Charles Edwards and Michael Peter Riley.
10.7 Letter Agreement dated as of March 1, 1997 between USFI, Inc.
and Georg Hofer.
10.8** Option Agreement dated January 21, 1997, between TelePassport
Inc. and Intelenet, Inc.
</TABLE>

II-2
<PAGE> 125

<TABLE>
<S> <C>
10.9* Telecommunication Equipment Housing Agreement dated November
14, 1995.
10.10** Sublease Agreement dated January 28, 1993, between US Fibercom
Network, Inc. and United States Tennis Association.
10.11** License Agreement dated November 6, 1996, between USFI, Inc.
and 48th Americas Company.
10.12** Collocation and Facilities Management Service Agreement dated
May 22, 1995, between Voyager Networks, Inc. and USFI, Inc.
10.13* Lease Agreement dated March 1, 1995, between Tokuyo Sangyo Inc.
and USFI Network K.K. (Translation from Japanese to English).
10.14* Employment Agreement with James D. Pearson.
10.15* Employment Agreement with Francis J. Mount.
10.16* Employment Agreement with Jan Piazza.
10.17* Employment Agreement with Paul K. Heun.
10.18 USFI Provider Reseller Agreement dated as of March 4, 1997, by
and among USFI Network K.K., A.T. Net KK and Asahi Telecom Co.,
Ltd.
10.19 Securities Purchase Agreement dated as of March 4, 1997 among
USFI Network KK, Nihon TelePassport K.K., USFI-Japan, L.L.C.,
USFI Inc., Asahi Telecom Co., Ltd. and A.T. Net K.K.
10.20 NTP Purchase and Sale Agreement dated as of March 4, 1997 among
Nihon TelePassport K.K., USFI, Inc., USFI-Japan, L.L.C., USFI
Network K.K., Asahi Telecom Co., Ltd. and A.T. Net K.K.
10.21 USFI Provider Reseller Agreement (For NTP) dated as of March 4,
1997, by and among USFI Network K.K., Nihon TelePassport K.K.
and Asahi Telecom Co., Ltd.
10.22 A.T. Net Provider Reseller Agreement dated as of March 4, 1997,
by and among USFI Network K.K. and A.T. Net K.K.
10.23* Form of Indemnity Agreement.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Baer Marks & Upham LLP (included in Part II of this
Registration Statement).
23.2 Consent of Ernst & Young LLP, independent auditors (included in
Part II of this Registration Statement).
23.3 Consent of Deloitte Touche Tohmatsu, independent auditors
(included in Part II of this Registration Statement).
24.1** Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

** Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES

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

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

II-3
<PAGE> 126

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

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

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

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

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

II-4
<PAGE> 127

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 20th day of March 1997.

TELEPASSPORT INC.

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

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

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

* Chairman of the Board of March , 1997
- ----------------------------------------------- Directors
Stephen E. Myers

/s/ JAMES D. PEARSON President, Chief Executive March 20, 1997
- ----------------------------------------------- Officer (Principal Executive
James D. Pearson Officer) and Director

/s/ R. GORDON MILLS Chief Financial Officer March 20, 1997
- ----------------------------------------------- (Principal Financial and
R. Gordon Mills Accounting Officer)

* Director March , 1997
- -----------------------------------------------
Michael C. Anderson

* /s/ JAMES D. PEARSON March 20, 1997
- -----------------------------------------------
As Attorney-in-fact
</TABLE>

II-5
<PAGE> 128

CONSENT OF COUNSEL

We hereby consent to the reference to our firm in Amendment No. 1 to the
Registration Statement on Form S-1 of TelePassport Inc., dated March 20, 1997,
under the caption "Legal Matters." In giving such consent, we do not thereby
concede that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 (the "Securities Act"), or the rules or
regulations promulgated thereunder, or that we are "experts" within the meaning
of the Securities Act or such rules and regulations.

BAER MARKS & UPHAM LLP

New York, New York

March 20, 1997

II-6
<PAGE> 129

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated , 1997, in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-20977) and related Prospectus of
TelePassport Inc. for the registration of 5,750,000 shares of its Class B Common
Stock.

Hackensack, New Jersey
, 1997

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

ERNST & YOUNG LLP

Hackensack, New Jersey

March 19, 1997

II-7
<PAGE> 130

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in this Amendment No. 1 to the Registration Statement
relating to the registration of the Class B Common Stock of TelePassport Inc. on
Form S-1 dated March 20, 1997 of our report dated February 7, 1997, except for
Note 9, as to which the date is March 4, 1997, appearing in the Prospectus,
which is part of this Registration Statement.

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

DELOITTE TOUCHE TOHMATSU
Tokyo, Japan

March 20, 1997

II-8
<PAGE> 131

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
TelePassport Inc.

We have audited the consolidated financial statements of TelePassport Inc.
and subsidiaries as of December 31, 1996, and 1995 and for each of the three
years in the period ended December 31, 1996, and have issued our report thereon
dated , 1997 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.

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

Hackensack, New Jersey
, 1997

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

ERNST & YOUNG LLP

Hackensack, New Jersey

March 19, 1997

S-1
<PAGE> 132

TELEPASSPORT INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN E
COLUMN B COLUMN C --------
----------- ----------------- COLUMN D BALANCE
COLUMN A BALANCE AT ADDITIONS ------------ AT END
- ------------------------------------------- BEGINNING CHARGED TO COSTS DEDUCTIONS- OF
DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE PERIOD
- ------------------------------------------- ----------- ----------------- ------------ --------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for doubtful accounts.......... $ 320 $ 645 $465(a) $500
===== ===== ==== ====
Year ended December 31, 1995
Allowance for doubtful accounts.......... $ 500 $ 184 $ 1(a) $683
===== ===== ==== ====
Year ended December 31, 1996
Allowance for doubtful accounts.......... $ 683 $ 352 $245(a) $790
===== ===== ==== ====
</TABLE>

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

(a) Accounts written off as uncollectible.

S-2
<PAGE> 133

EXHIBIT INDEX

<TABLE>
<S> <C> <C>
1.1* Form of Underwriting Agreement.
1.2* Form of Subscription Agreement.
2.1* Agreement of Merger between TelePassport LLC and
TelePassport Inc.
3.1* Amended and Restated Certificate of Incorporation of the
Registrant.
3.2* Amended and Restated By-Laws of the Registrant.
4.1 Specimen Stock Certificate for shares of Class B Common
Stock.
4.2* Form of Lock-Up Agreement.
5.1* Opinion of Baer Marks & Upham LLP.
10.1 Agreement dated May 1, 1996, between the United States AF
NAF Purchasing Office and USFI, Inc.
10.2* Form of Independent Representative's Agreement.
10.3* The Registrant's Long Term Incentive Plan.
10.4* Form of Customer Wholesale Agreement.
10.5 Letter Agreement dated March 11, 1997, among Franz Hruby,
Wolfgang Schlick, Georg Hofer and TelePassport Telekom
GmbH.
10.6 Share Purchase Agreement dated March 14, 1997, among USFI,
Inc., Stephen Charles Edwards and Michael Peter Riley.
10.7 Letter Agreement dated as of March 1, 1997 between USFI,
Inc. and Georg Hofer.
10.8** Option Agreement dated January 21, 1997, between
TelePassport Inc. and Intelenet, Inc.
10.9* Telecommunication Equipment Housing Agreement dated
November 14, 1995.
10.10** Sublease Agreement dated January 28, 1993, between US
Fibercom Network, Inc. and United States Tennis
Association.
10.11** License Agreement dated November 6, 1996, between USFI,
Inc. and 48th Americas Company.
10.12** Collocation and Facilities Management Service Agreement
dated May 22, 1995, between Voyager Networks, Inc. and
USFI, Inc.
10.13* Lease Agreement dated March 1, 1995, between Tokuyo Sangyo
Inc. and USFI Network K.K. (Translation from Japanese to
English).
10.14* Employment Agreement with James D. Pearson.
10.15* Employment Agreement with Francis J. Mount.
10.16* Employment Agreement with Jan Piazza.
10.17* Employment Agreement with Paul K. Heun.
10.18 USFI Provider Reseller Agreement dated as of March 4, 1997,
by and among USFI Network K.K., A.T. Net KK and Asahi
Telecom Co., Ltd.
10.19 Securities Purchase Agreement dated as of March 4, 1997
among USFI Network KK, Nihon TelePassport K.K., USFI-Japan,
L.L.C., USFI Inc., Asahi Telecom Co., Ltd. and A.T. Net
K.K.
10.20 NTP Purchase and Sale Agreement dated as of March 4, 1997
among Nihon TelePassport K.K., USFI, Inc., USFI-Japan,
L.L.C., USFI Network K.K., Asahi Telecom Co., Ltd. and A.T.
Net K.K.
10.21 USFI Provider Reseller Agreement (For NTP) dated as of
March 4, 1997, by and among USFI Network K.K., Nihon
TelePassport K.K. and Asahi Telecom Co., Ltd.
</TABLE>

<PAGE> 134

<TABLE>
<S> <C> <C>
10.22 A.T. Net Provider Reseller Agreement dated as of March 4,
1997, by and among USFI Network K.K. and A.T. Net K.K.
10.23* Form of Indemnity Agreement.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Baer Marks & Upham LLP (included in Part II of
this Registration Statement).
23.2 Consent of Ernst & Young LLP, independent auditors
(included in Part II of this Registration Statement).
23.3 Consent of Deloitte Touche Tohmatsu, independent auditors
(included in Part II of this Registration Statement).
24.1** Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

** Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES

Report of Ernst & Young LLP, independent auditors

Schedule II -- Valuation and Qualifying Accounts

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

<PAGE> 1

EXHIBIT 4.1

SPECIMEN CERTIFICATE OF STOCK

NUMBER SHARES

TPB

TELEPASSPORT INC.
CUSIP 87943Y 10 2

INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS

THIS CERTIFIES THAT

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS B COMMON STOCK
OF THE PAR VALUE OF $.01 PER SHARE OF

TELEPASSPORT INC.

transferable on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney, upon surrender of this Certificate properly
endorsed.

This Certificate is not valid until countersigned by the Transfer Agent.

WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.

Dated:

[TELEPASSPORT INC.
CORPORATE SEAL
1996
DELAWARE]

President Secretary

COUNTERSIGNED AND REGISTERED:
THE BANK OF NEW YORK
TRANSFER AGENT AND REGISTRAR

AUTHORIZED SIGNATURE

<PAGE> 2
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.

The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-____________Custodian____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants
in common Act______________________________
(State)

Additional abbreviations may also be used though not in the above list.
</TABLE>

For Value Received,_______________________hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________
| |
| |
|____________________________________|

_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

_______________________________________________________________________________

_________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

_______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.

Dated_________________________________

_______________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

<PAGE> 1
Exhibit 10.1

NONAPPROPRIATED FUND CONTRACT/AWARD Page 1 of 162 Pages

1. Contract Number 2. Purchaser Request Number 3. Effective Date

4. Issued By 5. Administered By (if other than block 4)

AF NAF PURCHASING OFFICE CHARLOTTE GUILMENOT
9504 IH 35 NORTH, SUITE 370 (210) 657-5804
SAN ANTONIO, TX 78233-6636

6. DELIVERY
/X/ FOB DESTINATION
OTHER (See Schedule)

7. CONTRACTOR NAME AND ADDRESS (Street, City, Country, Suite and Zip Code)

USFI NETWORK SERVICES, INC.
1212 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036

8. DISCOUNT FOR
PROMPT PAYMENT
PERCENT CALENDAR
DAYS

9. TELEPHONE NO.
(212) 703-0102

10. SUBMIT INVOICES (Original and one copy unless otherwise specified) TO
ADDRESS SHOWN IN BLOCK 12.

11. SHIP TO (Mark for, if applicable) 12. INVOICE TO:
AS INDICATED ON EACH DELIVERY ORDER N/A

13. TABLE OF CONTENTS
(The following checked sections are contained in the contract)

(X) SEC PART 1 - THE SCHEDULE PAGE

/X/ A Solicitation/contract form 1-2
/X/ B Supplies or services and prices/costs 1-8
/X/ C Description/specifications/work statement 1-4
/X/ D Packaging and marking 1
/X/ E Inspection and acceptance 1
/X/ F Deliveries or performance 1-5
/X/ G Contract administration data 1-2
/X/ H Special contract requirements 1-6
/X/ I Contract clauses 1-11

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS
/X/ J List of attachments 1-69

PART IV - REPRESENTATIONS AND INSTRUCTIONS
/X/ K Representations, certifications, and other statements
of offerors or quoters 1-14
N/A L Instructions, conditions, and notices to offerors
or quoters
N/A M Evaluation factors for award

ITEM NO. SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT

SEE ATTACHED

TOTAL AMOUNT OF CONTRACT $NO COST

CONTRACTING OFFICER WILL COMPLETE BLOCK 14 OR 18 AS APPLICABLE

14. /x/ CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is required to sign this
documentation and return ____ copies to issuing offices.) Contractor agrees to
furnish and deliver all items or perform all services set forth, or otherwise
identified above and on any continuation sheets for the consideration granted
herein. The rights and obligations of the portion to this contract shall be
subject to and governed by the following documents (a) this award/contract,
(b) the solicitation, if any, and (c) such provisions, representations,
certifications, and specifications, as are attached or incorporated by
reference herein. (Attachments are listed herein.)

15. SIGNATURE OF PERSON AUTHORIZED TO SIGN (Contractor)
/s/ James Pearson

16. TYPE OR PRINT NAME -- TITLE OF SIGNER
James Pearson - President

17. DATE SIGNED
4/23/96

18. / / AWARD (Contractor is not required to sign this document.)

Your offer on Solicitation Number _________________________________________
including the additions or changes made by you which additions or changes are
set forth in full above, is hereby accepted as to the items listed above and on
any continuation sheets. This award consummates the contract which consists of
the following documents: (a) the solicitation and your offer, and (b) this
award/contract. No further contractual document is necessary.

19. SIGNATURE OF CONTRACTING OFFICER

20. TYPE OR PRINT NAME OF CONTRACTING OFFICER

21. DATE SIGNED

22. If this contract exceeds ________ manual approval of ______________________
must be obtained prior to commencing any performance. Without such approval
this contract will have neither force nor effect.

23. TYPE OR PRINT NAME AND TITLE OF APPROVING OFFICIAL

24. SIGNATURE OF APPROVING OFFICIAL

25. DATE SIGNED

AF Form 2640. DEC 87 Previous Edition

<PAGE> 2
USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

RESPONSE TO

SECTION B

SUPPLIES OR SERVICES AND PRICES/COSTS

5.1 All information in this section pertains to Items 0001 through 0004 in
STATEMENT OF WORK (SOW) FOR UNITED STATES AIR FORCES IN EUROPE (USAFE)
LODGING FACILITY TELECOMMUNICATIONS SYSTEM (LFTS) 96-0022 dated 2 Feb
96 with amendments A-001 dated on 23 Feb 96 and A-002 dated 7 Mar 96.

5.2 A schedule for the GOVERNMENT percentage of long distance revenues
follows. The tables show total estimated revenues, the percentage of
revenues to be paid to the GOVERNMENT, and total GOVERNMENT revenues
derived from long distance revenues at varying usage rates. These
estimates are based on the indicated minutes/room at an 85 percent
occupancy rate. The total dollar figures are long distance receipts
collected during a single month at the initial three lodging facilities
- Ramstein, Rhein-Main, and Aviano. The year figure is calculated from
the first complete month of operation following the acceptance of the
third and final system required in the original solicitation
(Ramstein, Rhein-Main, and Aviano). These figures represent revenue
derived only from long distance, and do not include potential revenue
the GOVERNMENT will realize from the sale of debit cards. Actual
revenue will begin at the site acceptance for each location.

B-1
<PAGE> 3
USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

REVENUE ESTIMATES
RAMSTEIN/RHEIN-MAIN/AVIANO
MINUTES PER ROOM/PER NIGHT
85% OCCUPANCY

<TABLE>
<S> <C> <C> <C> <C>
Min/room/night 5 10 15 20

Total Monthly Revenue $143,034 $286,069 $429,103 $572,138
</TABLE>

GOVERNMENT PERCENTAGE OF REVENUE
BASED ON TOTAL LONG DISTANCE FEES
RAMSTEIN/RHEIN-MAIN/AVIANO
AS RECORDED ON THE
CALL DETAIL REGISTER

<TABLE>
<CAPTION>
DOLLAR AMT 0-100 101-200 201-300 301-400 401-500 greater than 501
<S> <C> <C> <C> <C> <C> <C>
Year 1 0% 0% 1% 2% 2.50% 2.50%
Year 2 0% 0% 1% 2% 2.50% 2.50%
Year 3 0% 0% 1% 3% 4% 5%
Year 4 0% 1% 2% 3% 4% 5%
Year 5 0% 1% 2% 3% 4% 5%
Year 6 0% 2% 3% 4% 6% 7.50%
Year 7 0% 2% 3% 5% 6% 7.50%
Year 8 0% 3% 4% 5% 7.50% 10%
Year 9 0% 4% 5% 7.50% 7.50% 10%
Year 10 0% 5% 6% 7.50% 10% 10%
</TABLE>

PROJECTED GOVERNMENT REVENUE
IN DOLLARS PER YEAR

<TABLE>
<CAPTION>
in minutes at $0.99 5 10 15 20
<S> <C> <C> <C> <C>
Year 1 $ -- $ 34,328 $ 128,731 $ 171,641
Year 2 $ -- $ 34,328 $ 128,731 $ 171,641
Year 3 $ -- $ 34,328 $ 205,970 $ 343,283
Year 4 $ 17,164 $ 68,657 $ 205,970 $ 343,283
Year 5 $ 17,164 $ 68,657 $ 205,970 $ 343,283
Year 6 $ 34,328 $ 102,985 $ 308,954 $ 514,924
Year 7 $ 34,328 $ 102,985 $ 308,954 $ 514,924
Year 8 $ 51,492 $ 137,313 $ 386,193 $ 686,565
Year 9 $ 68,657 $ 171,641 $ 386,193 $ 686,565
Year 10 $ 85,821 $ 205,970 $ 514,924 $ 686,565
Total $ 308,954 $ 961,191 $2,780,588 $4,462,673
</TABLE>

B-2
<PAGE> 4
USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

5.3 Response to B-2 paragraph 3:

5.3.1 The Call Detail Recorder (CDR) system will pass all
telephone-related call charges to the government-owned SIMS
computer system or its replacement, so that a detailed call
record statement of charges can be printed out by the lodging
desk attendant and presented to the guest on checkout. Actual
charges will be collected by the lodging desk attendant. USFI
NETWORK SERVICES, INC. will backup and archive CDR data on a
regular basis. The existing USFI NETWORK SERVICES, INC.
billing department at our home office in New York City will,
during the first week of each month, reconcile the entire
previous month's CDR data from each location and prepare an
invoice for the USFI NETWORK SERVICES, INC. percentage of the
long distance charges. USFI NETWORK SERVICES, INC. will mail
the invoice for the entire previous month's activity to the
designated GOVERNMENT office by the 15th of each month.
The GOVERNMENT shall process the invoice and remit payment for
the USFI NETWORK SERVICES, INC. percentage of long distance
charges by the final day of the month in which the invoice
was received.

5.4 Response to B-2 paragraph 4:

5.4.1 USFI NETWORK SERVICES, INC.'s toll rates from the major
military concentrations in Europe may vary according to call
destination. Long distance per/minute prices for calls
originating in the lodging facility and terminating in the
United States are guaranteed for the first year. USFI NETWORK
SERVICES, INC. will negotiate rate changes in excess of the US
Consumer Price Index with the Contracting Officer and the
Contracting Officer's Technical Representative at any time
after the first year. Normally, any proposed rate changes
would reflect either increased competition in international
long distance as deregulation alters the operating
environment, or advances in technology which change USFI
NETWORK SERVICES, INC.'s cost of delivering traffic to the
destination. Such changes have traditionally resulted in lower
tariffs as volumes increase. USAFE is a finite community,
however, and it must be understood that the costs of operating
a closed user group network increase over time. It is no
longer possible to make a dime DDD phone call from a public
phone booth in the United States.

B-3
<PAGE> 5
USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

5.4.2 Following is the guaranteed first year pricing for long
distance traffic originating in the designated location and
terminating in the US, excluding taxes:

Ramstein: $0.99 per minute
Rhein-Main $0.99 per minute
Aviano $0.99 per minute

5.4.3 For any guest whose long distance fees total more than
$100.00, total fees will be discounted by 15 percent. Example:

<TABLE>
<CAPTION>
Total long distance: Discount Actual Bill at Checkout

5.4.4 The full USFI NETWORK SERVICES, INC. long distance rate
tables are located at the end of this section. These rates are
based upon zones defined by European telecom commercial
providers.

5.4.4.1 Zone pricing for traffic originating in Germany is as
follows:

<TABLE>
<CAPTION>
ZONE PRICE
---- -----

5.4.4.2 Zone pricing for traffic originating in Italy is as
follows:

<TABLE>
<CAPTION>
ZONE PRICE
---- -----

B-4
<PAGE> 6
USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

5.5 USFI NETWORK SERVICES, INC. will provide interfaces to the host
commercial network and to the GOVERNMENT DSN system as an additional
service to lodging guests. The response to question #74 in the
QUESTIONS AND ANSWERS document issued by the Contracting office on 7
Mar 96 states that "the only charge to the guest will be the negotiated
long distance User Fee of which a percentage shall be paid to the
government." This statement is appropriate for a facility located
within the US, but clearly does not reflect the cost of making a local
call in European countries. USFI NETWORK SERVICES, INC. will,
therefore, levy the following fees as a means of recovering these
costs:

5.5.1 Local calls to host nation telephone system: $.50 for the
initial connection and first meter pulse, $.30 for each
additional meter pulse.

5.6 RESPONSE TO ITEM 0001: BASIC SERVICES

5.6.1 USFI NETWORK SERVICES, INC. will provide a Nortel Meridian
SL-1 PBX, which will meet or exceed all industry standards for
state-of-the-art hotel/motel features. The Meridian SL-1 is
the same basic switch purchased by the Air Force under the
Base Information Digital Distribution System (BIDDS) contract,
and is the same product offered by Nortel in the BIDDS-NAS
solicitation. The Meridian SL-1 is capable of 65,000 busy hour
call completions; 140,000 CCS at P.01 grade of service; and
2,700 simultaneous connections.

5.7 Response to Basic Services section following paragraph B4. Specific
responses follow in Response to Statement of Work section.

0001AA System Requirements - System will meet or exceed requirements
specified in SOW paragraph 3.1 and sub-paragraphs.

0001AA-1 Trunking Services - System will meet or exceed requirements
specified in SOW 3.1.6. Trunking for the lodging facilities will be
to the host commercial network, to the Government DSN system, and
to the USFI Long Distance Network.

B-5
<PAGE> 7
USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

000lAA-2 System Design - System will meet or exceed requirements specified
in SOW paragraph 3.2.

0001AA-3 Call Detail Recording and Billing System - System will meet or
exceed requirements specified in SOW paragraphs 3.2.4 and 3.2.5.

0001AA-4 Room/Bed Housekeeping and Occupancy Status - System will meet or
exceed requirements specified in SOW paragraph 3.2.5.2.

0001AA-5 System Features - System will meet or exceed requirements
specified in SOW paragraph 3.4.

0001AA-6 Administrative Service - System will meet or exceed
requirements specified in SOW paragraph 3.2.3.

0001AA-7 Reliability of Service - System will meet or exceed
requirements specified in SOW paragraph 3.1.11.

0002AA All items will be provided according to schedule in Section F.
Delivery dates are contingent upon contract award date.

0003 TRAINING - In general, USFI Network Services, Inc. recognizes that
lodging facility employees are the key to Customer satisfaction
with the system we provide under this contract. We are committed to
providing all training necessary so that lodging facility employees
are fully qualified to provide the highest level of Customer
Service. Placing a full time employee at USAFE's disposal
demonstrates our objective to this ideal.

0003AA Attendant Training - will comply with SOW paragraph 3.13.1.

0003AB Administrative Training - will comply with SOW paragraph 3.13.2.

0003AC Station Training - will comply with SOW paragraph 3.13.3.

0003AD Billing Training - will comply with SOW paragraph 3.13.4.

0003AE Call Detail Recording Training - will comply with SOW paragraph
3.13.4.

0004 RECURRING ITEMS OR EXPANDED SERVICES

B-6
<PAGE> 8
USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

0004AB System Requirements - System meets or exceeds all specifications in
SOW paragraph 3.1 and sub-paragraphs.

0004AB-1 Single Line Service - System meets or exceeds requirements
specified in SOW paragraph 3.1.5.1.

0004AC-1 Trucking to and from the Local Exchange Carrier - System meets or
exceeds requirements specified in SOW paragraphs 3.1.1,3.1.2, and
3.1.6.

0004AC-2 Trunking to the Base DCO - This item requires clarification from
the contracting officer. System will meet or exceed trunking
requirements specified in SOW paragraphs 3.1.1,3.1.2, and 3.1.6.
Paragraph 3.7.2.1 pertains to use of government cable.

0004AD Hotel/Motel Attendant Service - System meets or exceeds
requirements specified in SOW paragraph 3.4 and sub-paragraphs. SOW
paragraph 3.2.5.2 pertains to room status and housekeeping system.

0004AE Administrative Services - System will meet or exceed requirements
specified in SOW paragraph 3.23.

0004AF Interface Telecommunications System with LFTS - System will meet or
exceed requirement in SOW paragraph 3.1.1.

0004AG Interface Telecommunications System with SIMS - System will meet or
exceed requirements specified in SOW paragraph 3.2.6.

0004AH-1 Administrative Training - Training will meet or exceed requirements
specified in SOW paragraph 3.13.2.

0004AH-2 Attendant Training - Training will meet or exceed requirements
specified in SOW paragraph 3.13.1.

Rates submitted under Section B are firm and fixed percentages/fees for the
duration of the awarded contract. These rates shall apply, as a minimum, to
Ramstein AB, Rhein Main AB, and Aviano AB.

B-7
<PAGE> 9
USFI Network Services, Inc. Germany/Italy Long Distance Fee Schedule

<TABLE>
<CAPTION>
ZONE E1 ZONE E2 ZONE W1 ZONE W4 ZONE W4 (cont.) ZONE W4 (cont.)

$0.99 Per Minute $1.49 Per Minute $0.99 Per Minute $1.99 Per Minute $1.99 Per Minute $1.99 Per Minute

<S> <C> <C> <C> <C> <C>
Andorra Albania Alaska Afghanistan French Polynesia Norfolk Island
Austria Algeria Canada American Samoa Gabon Oman
Belgium Belarus Hawaii Angola Gambia Palau
Czechoslovakia Bosnia-Herzegovina Anguilla Georgia Palm Island
Denmark Bulgaria United States Anarctica Ghana Panama
Faeroe Islands Croatia Antigua Greenland Papau New Guiness
Finland Cyprus Armenia Grenada Paraguay
France Egypt Aruba Guadeloupe Peru
Greece Estonia ZONE W2 Ascension Island Guam Phillippines
Iceland Gilbraltar $1.99 Per Minute Azerbaijan Guantanamo Bay Pitcairn Island
Ireland Hungary Bahamas Guatemala Qatar
Bahrain Guinea Reunion Island
Italy Israel Australia Bangladesh Guinea Bissau Rwanda
Liechtenstein Jordan Japan Barbados Guyana Saipan
Luxembourg Latvia New Zealand Belize Haiti Sao Tome
Monaco Lebanon Singapore Benin Honduras Seychelles
Netherlands Libya Bermuda India Sierra Leone
Norway Lithuania Bhutan Iraq Solomon Islands
Poland Macedonia Bolivia Jamaica Somali Republic
Portugal Malta Botswana Kenya Spanish Sahara
San Marino Moldova ZONE W3 British Virgin Island Kiribati Sri Lanka
Spain Morocco Brunei Kuwait St. Helena
Sweden Romania $1.99 Per Minute Burkina Faso Laos St. Kitts
Switzerland Russia Burma Lesotho St. Lucia
United Kingdom Slovenia Antilles Burundi Libya St. Pierre
Germany Syria Argentina Cambodia Macao St. Vincent
Tunisia Brazil Cameroon Madagascar Sudan
Turkey Chile Cape Verde Islands Malawi Swaziland
Ukraine Columbia Cayman Islands Malaysia Tanzania
Uzbekistan Dominican Rep Cen. African Rep. Maldives Thailand
Yugoslavia Iran Chad Mail Togo
South Africa China Marshall Island Tonga
Taiwan Comoros Mauritania Trinidad & Tobago
United Arab Emirates Congo Mauritius Turkmenistan
Cook Islands Mayotte Island Turkis & Calcos Islands
Costa Rica Mexico Tuvalu
Cuba Micronesia Uganda
Diego Garcia Mongolia Union Island
Djibouti Montserrat Uruguay
Dominica Mozambique Vanuata
Easter Island Mustique Venezuela
Ecuador Namibia Vietnam
El Salvador Nauru Wake Island
Equatorial Guinea Nepal Wallis/Fortuna Island
Eritrea Nevis Western Samoa
Ethiopia New Caledonia Yemen Arab Republic
Falkland Islands Nicaragua Zaire
Fiji Niger Zambia
French Antilles Nigeria Zimbabwe
French Guyana Niue

</TABLE>

<PAGE> 10
STATEMENT OF WORK (SOW) FOR
UNITED STATES AIR FORCES IN EUROPE (USAFE)
LODGING FACILITY TELECOMMUNICATIONS SYSTEM (LFTS)

1. SCOPE:

1.1 General. This Statement of Work (SOW) defines the requirements for a Lodging
Facility Telecommunications System (LFTS), including hotel/motel accounting and
management; features. The contractor shall provide a LFTS consisting of all new
host nation approved (HNA) equipment and connection (s) including the basic
digital switching system, attendant consoles, administrative terminals,
subscriber line circuit equipment, trunk circuit equipment, distribution frames,
wire and cable plant, house wire, customer premise equipment, uninterrupted
power supply (UPS), outside plant (black) cable, and all other ancillary
Hotel/Motel equipment and software necessary to provide service for a complete
telecommunication system. This system shall have a modular architecture with an
expansion capability. CENTREX service is not acceptable.

1.1.1 Contractor's Fees. The LFTS requirements and associate services will be
provided by the contractor in exchange for toll traffic and a percentage of long
distance toll charges recorded by lodging. (Long distance toll charges -
restrictions applicable). Maximum charge that can be applied to the transient
guests' billing for these services will not exceed the long distance, operator
assisted, day rate as charged by the carrier in effect at the time services are
used.

1.1.2 Payment Responsibilities. The percentage (contractor's fee) provided is
only on the amount actually applied to the transient guests' bill. Contractor's
equipment failure shall be the responsibility of the contractor. The
responsibility for the collection of the charges, once they have been applied to
the billing, will rest with the U.S. Government.

1.1.3 Internal Controls and Administrative Procedures. The internal controls and
the administrative procedures for the government's paying the contractor fees
will be addressed in the proposal. This should cover such items as monitoring
equipment, listings, due dates and other items that will insure both the
contractor and the U.S. Government are protected against any unnecessary loss
and conform to the host nation laws. These internal controls and administrative
procedures are negotiable items.

2. APPLICABLE DOCUMENTS.

2.1 General. The following documents shown below form a part of this SOW. Any
suggestions or recommendations made by the following documents shall be
considered requirements under this SOW. In the event of a conflict between the
documents referenced in this SOW and the contents of this SOW, the following
order of precedence shall apply:

2.1.1 This Statement of Work (SOW).

C-1
<PAGE> 11
2.1.1.2 Communications System Program Office (CSPO) Documents

EPS-93F-CSPO-015A Equipment Performance Specification
21 March 95 for a European Lodging Facility
Telecommunications System

(Copy of the above document is included in the Request for Proposals (RFP).

2.1.1.3 Applicable Host Nation Standards

2.1.2 Total number of Sites and Drawings: Drawings and sketches will be provided
for the contractor's information during site visits/upon request for USAFE
site/locations as follows:

APPENDIX A Ramstein Air Base, Germany Ref. Section J, Atch 4

APPENDIX B Rhein-Main Air Base, Germany Ref. Section J, Atch 5

APPENDIX C Aviano Air Base, Italy Ref. Section J, Atch 6

2.1.2.1 Appendices may be increased or decreased depending on the USAFE
mission requirements. Specifically, Spangdahlem Air Base, Germany may be
included at a later date.

2.1.2.2 Note: The final room configurations may be slightly different than shown
in the available drawings. Floor plans of the lodging/billeting facilities are
available for viewing at the local Civil Engineering Squadron.

3. SYSTEM REQUIREMENTS.

3.1 General System Requirements.

3.1.1 System Compatibility and Interface. The LFTS shall be compatible with the
existing base Dial Central Office (DCO), Defense Switching Network (DSN), local
commercial telephone system, government furnished equipment (GFE), and meet or
exceed all host nation telecommunications connectivity requirements. The
contractor shall accomplish all host nation connectivity requirements. The
contractor shall provide an interface to a GFE property management system.

3.1.2 Direct Dialing. The switching system shall be capable of performing Direct
Outward Dialing (DOD), Direct Inward Dialing (DID), and Direct Distance Dialing
(DDD) to the Public Switched Telephone Network without the need of an attendant.
DOD, DID, and DDD shall each be assigned to properly class marked stations.

C-2
<PAGE> 12
3.1.3 Flexibility of Connection. Any station directory number shall be assigned
to any switching system line equipment terminal by programming internal
switching system memory.

3.1.4 DTMF Dialing Operation. The equipment shall automatically interconnect
station lines in response to off-hook Dual Tone Multi-Frequency (DTMF) signals
without the aid of an attendant.

3.1.5 Class of Service. The switching system shall provide all necessary classes
of service (class marks) to control subscriber access to other subscribers and
trunk circuits. All class mark codes shall be assigned on a per line basis for
each switched line.

3.1.5.1 Single Line Service. The contractor shall provide single line station
service.

3.1.6 Trunking. The contractor shall provide trunking with a minimum grade of
service of P.03 during the office busy hours. Provide trunking to and from the
local exchange service, interconnect toll service, and USAFE base/location
DCO/DSN. The contractor switching system shall provide trunk circuit interfaces
with standard signaling modes. The system shall recognize and respond to the
various signaling and supervision methods using trunk cards with programmable
and/or strapping options to provide satisfactory trunk operation. Coordinate
with the Base Communications Officer (BCO) on the trunking to be provided by the
USAFE base/location DCO/D.

3.1.7 Traffic.

3.1.7.1 Grades of Service. The switching system shall be designed with
sufficient intra-system circuit paths between line ports and trunk ports to meet
the following grades of service:

3.1.7.1.1 Intra-office Paths P.005

3.1.7.1.2 Incoming Registers

3.1.7.1.2.1 without start signal P.001

3.1.7.1.2.2 with start signal P.01

3.1.7.1.3 DTMF Senders P.001

3.1.7.2 Traffic Measurement Data. Traffic measurement data shall be provided on
hard copy printout via the Administrative Terminal. The switching system shall
store traffic data for study periods up to 24 hours. Data outputs shall include
usage data on all trunks and call completion data.

C-3
<PAGE> 13
3.1.7.2.1 Traffic Measurement and Analysis Report. This report provides data
concerning use and congestion in the switching system. This report will be used
to determine whether the switching system is providing adequate traffic capacity
and to determine whether existing facilities are adequate. (Reference CDRL
sequence number A006).

a. General. The report shall provide printed, tabulated data from the
traffic measuring system. The report shall provide measurements for seven
consecutive business days, on an hourly basis, unless a shorter interval is
requested. The data shall include all of those items listed in paragraphs 3.2.4
and 3.8.4.2.

b. Analysis. The report shall contain an analysis of the traffic
measurements and recommendations based on the analysis. Recommendations shall
address expansion of switch hardware and software and shall be specific and
detailed.

3.1.8 Self Testing and Alarms. An automatic routine under stored program control
shall be provided to monitor the integrity of the switching system. The LFTS
shall provide audible and visual alarms indicating malfunctions or other
conditions affecting service which are detected by the switching system. Audible
and visual alarms shall be extended to the attendant location position or other
remote locations as designated in the SOW. Differing alarms shall indicate major
and minor failures. External alarms for subsystems external to the DPABX are
acceptable. Failure of any portion of the billing system will produce a major
alarm.

3.1.9 System Failures.

3.1.9.1 Major. A failure resulting from:

3.1.9.1.1 loss of call processing on (greater than or equal to) 10% of equipped
lines or trunks, or (greater than or equal to) 10 equipped lines or trunks,
whichever is greater;

3.1.9.1.2 failure of the billing system or any component of the system, or a
major alarm.

3.1.9.2 Minor. A failure resulting from:

3.1.9.2.1 loss of call processing of (greater than) 2% (less than) 10% of
equipped lines or trunks, or two equipped lines or trunks, whichever is greater;

3.1.9.2.2 any abnormal hardware or software condition which requires maintenance
action to restore the LFTS to normal operation, or a minor alarm.

3.1.10 Environmental Conditions.

3.1.10.1 Temperature. The switching system shall operate continuously at ambient
temperature between 10 (degrees) C and 30 (degrees) C (50 (degrees) F and
86 (degrees) F) without degradation of performance. The switching system shall
operate at extreme ambient temperatures of 5 (degrees) C and 40 (degrees C (41

C-4
<PAGE> 14
(degrees) F and 104 (degrees) F) for a minimum of 24 continuous hours. Ambient
refers to conditions at a location five feet above the floor and 15 inches in
front of the equipment.

3.1.10.2 Humidity. The switching system shall operate continuously at a relative
humidity between 20% to 60% without degradation of performance. The switching
system shall be capable of operating continuously for a 24 hour period, without
degradation of performance, when the relative humidity is between 60 & 95%, non-
condensing.

3.1.11 System Availability. Availability is defined as the percentage of total
time that the switching system is able to perform its intended function.
Availability for the LFTS shall be 99.99%.

3.1.12 Automatic Software Reload. The contractor shall provide an automatic
software reloading system. After commercial power is restored following a power
loss exceeding the capacity of the battery backup system, the system shall
reload the call processing software and the database, eliminating the need for
reprogramming the system.

3.2 System Design.

3.2.1 Expansion Capability. The switch system shall be expandable, as identified
in the SOW, beyond the equipped capacity. Expansion of the system beyond the
equipped capacity shall not cause service interruption exceeding one hour in
duration. Time and duration of any service interruption required to expand the
system shall be coordinated with the LFM in accordance with the SOW. All
necessary common control equipment, software features, and power system
components shall be provided at the initial installation to accommodate the
ultimate expansion defined in the SOW.

3.2.2 Dialing Plan. The Dialing Plan for the switching system shall utilize the
NNX codes assigned by the local Telephone Company (TELCO). It shall be capable
of three, four, and five digit station numbers and one, two, and thee digit
access codes. Numbering shall be approved by the Lodging Facility Manager (LFM)
and not in conflict with any computer management system already in place. Trunk
access codes and feature operating codes shall be established by the contractor,
with final approval by the government. For example:

<TABLE>
<CAPTION>
Dial Code Usage
--------- -----
<S> <C>
0 Lodging Attendant
1 through 6 Station Number
7 Base DCO
8 Other Common Carriers
*90 Commercial Operators
91 Commercial DDD
91-800 Commercial Toll free
</TABLE>

C-5
<PAGE> 15
* Access to off base operator assisted calls shall be restricted to lodging
attendant.

3.2.3 Administrative Terminal (AT). The contractor shall provide an AT for
exclusive use by the Lodging Facility personnel The terminal shall provide
access to the switching system and allow additions, deletions, and changes to be
made to administrative data (station features, telephone numbers, authorization
codes, class of service, etc.) and call detail and billing parameters. The AT
shall consist of an alphanumeric keyboard, printer, and visual display terminal
(VDT). The contractor shall perform the initial translations.

3.2.3.1 Answer Detection Capability. The LFTS shall be capable of providing
answer detection, either as an integral part of the system, or as an adjunct
system. The answer detection capability shall allow the switch to positively
identity when the call is answered and start billing at that time, rather than
start billing after a pre-set time or number of rings.

3.2.4 Call Detail Recording (CDR).

3.2.4.1 Call Detail Recording. The LFTS shall automatically collect, sort, and
store CDR data (paragraph 3.2.4.1.1 through 3.2,4.1.8). The CDR subsystem shall
store the processed CDR data on disks. The storage capacity of the disks shall
be no less than 20,000 call records. An audible and visible alarm shall activate
when the disks are nearing capacity. The CDR subsystem shall read and display
the stored data from the disks and shall provide a local hard copy printout on
command. Reading and changing the storage device, or printing of stored data
shall not result in the loss of data or interfere with data collection. The CDR
subsystem shall be equipped with the necessary hardware and software to allow
the user to enter any time interval and sort on any one of the following
parameters (with the exception of paragraph 3.2.4.1.3,3.2.4.1.6 and 3.2.4.1.7):

3.2.4.1.1 Time interval alone (i.e. all calls placed in the initially specified
time interval).

3.2.4.1.2 Room number/extension number.

3.2.4.1.3 Called number(s) (segregated by area and NNX codes).

3.2.4.1.4 Toll and non-toll calls.

3.2.4.1.5 Time call originated (date, hour, minute).

3.2.4.1.6 Time call completed (date, hour, minute).

3.2.4.1.7 Duration of call (accurate to at least five seconds).

3.2.4.1.8 Authorization code (minimum of five digits).

C-6
<PAGE> 16
3.2.4.2 Call Sorting. After selecting the time interval and one or more of the
previous parameters, with no more than five operator entries, the CDR subsystem
shall display, and print on command, the following data:

3.2.4.2.1 Calling number.

3.2.4.2.2 Called number.

3.2.4.2.4 Time call originated (date, hour, minute).

3.2.4.2.5 Time call completed (date, hour, minute), or alternatively, duration
of call.

3.2.4.2.6 Authorization code/Account code.

3.2.4.2.7 Toll charge (dollars. cents).

3.2.5 Call Billing/Room Status Subsystem (CBRSS). The LFTS shall be equipped
with all necessary hardware and software to provide the call billing/room status
function (CBRSS). The CBRSS will not be installed on the Services Information
Management System (SIMS) computer. It may be installed on the PBX or a separate
computer(s) depending on the vendor's solution. The CBRSS subsystem will have at
least two communication ports, one to SIMS, and one to a printer to list all
call account/room status records and print reports. The CBRSS shall pass both
the call account record and the room/bed housekeeping and occupancy status
record to SIMS and to the CBRSS printer. The capability to send a call record to
SIMS and the printer simultaneously as well as the ability to select either
option alone is required. The format of the call accounting and the room status
records sent to the printer can be determined by the vendor but must be
understandable by the attendant i.e. each field value must be identified by a
clear text label. The call accounting records and room status records shall be
passed to the SIMS when it is connected. If SIMS is not available, CBRSS must be
able to store at least 20000 call records with the capacity to run reports with
the same options outlined in paragraphs 3.2.4.1 and 3.2.4.2. It must also be
able to continue routing the call billing/room status records to the printer,
easily identifying that it must be manually posted. CBRSS data shall not be lost
due to commercial AC power outage.

3.2.5.1 Call Billing Function. Charges shall be automatically computed for
commercial, DDD, and Lodging operator assisted toll calls and billed to the
calling station. Direct dialed and operator assisted toll calls originated by
the lodging attendant and extended to a station number shall be billed to the
station number for single occupancy quarters and to the applicable
authorization/account code for multiple occupancy quarters. The toll rate data
base shall be software programmable and based upon necessary tariff parameters
(e.g., area and NNX codes, trunk group, mileage, etc.) and inputs from the LFM.
The contractor shall provide protection of, and access to, the data base by
means of a password (s). The contractor shall perform the initial programming
and shall maintain and update the data base as rate changes occur for the life
of the contract.

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3.2.5.2 Room/Bed Housekeeping and Occupancy Status. The CBRSS shall store and
display the status of each guest room by room number. Housekeeping status shall
be updated by the housekeeper dialing codes from the room phone. The system
shall print, on command, a housekeeping report that contains the following data:

3.2.5.2.1 Room number (capable of five alphanumeric characters).

3.2.5.2.2 Cleaning status (clean or not clean).

3.2.5.2.3 Inspection status (inspected or not inspected).

3.2.5.2.4 Occupancy status (occupied or not occupied).

3.2.5.2.5 Room requires maintenance.

3.2.6 SIMS Interface Requirements. The contractor shall provide the necessary
interface and connections between the Call Billing/Room Status System (CBRSS)
and the SIMS system or its replacement. SIMS interface specifications will be
provided by the government in the delivery order. The interface specifications
will include the necessary message formats and software handshaking protocols
necessary to interface the CBRSS to SIMS or its replacement.

3.2.7 Power Requirements. The switching and billing system shall include an
Uninterrupted Power Supply (UPS) system powered by the commercial AC power. The
UPS shall provide sufficient standby power to operate the switching and billing
system for a minimum of four (4) hours should the commercial AC power be
interrupted. The UPS shall automatically disconnect the batteries from the
switching and billing system should the battery voltage fall below the
manufacturer's low voltage limit. The UPS shall be sized at cut over for the
expansion capacity of the switching system. Batteries shall be of the
maintenance free, sealed recombining type. These batteries shall utilize an
immobilized electrolyte and vent no gases. Power faults shall be indicated by a
visual and audible alarm remote to the immediate area of the attendant console.
Audible alarms remote to the attendant position shall have a means of being
silenced at the attendant position.

3.2.8 Power connectivity shall be accomplished in accordance with the host
nation requirements. All host nation connectivity requirements shall be acquired
by the contractor.

3.3 System Features. The LFTS switching system shall be configured to include
system features described below.

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3.3.1 Message Waiting. The contractor shall provide the attendant console or
message waiting center instruments with the ability to activate and deactivate a
message waiting lamp at each station instrument with message waiting capability.

3.3.2 Authorization/Account Code Calling. The LFTS shall have the capability of
random generation and activation and deactivation of authorization/account
codes. The authorization codes shall not be less than five digits and shall be
assigned to any station line when properly class-marked. The
authorization/account code shall be assigned from the administration terminal by
lodging personnel.

3.3.3 Station Number Hunting. When the first number in a hunting group is found
busy, each line within the hunting group shall be checked consecutively until an
idle line is found. If any idle line is found, that line will be rung. If all
lines are found busy, the calling party shall receive line busy tone. Each hunt
group shall consist of either consecutive or non-consecutive directory numbers.

3.3.4 Automatic Wake-up. The contractor's equipment shall provide an automatic
wake-up service. This service shall permit the attendant to instruct the
switching system to automatically call a station at a specified time. The
attendant shall be able to cancel and activate a wake-up call from the
attendant's position. A subscriber via the subscriber's telephone, shall have
the capability to instruct the switching system to automatically call their
station (and only their station) at a specified time; a subscriber shall have
the capability to cancel wake up calls that the subscriber programmed. The
contractor shall provide a printed record of the wake-up request. The record
shall consist of the room number of the requester, wake-up time, wake-up
cancellation, and indication if the wake-up call was answered. The system shall
be capable of ringing at least 10% of equipped lines simultaneously (all having
the same wake-up time) using this feature. The automatic wake-up service shall
override the DO NOT DISTURB feature.

3.3.5 Do Not Disturb. This feature allows a station to block all incoming calls
and reroute them to the attendant console or message center. The attendant
console shall not automatically override this feature, but may be overridden by
input from the attendant.

3.3.6 Automated Attendant (AA). The LFTS shall provide the automated attendant
capability for all incoming trunks (city and base). All incoming calls shall be
routed to an automated attendant system. This system shall inform the caller,
via announcement, that a room number can be dialed directly if the caller knows
the number, otherwise, the call will be reverted to the attendant. This AA
system may be internal to the switching system or may be provided via an
external system. The specific announcements shall be identified by the LFM.

3.3.7 Automatic Call Distribution (ACD). The LFTS shall provide ACD. The ACD
feature shall provide for efficient distribution and handling of a large volume
of incoming calls to a group of telephone instruments (termed ACD agent
positions) designated for this purpose. The application of the ACD feature shall
be to support offices which

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routinely handle large volumes of call traffic, such as lodging reservations and
comparable activities. The ACD feature shall be capable of supporting at least
one ACD group consisting of 10 ACD agent positions and at least 15 ACD directory
numbers per group in accordance with the definitions provided below.

3.3.7.1 ACD Operation.

3.3.7.1.1 ACD Call Queuing. Incoming calls to directory numbers assigned to ACD
positions shall be served on a First In and First Out basis and equitably
distributed to the in-service ACD agent positions that are in an idle state and
ready to accept calls. The call distribution algorithm shall distribute calls to
ACD agent positions that have been idle the longest period of time. The total
number of calls queued by an ACD group shall be limited by both the number of
calls in the queue and the time the longest call has been in the queue. Both of
these parameters shall be customer definable.

3.3.7.1.2 ACD Directory Number and Queue Assignments. The ACD feature shall
support multiple ACD directory numbers. The number of ACD numbers assigned at a
particular site shall be a function of the projected traffic characteristics of
each ACD facility. It shall be possible to assign multiple ACD agents to an
individual ACD. The assignment of specific ACD agents to specific ACD directory
numbers shall be programmable in the system data base via the Administrative
Terminal (AT).

3.3.7.1.3 Non-ACD Directory Number Allocations. Each ACD agent position shall be
assigned one or multiple directory numbers to receive or originate non-ACD
calls.

3.3.7.1.4 Recorded Announcement and Music On Hold Treatment. When the number of
incoming calls in queue exceeds the number of idle ACD agents, the system shall
route the call to a recorded announcement to inform the calling party of the
delay. Incoming calls shall be routed to the announcement either when the call
is initially placed in the queue or after an established time delay threshold as
measured from the time that the call was originally placed in queue. Following
the application of the recorded announcement, the LFTS shall provide wither
"silent hold" treatment or music on hold treatment, as specified in system
translations. Silent hold treatment or music on hold treatment shall be provided
to the calling party until the call is answered by the ACD agent or until the
call is abandoned. A capability shall be provided to periodically play recorded
announcements over the silent hold or music on hold treatment for the duration
(until an agent answers or the call is abandoned).

3.3.7.1.5 ACD Night Service. ACD night service shall provide treatment for
incoming calls to ACD directory numbers that are not in service after normal
business hours. The night service function shall provide the capability to:

3.3.7.1.5.1 Route incoming ACD calls to a recorded announcement, or

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3.3.7.1.5.2 Forward the incoming ACD calls to a designated night service
directory number.

3.3.7.2 ACD Agent Positions.

3.3.7.2.1 ACD Agent Position Functions. The ACD feature shall support both
working agent (non-supervisory) and supervisory agent positions. Non-supervisory
positions shall support normal incoming ACD call processing tasks. Supervisory
ACD positions shall be capable of supporting incoming call-processing tasks and
the following supervisory functions:

3.3.7.2.1.1 Provide visual indicators which present information on the state of
each non-supervisory agent assigned to an ACD supervisor. As a minimum, the
information provided to an ACD supervisor position shall include the following:

3.3.7.2.1.1.1 Agent position is in active/inactive state

3.3.7.2.1.1.2 Agent is busy processing an ACD call

3.3.7.2.1.1.3 Agent is waiting for an ACD call

3.3.7.2.1.1.4 Agent is busy on a non-ACD call.

3.3.7.2.1.2 Provide access to visual display of summary information on the
status of all agents assigned to an ACD supervisor. As a minimum, the ACD
summary information shall include the following:

3.3.7.2.1.2.1 Number of positions whether active or inactive

3.3.7.2.1.2.2 Number of agents busy on ACD calls

3.3.7.2.1.2.3 Number of agents in the make busy mode

3.3.7.2.1.2.4 Number of agents waiting for ACD calls

3.3.7.2.1.2.5 Number of agents busy on non-ACD calls

3.3.7.2.1.2.6 Number of calls waiting in each ACD queue allocated to the ACD
supervisor and the waiting time of the first call waiting in each queue or some
other statistically meaningful measurement of agent call handling performance
(e.g. average speed of answer).

3.3.7.2.1.3 Have access to ACD management reports specified in paragraph
3.3.7.4.

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3.3.7.2.2 ACD Agent Position Equipment Characteristics. As a minimum, ACD Agent
positions shall be equipped with a telephone instrument that incorporates an
LED, LCD, or comparable visual display for presenting calling source information
and other relevant data to facilitate ACD agent call processing. For ACD
facilities which require ACD management reporting functions, ACD supervisory
position(s) shall be equipped with visual display units and/or printers for
providing ACD performance statistics to ACD supervisors. Specific quantities of
ACD agent positions, ACD supervisory positions, visual display units and
printers will be identified in the site SOW.

3.3.7.3 ACD Agent Features.

3.3.7.3.1 Make Busy Function. The ACD feature shall provide a "make busy"
function which permits an ACD agent to depress a button or key which prevents
subsequent incoming calls from being directed to that agent position. Operation
of make busy function while an agent is processing an active call shall not
disconnect the current call process.

3.3.7.3.2 Emergency Alert. The contractor shall provide an emergency alert
capability. Activation of a special emergency button on the agent's phone shall
automatically print the date, time, called station number, and calling station
number or incoming trunk identity at the AT printer of the LFTS serving the
called station and simultaneously signal the supervisor.

3.3.7.3.4 Call Force. The call force feature shall allow subsequent incoming
calls to be placed on the line without requiring the agent to physically hang
up.

3.3.7,4 ACD Management Reports. ACD management reports shall be generated which
include detailed information on the number of incoming ACD calls. ACD calls
completed, ACD calls not completed and reasons that calls were not completed,
ACD queue statistics and other data which may be used by management and
administrative personnel to assess call handling efficiency. Information similar
to the following shall be included in ACD management reports:

3.3.7.4.1 A count of the number of incoming ACD calls

3.3.7.4.2 A count of the number of completed ACD calls

3.3.7,4.3 A count of the number of calls not completed because the incoming call
queue threshold has been exceeded

3.3.7.4.4 A count of the number of calls not completed because the maximum time
a call can wait in queue has been exceeded

3.3.7.4.5 The number of ACD calls abandoned by the calling party

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3.3.7.4.6 A count of the number of calls received during night service

3.3.7.4.7 Average speed of answer

3.3.7.4.8 Average number of calls in queue

3.3.7.4.9 Average holding time

3.3.7.4.10 Duration of the longest call held in queue.

3.4 Attendant Console.

3.4.1 Attendant Console Capabilities.

3.4.1.1 Attendant Console. The attendant console shall operate with keys or push
buttons. There shall be no cords for call completion or extension.

3.4.1.2 Attendant Call Queuing. Incoming calls not answered by the attendant
shall be placed in queue. The call shall be extended to the console on a first
come, first serve basis. The contractor shall provide a recorded announcement
and a recording and announcing device for all queued calls. All calls placed in
queue shall automatically receive the recorded announcement without assistance
from the attendant.

3.4.1.3 Full Access. The attendant console shall have full access to all main
lines and trunks in the system with the ability to complete station-to-station,
station-to-trunk, trunk-to-station, and trunk-to-trunk calls. No arbitrary
system restrictions will be made. USFI, Inc. will work with the COTR to ensure
all parties are fully protected from fraud and abuse.

3.4.1.4 Alphanumeric Display. An alphanumeric display shall be provided on the
attendant console to display the calling station number (for local stations) or
the trunk circuit to which the attendant is connected.

3.4.2 Attendant Console Features.

3.4.2.1 Split Calling. The attendant shall be able to converse privately with
either the calling or the called party on all calls.

3.4.2.2 Busy Verification. The attendant shall be able to determine whether a
busy station line is actually in service. A warning tone shall first be placed
on the line being verified before completing the talking path. The attendant
shall be able to release the connection after busy verification.

3.4.2.3 Call Transfer. The attendant shall be able to transfer trunk calls to
and from any station line. The attendant shall be able to transfer any trunk
call to a conference circuit.

3.4.2.4 Call Hold. The attendant shall be able to place an incoming call on
hold.

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3.4.2.5 Class of Service Override. The attendant shall be able to override any
line or trunk class of service marking for the purpose of accessing and
switching the circuit.

3.4.2.6 Conference Calls. The attendant shall be able to establish user defined
conference calls of up to six parties.

3.5 Station Features for Administrative Telephones. The following station
features shall be assigned to administrative office phones:

3.5.1 Call Transfer. Subscribers shall be able to transfer any in progress call
to another station without assistance from the attendant.

3.5.2 Call Hold. Subscribers shall be able to place an in-progress call on hold.

3.5.3 Three-way Conference. Properly class marked subscribers shall be able to
place a call on hold and then add a third party to an in progress local or trunk
call without attendant assistance.

3.6 Premise Equipment.

3.6.1 Telephone Instruments. All telephone instruments shall be new, full size,
fully modular, DTMF instruments. The contractor shall provide message waiting
capability for all instruments with message waiting specified in the SOW. The
message waiting feature shall use a visual means to alert the station user of
message waiting. All instruments shall be of the same neutral color as agreed to
by the LFM. Telephone instruments shall, as a minimum, consist of the base unit
with DTMF keypad, hand set, hand set cord and fully modular mounting cord.

3.7 Distribution System. Government furnished outside (black) cable that is
available for contractor use to interconnect billeting buildings to the Main
Distribution Frame shall be identified by the base Communications Squadron. The
contractor shall be responsible for providing and installing any other
additional outside cable required. The contractor shall provide and install all
new inside (building) cable, conduits, ducts, distribution frames, terminal
equipment, terminal blocks, and any other hardware necessary to provide complete
telecommunication service. Demarcation points of government furnished black
cable will be at the terminal blocks in each building unless otherwise specified
in the SOW. New standard, fully modular jacks and plugs shall be provided by the
contractor for all installations and relocation of terminal equipment. The
contractor shall provide complete service to, and interface at, the government
specified demarcation points for those pre-wired buildings, if any, that are
identified in the appendices for each site.

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as specified in the delivery order. The distribution plant shall be designed
with all lines and spares being "fixed count" (i.e., dedicated and accessible at
the main distribution frame (MDF)) with no multiple connections except as
specified in the SOW. All outside plant cable pairs shall be terminated on gas
tube protectors at the distribution frames and the terminal end.

3.7.2 Cable and Trenching. All outside cable shall be filled and direct buried
or underground in new conduit and ducts. Gopher resistant cable, if required,
will be specified in the SOW. All road/driveway crossings shall be accomplished
by boring/accupunch method unless otherwise approved, in writing, by the
contracting officer after contractor coordination with base roads and ground
agencies. All buried cable crossing under roads, streets, parking lots,
driveways, railroads, etc., that bears vehicular traffic shall be placed in
protective conduit. The contractor shall accomplish all trenching IAW REA
standards and shall be responsible for performing all back filling, re-seeding,
re-paving, or any other service and material to restore services to their
original condition. All outside cable termination shall be enclosed in weather
tight enclosures, and all outdoor splices shall be direct buried using filled,
sealed enclosures. The use of buried distribution terminals is prohibited. Any
indoor filled cable shall not exceed 50 feet, shall be in conduit, and shall run
directly to the house terminal block. All indoor splices shall be enclosed in a
proper type of indoor splice enclosure. Filled cable run indoors shall not be
run between floors or inside walls, nor shall it be terminated on protective
devices if such device is part of the Main Distribution Frame (MDF) or an
Intermediate Distribution Frame (IDF). If a conduit is available, it shall be
used for cable entrance. The cable shall be run to the protected terminal
upwards in a vertical direction wherever possible and be sealed to prevent jelly
leakage. Where a cable enters a facility through an exterior wall, it shall be
properly sealed on both sides of entry to prevent any kind of leakage. The
contractor shall ensure cable installation does not cause mechanical stress or
strain to the cable, or result in sharp edges, burrs, or other projections which
may be injurious to the insulation or jackets of the wiring. In addition, the
contractor shall provide ground level (flush), telephone warning, splice, and
route signs at all underground/buried splice locations and all changes of
direction in excess of 30 degrees. All contractor cable and trenching shall meet
all host nation requirements, specifications and environmental standards.

3.7.2.1 Government Furnished Cable Connectivity. The only Government furnished
cable used for the LFTS are those cable pairs that provide base extensions and
tie lines to the base DCO/DSN. The contractor shall provide all splicing and
interface to the government specified demarcation points (e.g. house terminal,
IDF, pedestal, MDF) with the GFE cable. All contractor installed pairs shall be
terminated to the MDF, at the hub building (where applicable), and at the
individual building terminals. Cable runs shall not have bridge taps or loop
extenders installed. When installed, the cables shall have no more 'bad' pairs
than were originally certified as 'bad' by the manufacturer.

3.7.2.2 Digging Permits. Cable shall be installed at or deeper than 18". The
contractor shall not dig on the base without a valid digging permit. To obtain a
digging permit, the

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contractor shall prepare and submit for approval an AF Form 103, which can be
obtained at the base government Civil Engineering Squadron. This form will take
approximately 10 days to process and the resulting digging permit is good for
30-60 days. When the contractor is ready to dig at a particular site, CE shall
be notified 48 hours in advance so that the utilities can be marked before the
contractor begins to dig. Trenches within three feet of existing utilities must
be hand-dug. Any damage to marked utilities during installation shall be
repaired at the contractor's expense. When installing the outside plant, the
contractor shall bore under all CE specified roads. All other roads, parking
lots, and sidewalks may be trenched across. Upon review of the contractor's
installation plan, the base may request that additional roads be bored vice
trenched. When restoring the trench and bore pit locations, the contractor shall
compact the soil to prevent sinking and re-compact after 30 days. All roads
shall be returned to original condition. When filling trench and bore pit
locations in grassy areas, the contractor shall 'top off' the restoration with
at least six inches of topsoil. The contractor shall be responsible for
re-seeding the trenched and bored areas in grassy areas, except as identified
by CE in the grassy area around DV/VIP lodging/billeting facilities, which
shall be sod instead of seed.

3.7.3 House Wire. House wire shall be extended from punch down terminal blocks
at the outside plant terminal location to intermediate terminal points within
each facility. Each station shall be provided with two individual pairs of wires
(four conductors) from the building terminal. Station lines shall be terminated
on standard two pair flush mounted modular jacks at all locations except on
masonry walls. RJ-11 or similar jacks may be used on masonry wall locations.
Jacks for desk type phones shall be mounted no higher than 12 inches from floor
level. Jacks for wall type phones shall be mounted no lower than 52 inches and
no higher than 56 inches from the floor level. The contractor shall route all
house wire on the interior of the buildings. The contractor shall install all
house wire so that it is concealed inside walls, ceilings, or other parts of the
permanent structure. Where house wire can not be concealed, it shall be placed
in color coordinated raceways with the proper appliance for installing flush
mounted jacks, and require the approval of the Lodging Facility Manager prior to
installation. All house wiring shall comply with host nation requirements.

3.8 Engineering and Installation.

3.8.1 Meetings. The contractor shall attend all meetings as identified by the
contracting officer. The contracting officer will notify the contractor of the
date, time, and location of meetings. The Lodging Facility Manager (project
manager) will notify the contractor of the meeting agenda.

3.8.2 Site Survey. The contractor shall accomplish a building by building site
survey of affected lodging/billeting facilities after contract award. The
contractor shall schedule and coordinate the site survey with the Project
Manager/LFM(s). The contractor shall perform the site survey with the LFM and
other specified government representatives. The contractor shall assemble a
complete listing of all locations, quantities and types of

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all equipment including, but not limited to, lines, trunks, customer premise
equipment, special systems, and transmission facilities.

3.8.3 LFTS Installation. The contractor shall not begin any installation until
the contracting officer has approved the Installation Plan. The contractor shall
install the new LFTS in accordance with the approved Installation Plan. The
contractor shall coordinate with lodging/billeting facility personnel to
assemble the subscriber data (i.e. Telephone number, class of service, etc.).
The contractor shall assemble the subscriber data and shall coordinate with the
BCO and local telephone company to obtain information concerning circuit cable
pair assignments, trunk choices, schedules, etc., to obtain optimum trunk
hunting sequences, terminal assignments, and programming of the LFTS (Reference
CDRL sequence number A001)

3.8.4 Cut over. The cut over shall occur on dates and times mutually agreed to
by the contractor and the contracting officer. Cut over shall not occur until
all pre-cut over installation tests have been performed successfully and any
functional discrepancies identified have been corrected. The contractor shall
allow a minimum of 48 hours from completion of all testing and correction of any
discrepancies before cut over to allow adequate time for the Government to
determine if the LFTS is ready for cut over. The contractor shall coordinate
system outages during cut over with the LFM to minimize disruptions. (Reference
CDRL sequence number A002)

3.8.4.1 Testing. The switch shall be ready for government observed installation
testing/inspection no later than fifteen (15) days prior to the mutually agreed
upon cut over date. Installation testing shall be performed in accordance with
the approved Installation Acceptance Test Plan to verify that the LFTS meets the
EPS and SOW requirements. The contracting officer shall be notified in writing
no less than two weeks before any official testing is to be performed. Failure
to meet the testing date may result in postponement of the cut over. (Reference
CDRL sequence number A008.)

3.8.4.2 Traffic Measurement and Analysis. The contractor shall perform traffic
measurement and analysis for 30 consecutive calendar days immediately following
cut over of the LFTS. The contractor shall give recommended solutions to the LFM
in order to alleviate any known problems (e.g. call blocking, dial tone delay,
insufficient trunking) IAW SOW and EPS paragraphs 3.1.7 and 3.2.4 (Reference
CDRL sequence number A006)

3.9 Scheduled Service Interruptions. When the contractor must schedule a service
interruption for the purpose of working on the LFTS, the work shall be done at a
time which will cause the least inconvenience to the users. The contractor shall
notify and coordinate with the LFM in advance of any scheduled service
interruption. The contractor shall specify the starting time and duration of the
interruption along with what lines will be affected. The contractor shall
provide verbal notification to the LFM immediately after service has been
restored.

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3.9.1 Service Outages. The contractor, upon notification of a service outage
from the LFM through the contracting officer, shall restore all outages on a
priority basis IAW the following subparagraphs. The contractor shall provide
verbal notification to the LFM through the contracting officer immediately after
service has been restored.

3.9.2 Major Failures. If a major failure as described in EPS paragraph 3.1.9.1
occurs, the contractor shall perform an emergency service call. The contractor's
personnel shall arrive at the lodging facility within two (2) hours after
notification. Restoration/repair shall begin immediately and continue until the
system failure(s) are repaired and service is restored.

3.9.3 Minor Failures. If a minor failure as described in EPS paragraph 3.1.9.2
occurs, the contractor shall perform a routine service call. The contractor
shall restore all minor failures no later than three (3) workdays after
notification.

3.10 Installation Records (As built Drawings): The contractor shall provide
Communication-Computer System Installation Records at the time of cut over.
These records shall indicate the complete "as built" configuration of the LFTS
at the time of cut over. The contractor shall revise the records as a result of
any modification, upgrade, or expansion. (Reference CDRL sequence number A004).

3.11 Expanded Service. The contractor shall provide expanded services after cut
over in accordance with the terms of the contract as requested by the
government. Expanded services are those services necessary to satisfy additional
requirements over and above those provided at cut over.

3.12 Reserved Rights. The government reserves the right to pre-wire and provide
instruments to all or part of any or all new and remodeled buildings along with
providing and installing some or all outside cabling for these installations.
The contractor shall provide any necessary splicing and shall interface to the
government specified demarcation points (e.g. house terminal, IDF, pedestal,
MDF).

3.13 Training. The contractor shall provide training, in English, for government
representatives at each USAFE base/location. All classes shall be conducted at
the local base. The class starting dates shall be proposed by the contractor and
coordinated and approved by the LFM. Actual hands-on training shall be conducted
on live equipment, within seven (7) days prior to cut over but after successful
completion of installation testing. Contractor provided technical assistance
shall be available on site for seven days after cut over. The contractor shall
provide training on the equipment, such as; the Attendant Console,
Administrative Terminal, Administrative Telephone Instruments, Billing System,
Call Detail Recording System, Automatic Call Distribution, Voice Mail, etc.
Attendees will be identified by the LFM. (reference CDRL sequence number A005)

3.13.1 Front Desk Attendant Training. The contractor shall provide training on
front desk attendant services for a minimum of five government representatives
per attendant

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terminal equipment. Provide training at the request of the LFM, but no more
than once a year.

3.13.2 Administrative Training. The contractor shall provide training on
administrative services for a minimum of two government representatives at each
USAFE base/location. Provide training at the request of the LFM, but no more
than once a year.

3.13.3 Station Training. The contractor shall provide trailing on station
services and system features for a minimum of five government representatives at
each USAFE base/location.

3.13.4 Billing Training. The contractor shall provide training on call detail
recording and billing services for a minimum of five government representatives
at each USAFE base/location.

3.13.5 User Manual. The contractor shall prepare user manual and pad overlays
with the instructions to explain the operation of service and the dialing plan.
There shall be three types of overlays, one for single line service, one for
multi-line service and one for PC/Lap Top connectivity. (Reference CDRL sequence
number A010 and A011)

3.14 System Documentation. The contractor shall provide the commercial system
documentation (in English). This documentation shall be maintained on-site and
shall include the basic design and detailed operation of the switch, the
attendant console, the AT, the billing system, the call detail recording
subsystem, and the voice mail system. (Reference CDRL sequence number A010 and
A011.) The contractor shall also develop (in English) and provide subscriber
education pamphlets. The contractor shall provide one for every telephone
provided under this contract. (Reference CDRL sequence number A007)

3.15 Personal Computer (PC)/Lap Top Computer Connectivity:

3.15.1 Private and shared rooms shall have one duplex outlet to be used for
message waiting telephone service and the other for a computer MODEM connection
using a RJ-45 terminal. Different directory numbers are required.

3.15.2 Suites shall have two duplex outlets to accommodate two ringing phones
and two RJ-45 connectors for computer use. The two phones shall have the same
number and the two computer outlets shall have the same number. The phone and
computer directory numbers shall be different. Location of the outlets shall be
coordinated with the LFM.

4. QUALITY CONTROL.

4.1 Quality Control Program. The contractor shall establish a quality control
program to assure that the LFTS meets all of the performance criteria in this
specification and conforms to host nation standards and environmental
requirements. This program shall

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include physical inspections and functional testing of the LFTS before, during
and after cut over.

4.2 Quality Assurance. The government Quality Assurance Evaluator (QAE) (the
base lodging manager) and the Contracting Officer's Technical Representative
(COTR) will monitor the installation progress to insure that the LFTS meets the
requirements of the SOW and EPS.

4.3 Installation Testing. The contractor shall perform an installation test of
the complete LFTS to ensure requirements of the SOW and EPS are met or exceeded.
Government representatives will be allowed to witness all inspections and tests
to assure conformance with the SOW and EPS. The contractor shall demonstrate to
the government representative, all requirements of the SOW and EPS, prior to
acceptance testing. The contractor shall notify the Contracting Officer no later
than two weeks prior to installation testing to allow sufficient time for a
government representative to observe. No official installation testing will take
place prior to a government representative arriving on site. (Reference CDRL
sequence number A008).

4.4 Acceptance Testing. The contractor shall accomplish acceptance testing IAW
the Acceptance Test Plan. Acceptance testing shall not begin until the
government has approved the Acceptance Test Plan. Acceptance testing shall
consist of 30 consecutive days of satisfactory operation of the LFTS.
Satisfactory operation shall be operational with no major failure (as defined in
paragraph 3.9.2) and with satisfactory traffic conditions (as defined in
paragraph 3.1.7). The inability to perform satisfactory operation shall be
justification to reschedule and restart the operational test period and
reschedule the acceptance testing. During the acceptance testing, the contractor
shall contact the LFM at least daily on normal duty workdays and at least once
daily on non-workdays to verify proper system operation and arrange to correct
malfunctions or explain proper operating procedures. (Reference CDRL sequence
number A008).

4.4.1 Acceptance Test Report. The contractor shall document the results of tests
and examination on LFTS prior to system acceptance in the Test/Inspection
Report. (Reference CDRL sequence No. A009)

5. PREPARATION FOR DELIVERY.

5.1 Packaging shall be IAW the terms of the contract and meet host nation
requirements.

6. NOTES.

6.1 Acronyms.

BCO: Base Communications Officer.

BCE: Base Civil Engineer.

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CDRL: Contract Data Requirements List.

COTR: Contracting Officer Technical Representative

DTMF: Dual Tone Multi Frequency.

EPS: Equipment Performance Specification.

FAM: Functional Area Monitor.

FCA: Functional Configuration Audit.

IAW: In Accordance With.

IDF: Intermediate Distribution Frame.

LFM: Lodging Facility Manager.

LFTS: Lodging Facility Telecommunications System.

MDF: Main Distribution Frame.

PCA: Physical Configuration Audit.

QAE: Quality Assurance Evaluator.

SIMS: Services Information Management System.

SOW: Statement of Work.

6.2 EFI&T. EFI&T, as used in the EPS, is defined as a contractor responsibility
to engineer, design, furnish, install, test, and maintain a system or single
item of equipment to provide a service to the government.

6.3 Point of Contact (POC). The LFM or authorized representative shall be the
sole focal point for all service requests.

6.4 Attendants. Attendants will be provided by the LFM.

6.5 Paragraph Referencing. Any reference to a paragraph is understood to include
all subparagraphs.

6.6 Response Time. All response times for work requests, outages, etc. are based
upon consecutive clock hours, unless otherwise stated, and shall begin from the
time that the

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contractor is first notified, verbally or in writing, whichever occurs first. If
verbally notified, a follow-up written verification will be forwarded.

6.7 Outside Plant. That portion of the LFTS extending outward from the MDF up to
and including terminal blocks and intermediate distribution frames but excluding
premise equipment.

6.8 Premise Equipment. Premise equipment includes telephones, telephone cables,
modular jacks (usually flush mounted), gray wire runs to the intermediate
distribution frame or terminal blocks.

6.9 Inside Plant. That portion of the LFTS extending inward from, and including,
the MDF.

6.10 Two-Way Lines. All lines shall be two-way unless stated otherwise.

6.11 Demarcation Points. All government specified demarcation points will be
identified by the BCO during the contractor's site survey.

6.12 Disclaimer for Government Provided Drawings. Government provided drawings
are for the purpose of establishing a conceptual basis to enable contractors to
prepare a suitable proposal. Contractors choosing to use any or all information
therein shall do so only if and when their engineering and design considerations
so dictate. The contractor shall not depend on government provided information
to determine cable lengths, condition of cable and other equipment, building
construction or other physical considerations. These items must be determined by
the contractor by site visits and physical surveys.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

3.1.1 USFI certifies that the PBX provided will meet or exceed all host
nation telecommunications connectivity requirements, will be fully
compatible with the local commercial telephone system, and will have an
interface to the GOVERNMENT property management system. The Defense
Switched Network (DSN) interface will consist of an E-l circuit capable
of carrying 30 simultaneous voice/data calls to the existing Siemens
KNS-4100 in Germany and Italtel Office 5000 system in Italy. The
demarcation points for the USFI E-1 circuits are the underground cable
distribution blocks in the following buildings:

Ramstein: Building 305
Rhein-Main Building 600
Aviano: Building 256

3.1.1.2 NOTE: The lodging manager at each base must submit a communications
service request (C4SRD) to have the host base communications squadron
provision the DSN switch for one E-1 circuit with 30 channels, and
extend that circuit to the demarcation point. USFI cannot take
responsibility for the hardware and software provisioning required in
the GOVERNMENT DSN switching system. These actions must be coordinated
through the local communications squadron to the appropriate
DISA-Europe office in Vaihingen, Germany.

3.1.2 System will meet or exceed requirement by providing interface into the
public network. USFI will obtain a block of Direct Inward Dial (DID)
numbers from the host nation telephone service provider. These numbers
will be unique, and will not conflict with the existing base access to
public telephone system network. USFI will provide DID capability from
the GOVERNMENT DSN system, but takes no responsibility for provisioning
the GOVERNMENT system. USFI recommends obtaining a unique NNX code from
DISA-Europe in Vaihingen for each lodging PBX facility.

3.1.3 System will meet or exceed requirement.

3.1.4 System will meet or exceed requirement.

3.1.5 System will meet or exceed requirement.

3.1.5.1 System will provide single line service.

3.1.6 System will meet requirement concerning grade of service standards. The
nomenclature used in the SOW (LEC, IXC) is unique to the post
divestiture

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

US operating norm of using the Regional Bell Operating Companies for
local service, and Inter Exchange Carriers (AT&T, MCI, US Sprint, etc.)
for long distance. Trunking for the lodging facilities will be to the
host commercial network, to the GOVERNMENT DSN system, and to the USFI
long distance network. USFI will provide a standard E-1 CAS signaling
interface capable of true answer supervision to the designated
demarcation point for the GOVERNMENT DSN switch. USFI will order and
connect circuits through the local commercial telephone service so that
lodging guests can directly call the immediate area surrounding the
military installation through the host nation telephone system. USFI
will provide all equipment necessary at each location to interface the
lodging telecommunications system to the USFI long distance telephone
network. USFI requires a Letter of Authority signed by the appropriate
GOVERNMENT representative in order to have service from the host nation
telephone company delivered to a GOVERNMENT facility.

3.1.7 No response required.

3.1.7.1 System will meet or exceed all grade of service requirements.

3.1.7.2 System will meet or exceed traffic measurement requirements.

3.1.8 System will meet or exceed self-test and alarm requirements.

3.1.9 System will meet requirements for major and minor alarm thresholds.

3.1.10 System will meet or exceed environmental condition requirements.

3.1.11 System will meet or exceed system availability requirements.

3.1.12 System will meet automatic software reload requirements.

3.2 No response required.

3.2.1 Systems will be expandable to meet all known requirements. The
expansion limitation for the Nortel Meridian SL-1 product line is
80,000 stations.

3.2.2 System will meet or exceed dialing plan requirements. Dialing plan in
SOW reflects the US operating environment (toll free 800). USFI will
propose and negotiate a standardized dialing plan appropriate to the
host nation operating environment with USAFE representatives during
post-award site survey so that all future lodging switches will use the
same standardized dialing scheme.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

3.2.3 USFI will provide an administrative console with the required
capabilities for the exclusive use of lodging facility personnel. USFI
will perform all initial translations.

3.2.3.1 System will meet the requirement to detect true answer supervision as
the signal to start billing.

3.2.4 No response required.

3.2.4.1 System will meet or exceed all call detail recording requirements.

3.2.4.2 System will meet or exceed call sorting requirements.

3.2.5 System will meet or exceed requirements. The CBRSS system will be
powered by the USFI provided UPS.

3.2.5.1 System will meet or exceed requirements. USFI will develop, program,
and maintain all applicable rating and routing tables.

3.2.5.2 System will meet or exceed requirements. The Maid Identification
feature allows the maid to update the room status with one of the
following codes:

1 - cleaning requested
2 - cleaning in progress
3 - room cleaned
4 - room passed inspection
5 - room failed inspection
6 - cleaning skipped
7 - not for sale

3.2.6 System will meet or exceed requirements. The system provided by USFI
will meet all industry standard handshaking protocols for interfacing
to a property management system.

3.2.7 USFI will provide a UPS capable of supporting the system for a minimum
of 4 hours. The battery plant will consist of sealed, maintenance-free
gel cells which vent no gases. Power failure alarms will be indicated
by visual and audible remote alarms at the attendant console. USFI will
provide lodging personnel with a 24 hour, seven day per week contact
name and number for such emergencies.

3.2.8 Power connectivity will comply with host nation requirements.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

3.3 No response required.

3.2.1 System will meet requirement.

3.3.2 System will meet requirements.

3.3.3 System will meet station hunting requirement.

3.3.4 System will meet automatic wake-up performance requirements concerning
feature activation and deactivation by the guest, printed record of
feature activation/deactivation and wake-up call answer indication, and
the capability of simultaneously ringing 10 percent of equipped lines.
The automatic wake-up service will override the DO NOT DISTURB
feature.

3.3.5 System will meet Do Not Disturb requirement.

3.3.6 USFI will provide an automated attendant feature internally with the
PBX. This system will meet performance requirements. USFI will program
announcements identified by the LFM.

3.3.7 System will meet or exceed all ACD requirements listed in paragraphs
3.3.7 through 3.3.7.4.10.

3.4 No response required.

3.4.1 Attendant consoles will meet requirements of cordless operation.

3.4.1.2 Calls not answered by the attendant will automatically receive a
recorded announcement treatment, will be placed in queue, and will be
extended to the attendant console on a first come, first serve basis.
USFI will provide recorded announcements, and will provide a device
which will allow Government employees the capability of recording
customized announcement.

3.4.1.3 The attendant console will have full access to all main lines and
trunks in the system, and will be capable of completing
station-to-station, station-to-trunk and trunk-to-trunk calls providing
there is a clear means of allocating any applicable toll charges. No
arbitrary system restrictions will be made. USFI, Inc. will work with
the COTR to ensure all parties are fully protected from fraud and
abuse.

3.4.1.4 System will meet requirements.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

3.4.2 No response required.

3.4.2.1 System will meet requirements.

3.4.2.2 System will meet requirements.

3.4.2.3 System will be capable of meeting requirement, but feature may be
blocked by USFI due to toll considerations.

3.4.2.4 System will meet requirement.

3.4.2.5 System will meet requirement.

3.4.2.6 System will meet requirement.

3.5 No response required.

3.5.1 System will meet call transfer requirement.

3.5.2 System will meet call hold requirement.

3.5.3 System will meet three-way conference requirement.

3.6 No response required.

3.6.1 Telephone sets will meet requirements.

3.6.2 Not applicable.

DELETED

3.7 USFI outside plant installation will meet all specifications. The only
outside plant cable work required will be at Ramstein Air Base. This
work will use existing government manhole/duct/conduit systems to
install outside plant cables from building 305 to buildings 2409/2408,
from building 305 to buildings 304/303, and from building 305 to
buildings 538/540/542/541. USFI will trench from the east end of the
parking lot adjacent to building 305 to the cable entry point of
building 306. USFI will use the Government-provided outside plant
cable at Rhein-Main. USFI will also use existing

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

GOVERNMENT cable to gain access to buildings 230, 232, 255, 273, and
274 at Aviano.

3.7.1 System will meet requirements.

3.7.2 USFI will meet all cable and trenching requirements.

3.7.2.1 USFI will meet all cable termination requirements.

3.7.2.2 USFI will meet all requirements concerning depth of cable, obtaining a
valid digging permit, and coordinating digging with all appropriate
GOVERNMENT parties.

3.7.3 System will meet house wiring requirements.

3.8 No response required.

3.8.1 USFI will attend all meetings scheduled either by the contracting
officer or the Lodging Facility Manager.

3.8.2 USFI will comply with site survey requirements.

3.8.3 USFI will not begin any installation work until the Installation Plan
(CDRL A001) has been approved by the contracting officer.

3.8.4 USFI intends to pursue an installation schedule in order to provide
telephone service at the three lodging facilities in the minimum amount
of time. USFI will not cut the system over until all functional
discrepancies have been corrected to the Contract Officer
Representative's satisfaction. Since there is no existing system, there
will be no disruptions involved in the cut over. USFI's cut over plan
(CDRL A002) will address the replacement of DSN phones, where they
exist, with USFI-provided lodging phones. USFI's target cut over dates,
based on an April 15, 1996 contract award, are as follows:

<TABLE>
<CAPTION>
LOCATION BUILDING DATE
-------- -------- ----
<S> <C> <C>
Ramstein 305 August 16, 1996
Rhein-Main 600 September 6, 1996
Aviano 256 September 27, 1996
</TABLE>

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

3.8.4.1 The switch will be ready for testing seven days prior to the mutually
agreed upon cut over date. Testing will be performed according to the
Acceptance Test Plan (CDRL A003). Cut over will not occur without the
full concurrence of GOVERNMENT representatives.

3.8.4.2 USFI will perform traffic measurement and analysis for 30 consecutive
days immediately following cut over of the LFTS. USFI will recommend
solutions to any problems identified during this analysis period.

3.9 Any service disruptions for the purpose of working on the LFTS will be
fully coordinated with the LFM. Since USFI will provide access to a
full time employee to accomplish this work, the service times can be
scheduled at off hours when the impact on lodging guests will be
minimized. USFI will notify the LFM or the LFM's designated
representative upon completion of any service-impacting work.

3.9.1 USFI will comply with the terms specified concerning service
restoration priorities and follow-up procedures.

3.9.2 Will fully comply.

3.9.3 Will respond within 24 hours in 90 percent of cases. All minor failures
will be corrected within three workdays.

3.10 USFI will provide Installation Records (CDRL A004) at cut over, and
will revise the records to reflect any system changes through
modification, upgrade, or expansion.

3.11 USFI is fully committed to providing the best Customer Service
available. Our goal is to develop a mutually rewarding long term
relationship through our commitment to your satisfaction. Expanded
service is defined as additional services or features required to
support the lodging mission (i.e. addition of new buildings, rooms, and
lodging offices).

3.12 USFI concurs.

3.13 USFI will provide training during the seven day testing period prior to
cut over. This training will be scheduled through the LFM, and at the
convenience of GOVERNMENT lodging employees. Training will be conducted
on the operational system. USFI will remain on site for at least seven
days following cut over to provide technical assistance to lodging
employees on all equipment, and on a to be negotiated ongoing basis of
no less than one session per year (CDRL A005). Training will include
the Attendant Console,

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

Administrative Terminal, Administrative Telephone Instruments, Billing
System, Call Detail Recording System, Automatic Call Distribution,
Voice Mail and all available system features. USFI recognizes that
lodging employees' thorough understanding of all system features is
crucial to the perception of the quality of the service USFI is
providing to lodging guests. USFI is fully committed to providing any
training necessary, within reasonable limits, for lodging employees to
operate the LFTS and advise guests on feature usage.

3.13.1 USFI will provide requested initial training, and will also make
training material available to LFM for ongoing, in house training.

3.13.2 USFI will provide requested training. The full time USFI employee will
provide ongoing training as required.

3.13.3 USFI will provide station and features training during the week prior
to cut over, and on an ongoing basis as required.

3.13.4 USFI will provide billing training as necessary to ensure smooth
operation and collection of all fees.

3.13.5 USFI will provide user manuals and key pad overlays, and stock
replacement items to account for loss/pilferage (CDRL A009).

3.14 System documentation provided by USFI will comply with all
specifications (CDRL A006 and CDRL A007).

3.15 No response required.

3.15.1 USFI will exceed specifications by integrating the voice and data
requirements at the telephone instrument. PC connectivity will be
accomplished with an RJ-45 connector to the telephone set. The voice
and data ports will have different directory numbers.

3.15.2 System will meet requirements, as in 3.15.2.

4 Quality Control Program

4.1 USFI will fully comply with Quality Control requirements.

4.2 USFI will fully support the GOVERNMENT Quality Assurance program, and
coordinate all activities through the designated QAE and FAM.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

4.3 USFI will fully comply with all requirements for Installation Testing.

4.4 USFI will fully comply with all requirements for Acceptance Testing.

4.4.1 USFI will provide an Acceptance Test Report as required (CDRL A008).

5 No response required.

5.1 All packaging will meet the terms of the contract and all host nation
requirements.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

3 SUMMARY OF RESPONSE TO SOLICITATION:

3.1 USFI will provide the following:

3.1.1 A modern state of the art fully digital PBX system at each
base listed in the RFP. The PBX system provided by USFI will
accommodate lines and trunks, will offer the latest in
hotel/motel technology, and will offer a robust feature set
which will meet or exceed every requirement in the Statement
of Work.

3.1.2 Digital telephone sets with an integrated data port and
message waiting lamp installed at each location identified
during the site survey.

3.1.3 All in-house cabling, ducts, and jacks required to connect all
telephone sets to the PBX.

3.1.4 An underground cable distribution system for the Ramstein
billeting complex.

3.1.5 Voice mail system capable of supporting every subscriber on
each system.

3.1.6 A billing system which will track all toll charges and
transmit a record of those charges to the GOVERNMENT SIMS
system so fees can be collected by the GOVERNMENT at guest
check out.

3.1.7 Room status indicator system.

3.1.8 Interfaces to the demarcation points specified in Section 7.

3.1.9 Attendant consoles (four at Ramstein, one each at Rhein-Main
and Aviano).

3.1.10 Four hour battery backup on PBX and CDR systems.

3.1.11 PBX network security.

3.1.12 Access to a full-time USFI employee for maintenance. Access to
Nortel for extended maintenance for the life of the contract.

3.2 The US GOVERNMENT will provide the following at no charge to the
bidder:

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

3.2.1 General

3.2.1.1 Utilities.

3.2.1.2 Equipment rooms identified in site surveys on February 13. 15
and 16 for PBX and USFI network equipment installations.

3.2.2 Ramstein:

3.2.2.1 Use of existing manhole/duct/conduit system to install cables
from building 305 to all other billeting facilities on
Ramstein Air Base, with the exception of building 1018.

3.2.2.2 Use of GOVERNMENT cable pair to connect building 305 to
building 1018. No arbitrary system restrictions will be made.
USFI, Inc. will work with the COTR to ensure all parties are
fully protected from fraud and abuse.

3.2.2.3 Use of existing unused fiber optic cables, as required, to
be determined during post award site survey.

3.2.2.4 Use of existing flat conduit in all buildings.

3.2.3 Rhein-Main

3.2.3.1 Use of existing 100 pair cable from building 600 to building
632, 633, and 634.

3.2.3.2 Use of existing flat conduit.

3.2.4 Aviano

3.2.4.1 Use of existing GOVERNMENT cable to all buildings.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

3.3 SUMMARY OF UNSOLICITED OFFERS: In addition to responding to the basic
terms set forth in the GOVERNMENT RFP, USFI is pleased to offer the
following:

3.3.1 Prepayment of the first $50,000.00 of the GOVERNMENT portion
of long distance revenues. Payment will be made within 30 days
of contract award.

3.3.2 Certificates for 30 minutes of free USFI long distance for
military members experiencing a hardship. USFI will negotiate
the number of certificates to be awarded and will work through
the Lodging Facility Manager, the local Chief/Sergeant Major
Groups, and the local First Sergeants group to develop
criteria to identify hardship cases.

3.3.3 USFI offers to provide the requested LFTS services to the
extended Ramstein area (Vogelweh, Landstuhi and Sembach) in
conjunction with the Ramstein installation. The specific
system configuration will be determined by mutual agreement
with the USAFE Services representatives during the post-award
Ramstein site survey. To provide complete feature transparency
between sites, the USFI preferred solution is to service the
outlying areas by expanding the capacity of the Ramstein PBX.
If the GOVERNMENT chooses to exercise this option. USFI will
prepay an additional $50,000.00 of the GOVERNMENT percentage
of long distance within 30 days of receipt of a delivery
order, for a total prepayment of $100,000.00 of GOVERNMENT
percentage of long distance fees.

3.3.4 USFI Debit Cards for over the counter sales at the lodging
facilities reception desks. The Debit Cards will be for
pre-determined amounts ($10, $15, $20, etc.) and can be used
in any card phone for calls to any destination in the world.
Long distance charges are subtracted from the card balance as
the cards are used. USFI offers the GOVERNMENT 15 percent of
any revenues from Debit Card sales. USFI further offers to
design the cards to meet any GOVERNMENT requirement. This
option will be declined at the present time by the Government,
however, the Government reserves the right to implement this
at a later date.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

SPECIFIC DESCRIPTION OF OFFER:

4.1 SYSTEM OVERVIEW: USFI will install a complete turn-key communications
system which will interface with existing and planned GOVERNMENT
equipment at each facility designated in the RFP. In order to
standardize the delivery for both current and all projected
requirements. USFI will provide NORTEL MERIDIAN SL-1 (1) or equivalent
equipment at each Site. The Meridian product line features a
US-manufactured system which has already been host nation certified in
Germany, Italy, the United Kingdom, and Turkey. The USFI
telecommunications system at each location will include the following:

4.1.1 A full-featured, expandable, state of the art Nortel Meridian
SL-I PBX.

4.1.2 All facilities necessary to connect lodging facility guests to
the USFI long distance network.

4.1.3 All facilities necessary to a meet a GOVERNMENT demarcation
point for connecting lodging facility guests to the GOVERNMENT
DSN private switching network. USFI will provision the lodging
PBX for DID/DOD capability to the demarcation point once
adequate controls are developed with safeguards against fraud
and toll skipping. USFI takes no responsibility for equipping
or provisioning the GOVERNMENT DSN system.

4.1.4 All facilities necessary to connect lodging facility guests to
the local host nation commercial network.

4.1.5 The quantity and types of telephone sets specified in the RFP
and identified in the site surveys.

4.1.6 A data port connection for each guest telephone set.

4.1.7 All interior and exterior cabling necessary to connect
telephone sets to the PBX.

4.1.8 A billing system which will be fully interactive with the
GOVERNMENT SIMS system.

(1) USFI intends to deliver Nortel Meridian SL-1 PBX equipment. However, the
equipment purchase and delivery agreement with Nortel is not yet finalized.
USFI may provide functionally equivalent equipment from another
manufacturer. For the purposes of this proposal, the terms "Nortel," and
"Meridian" shall mean "Nortel or equivalent" and "Meridian or equivalent."

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

4.1.9 A room status/indicator system which will be fully interactive
with the GOVERNMENT SIMS systems.

4.2 PBX: USFI will provide a state of the art NORTEL hotel/motel PBX at
each site identified in the SOW. Each PBX will offer integrated
voice/data capabilities to the desktop, and will offer the most
advanced feature sets available for a hotel/motel application. The USFI
current purchasing arrangement with NORTEL will include installation of
all systems by the same division that has installed all Air Force
switches purchased under the Scope Dial I, Scope Dial II, and BIDDS
programs. The PBX systems USFI will provide are the same product line
as the BIDDS systems purchased from NORTEL. USFI will provide the
following specific PBX Systems:

4.2.1 Ramstein: NORTEL MERIDIAN SL-1, expandable to 10,000 stations.

4.2.2 Rhein-Main: NORTEL MERIDIAN SL-1, expandable to 10,000
stations.

4.2.3 Aviano: NORTEL GALILEO, expandable to 200 stations as
originally configured. The Aviano switch can be converted to a
Meridian SL-1 if necessary, and will then be expandable to
10,000 stations.

4.3 PBX INSTALLATION: USFI will install the PBXs, along with all supporting
equipment (rectifiers: uninterrupted power supplies, batteries, channel
banks, etc.) in the rooms identified during the site surveys of the
three facilities. Following are the building locations, installation
sequence, and projected operational (cut over) dates for each system,
based upon an April 15, 1996 contract award date and a standard 12-week
delivery for PBX equipment:
<TABLE>
<CAPTION>
LOCATION BUILDING DATE
-------- -------- ----
<S> <C> <C> <C>
Ramstein 305 August 16, 1996
Rhein-Main 600 September 6, 1996
Aviano 256 September 27, 1996
</TABLE>

4.3.1 NOTE: The Aviano operational date is based on the assumption
that building 256 renovation will be complete by July 1, 1996.

4.4 NETWORK INTERFACES: USFI will provide the designated interface to each
of the following Systems:

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

4.4.1 Host nation commercial network: USFI will provide Direct
Inward and Outward dialing capability to the host nation
system through a E-l CAS DTMF digital trunk interface.

4.4.2 Defense Switched Network (DSN): USFI will install an E-l CAS
DTMF interface to the demarcation point listed in the Section
B response to each SOW item. The provisioning of the
GOVERNMENT DSN network is the sole responsibility of the
GOVERNMENT.

4.4.3 USFI proprietary network.

4.5 DESCRIPTION OF TELEPHONE SETS:

4.5.1 USFI will install one single line Nortel Meridian Business set
at each room location identified in the site surveys. These
sets have all required features concerning message waiting
lamps, and can be pre-programmed to automatically dial the
front desk, the Officer/NCO club, Recreation Center, Tours and
Travel Office, etc.

4.5.2 USFI will provide Nortel Meridian Multi-line Business sets at
all locations which require more than a single line
capability, also identified during the site surveys.

4.5.3 USFI will install two-line telephone sets at each location
identified in the Aviano site survey.

4.6 DATA PORTS: The Meridian Business sets have an integrated module for a
direct computer connection, eliminating the need for a second jack on
the wall. This connection is made using a standard RJ-45 modular
connector cable, which USFI will provide. This fully digital solution
allows for simultaneous voice and data transmission up to 19.2 kbit/s
over the same wire pair, and provides the capability of assigning a
separate and unique director number to the computer port.

4.7 CABLE: All buried and house cable will be installed by our European
business partner, MCNICHOLAS COMMUNICATIONS LIMITED, a subsidiary of
MCNICHOLAS CONSTRUCTION GROUP. MCNICHOLAS, based in the United Kingdom,
is one of the major civil engineering and underground cable
installation firms in Europe, and also has an entire division which
specializes in the latest technologies in house cabling. MCNICHOLAS
COMMUNICATIONS LIMITED will, under USFI's direction, install all
required underground cable at Ramstein, and will wire each room at all
three locations with the capacity necessary to

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

support the voice and data requirement at each telephone location
identified during the site surveys.

4.8 CABLE INSTALLATION: Please see the cable layout maps located at Section
6 of the USFI NETWORK SERVICE, INC. response for specific cable
installation layout and parts list.

4.8.1 RAMSTEIN:

4.8.1.1 EXTERIOR CABLING:

4.8.1.1.1 USFI will install two 100 pair cables from
building 305 to building 2409/2408 through
existing GOVERNMENT underground/duct system.
USFI will install another two 100 pair cables
from building 305 to the Prime Knight complex
(buildings 538, 540, 542 and 541) through
existing GOVERNMENT underground/duct system.
USFI will install two 100 pair cables from
building 305 to building 304/303 through
existing GOVERNMENT conduit. USFI will install
a 100 pair cable from building 305 to building
306 using existing conduit under the parking
lot adjacent to building 305, then by
USFI-provided conduit for approximately 130
meters to the building 306 cable demarcation
entry point.

4.8.1.1.2 USFI will use 30 existing cable pairs on
GOVERNMENT cable to extend service from
building 305 to the General Cannon Suite in
building 1018. The GOVERNMENT must reserve 30
pairs on the cable from building 500 to
building 305, and on the cable from building
500 to building 1018, then cross connect these
30 cable pairs at the main distributing frame
located in the switch room in building 500.

4.8.1.2 INTERIOR CABLING:

4.8.1.2.1 USFI will install house cable in the existing
conduits to reach each floor, and in existing
flat duct to reach the rooms. USFI will pierce
the wall of each room and run the cable to the
desired point inside the room using flat
plastic conduit. USFI will terminate the
cables on

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

surface or flush mount jacks at
the direction of the LFM. We
recommend the most aesthetically,
mechanically and structurally sound
practice be followed.

4.8.2 RHEIN MAIN:

4.8.2.1 EXTERIOR CABLING: USFI will use the existing
GOVERNMENT 100 pair cable multipled from building 600
to buildings 632, 633, and 634.

4.8.2.2 INTERIOR CABLING: USFI will install house cable to
each room through the existing duct system in
buildings 600, 632 and 633. In building 634, USFI
will install an aesthetically neutral exterior
ducting system on the first floor level to each
corner of the building, then extend the wiring to the
second and third floor levels through USFI-provided
interior duct

4.8.3 AVIANO:

4.8.3.1 EXTERIOR CABLING:

4.8.3.1.1 Buildings 230 and 232: USFI will use the
existing GOVERNMENT cable plant to reach all
locations. Buildings 230 and 232 currently
have DSN phones installed in each room. USFI
will remove the GOVERNMENT phones and replace
them with USFI phones on a one-for-one basis
reusing the existing 0202 overhead cable.

4.8.3.1.2 Buildings 255, 273 and 274. GOVERNMENT records
indicate sufficient capacity exists (75 cable
pair) to each of these buildings. USFI will
use existing GOVERNMENT cable to those
locations.

4.8.3.2 INTERIOR CABLING:

4.8.3.2.1 Buildings 255, 273, and 274: USFI will install
flat duct and cable to each required location.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

4.8.3.2.2 Building 256: USFI will use
existing conduit to extend interior
cable from the PBX room to each
floor, then use existing flat duct
to extend cabling to each room as
required.

4.8.3.2.3 Buildings 230 and 232: USFI will
use existing GOVERNMENT house
cable.

4.9 MAINTENANCE:

4.9.1 GENERAL:

4.9.1.1 MANPOWER: USFI will make available full time employee
in Europe to provide first level maintenance and
ongoing training in response to USAFE's needs under
this contract,

4.9.1.2 MAINTENANCE SPARES/CONSUMABLES: USFI will preposition
recommended maintenance spares at each site according
to manufacturer's specifications. USFI will also
stock telephone sets, consoles, plastic overlays,
guest instruction booklets, cables, and other
consumables as required. USFI reserves the right to
negotiate to recover costs from the GOVERNMENT should
breakage or pilferage of these consumable items
exceed a reasonable rate.

4.9.1.3 LOGISTICS SUPPORT: USFI requires logistics support
privileges for full time USFI employee(s) whose main
purpose is providing operational support at military
lodging facilities in Europe.

4.9.2 COUNTRY SPECIFIC

4.9.2.1 Germany: USFI will station full-time USFI employee at
Ramstein AB, Germany to provide initial response to
system problems, and address any concerns or expanded
services requested from the GOVERNMENT. Second level
response will be provided by the PBX manufacturer.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

4.9.2.2 Italy:

4.9.2.2.1 USFI will provide first level and second
level maintenance response through the
equipment manufacturer. The USFI
Germany-based employee will regularly visit
the Aviano location to address any
provisioning or additional training needs of
the GOVERNMENT.

4.9.2.2.2 Optionally, USFI is willing to hire active
duty military members on a part-time basis
to provide the initial maintenance response,
provided this would not interfere with the
military members' primary responsibility to
the US Air Force.

4.10 CALL DETAIL RECORDING-CALL BILLING(ROOM STATUS SUBSYSTEM: USFI will
provide a billing system which meets all specifications in SOW sections
3.2.4 and 3.2.5.

4.10.1 The Ramstein and Rhein-Main call detail recording systems will
reside on a stand alone computer system which will interface
the PBX to the SIMS system. Nortel does not offer an
integrated CDR system which fully complies with the SOW
specifications on the Meridian SL-1 product line.

4.10.2 The CDR system for Aviano is fully integrated into the basic
operating system of the PBX.

4.11 TRAINING: USFI will provide initial training as called for in CDRL
A005. This will include all training necessary for lodging facilities
employees to operate the system. Refresher training and new employee
training sessions will be scheduled at least once a year for the life
of the contract. Since USFI will provide access to a full-time
employee, we are prepared to offer interim training above the minimum
requested in the SOW.

4.12 LFTS SYSTEMS AT FOLLOW ON LOCATIONS: USFI commits to providing a
good-faith estimate for any future delivery orders, and will provide
the Air Force with a professional recommendation on the viability of
same. It is standard industry practice for a party requesting systems
such as those requested by the GOVERNMENT to provide estimates or
guarantees of minutes in order for the respondent to perform a
meaningful risk analysis. In this case, the GOVERNMENT is unable to
quantify the number of minutes or the

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

destination of long distance traffic originating in the GOVERNMENT
transient lodging facilities. The risk involved in complying with the
terms of this SOW lies entirely with USFI. This being the case, USFI
stipulates that a GOVERNMENT delivery order for Moron, Incirlik, Izmir,
Alconbury, Croughton, Fairford, Lakenheath, Mildenhall, and Spangdahlem
will constitute a request for USFI to perform a cost analysis, and that
USFI's obligation ends with providing the GOVERNMENT a price per minute
for long distance traffic originating from that specific facility and
terminating in the US. USFI further believes that a price per minute of
greater than $2.50 makes long distance telephone service unaffordable
to the average active duty military member, and thus constitutes a
declination on USFI's part to provide a LFTS to that facility without
further consideration from the GOVERNMENT.

4.1.3 Time and Materials:

4.13.1 USFI will modify the system to meet future GOVERNMENT
requirements on a Time and Material basis at rates to be
negotiated after contract award.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

The statement of work calls for at least nine different interfaces. Following is
a list of these interfaces with the demarcation point for USFI NETWORK SERVICES,
Inc. responsibility.

INTERFACE TYPE DEMARCATION

PBX - SIMS RS-232 GFE Computer Serial Port

PBX - CDR RS-232 USFI Responsibility

PBX - RSI Proprietary USFI Responsibility

CDR - SIMS RS-232 GFE Computer Serial Port

RSI - SIMS Proprietary USFI Responsibility

PTT E-l CAS DTMF Ramstein - Type 66 block bldg 305
Rhein-Main - Type 66 block bldg 600
Aviano - Type 66 block bldg 256

DSN E-1 CAS DTMF Ramstein - Type 66 block bldg 305
Rhein-Main - Type 66 block bldg 600
Aviano - Type 66 block bldg 256

Line - Telephone RJ-11 USFI Responsibility

Data Port - DCE RJ-45 USFI Responsibility

PBX - USFI Network E-l USFI Responsibility

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

Section D -- Packaging and Marking

All packaging will be in accordance with standard commercial practice.

D-1
<PAGE> 54
SECTION E

INSPECTION AND ACCEPTANCE

1. Introduction. This section describes the certification process and the
acceptance criteria for all equipment and services ordered under this contract.
It also defines government and contractor responsibilities and the point of
inspection and acceptance.

2. Inspection and Performance Testing. Shall be in accordance with para 3.8.4.1
of Section C.

3. The activity responsible for performing inspection and acceptance of the
supplies called for under this contract is as follows:

As specified on each delivery order issued pursuant to this contract

USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

Section E - Inspection and Acceptance

1. USFI acknowledge the Government and contractor
responsibilities defined in the RFP and clarified in Section
II of the USFI response.

2. USFI requests clarification on this issue at post-award. Since
there is no existing system, there will be no true cutover.
System activation will only take place upon full Government
acceptance of the entire LFTS. Government telephones and
secure telephones currently exist in some of the lodging
facilities. These phones provide Government service to the
rooms and must be left operational until an agreed upon
cutover date has been established. New telephone sets shall he
provided for these facilities and any secure telephones shall
be left in place and operational.

3. No response required

E-1
<PAGE> 55
SECTION F

DELIVERIES OR PERFORMANCES

1. TIME OF DELIVERY (APR 1984):

(a) The NAFI desires delivery to be made according to the
following schedule:

DESIRED DELIVERY SCHEDULE
<TABLE>
<CAPTION>

*CDRL# ITEM DELIVERY DATE
- --------------------------------------------------------------------------------
<S> <C> <C>
A001 Installation Plan Within 30 Days After Contract
Award for Aviano AB, Rhein-Main AB
and Ramstein AB. Within 30 Days
After Receipt of Each Delivery
Order for all others

A005 Training Plan Within 60 Days After Contract Award
for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 30 Days After
Receipt of Each Delivery Order for
all others

N/A Installation begins Within 90 Days After Contract Award
for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 60 Days After
Receipt of Each Delivery Order for
all others

A002 Cutover Plan Within 90 Days After Contract Award
for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 60 Days After
Receipt of Each Delivery Order for
all others

A006 Traffic Measurement Within 90 Days After Contract Award
and Analysis for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 60 Days After
Receipt of Each Delivery Order for
all others

A003 Post-Cutover Quality Within 45 Days Before Acceptance
Control Report Testing at all sites

A007 Subscriber Education Within 30 Days Prior to Acceptance
Pamphlet at all sites

A008 Installation and Within 15 Days Prior to acceptance
Acceptance Test Plan Start Date at all sites

A010/A011 Subscriber Education Within 15 Days Prior to Acceptance
Pamphlet Standard Start Date at all sites
Telephone Instrument
Subscriber Education
Pamphlet LT1-Line
Telephone Instrument

A004 Communications-Computer Within 15 Days Prior to Final
Systems Installation Acceptance at all sites
Records
</TABLE>

F-1
<PAGE> 56
* Data Item Descriptions (DID) are located in Section J, Attachment 3.

If the offeror is unable to meet the desired delivery schedule, it may, without
prejudicing evaluation of its offer, propose a delivery schedule below. However,
the offeror's proposed delivery schedule must not extend the delivery period
beyond the time for delivery in NAFTs required delivery schedule as follows:

(b) The NAFI requires delivery to be made according to the
following schedule:

REQUIRED DELIVERY SCHEDULE
<TABLE>
<CAPTION>

*CDRL# ITEM DELIVERY DATE
- --------------------------------------------------------------------------------
<S> <C> <C>
A001 Installation Plan Within 30 Days After Contract Award
for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 30 Days After
Receipt of Each Delivery Order for
all others

A005 Training Plan Within 60 Days After Contract Award
for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 30 Days After
Receipt of Each Delivery Order for
all others

N/A Installation begins Within 90 Days After Contract Award
for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 60 Days After
Receipt of Each Delivery Order for
all others

A002 Cutover Plan Within 90 Days After Contract Award
for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 60 Days After
Receipt of Each Delivery Order for
all others

A006 Traffic Measurement Within 90 Days After Contract Award
and Analysis for Aviano AB, Rhein-Main AB and
Ramstein AB. Within 60 Days After
Receipt of Each Delivery Order for
all others

A003 Post-Cutover Quality Within 45 Days Before Acceptance
Control Report Testing at all sites

A007 Subscriber Education Within 30 Days Prior to Acceptance
Pamphlet at all sites

A008 Installation and Within 15 Days Prior to Acceptance
Acceptance Test Start Date at all sites
Plan

</TABLE>

F-2
<PAGE> 57
<TABLE>

<S> <C> <C>
A010IA011 Subscriber Education Within 15 Days Prior to Acceptance
Pamphlet Start Date at all sites

Standard Telephone
Instrument

Subscriber Education
Pamphlet

LT1-Line Telephone
Instrument

A004 Communications- Within 15 Days Prior to Final
Computer Systems Acceptance at all sites
Installation Records
</TABLE>

* Data Item Descriptions (DID) are located in Section J, Attachment 3.

The NAFI will evaluate equally, as regards time of delivery, offers that propose
delivery of each quantity within the applicable delivery period specified above.
Offers that propose delivery that will not clearly fall within the applicable
required delivery period specified above, will be considered nonresponsive and
rejected. The NAFI reserves the right to award under either the required
delivery schedule or the proposed delivery schedule, when an offeror offers an
earlier delivery schedule than required above. If the offeror proposes no other
delivery schedule, the required delivery schedule above will apply.

OFFEROR'S PROPOSED DELIVERY SCHEDULE

*CDRL# ITEM DELIVERY DATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

(c) Attention is directed to the Contract Award provision of the
solicitation that provides that a written award or acceptance of offer mailed,
or otherwise furnished to the successful offeror, results in a binding contract,
The NAFI will mail or otherwise furnish to the offeror an award or notice of
award not later than the day the award is dated. Therefore, the offeror should
compute the time available for performance beginning with the actual date of
award, rather than the date the written notice of award is received from the
Contracting Officer through the ordinary mails. However, the NAFI will evaluate
an

F-3
<PAGE> 58
offer that proposes delivery based on the Contractor's date of receipt of the
contract or notice of award by adding five days for delivery through the
ordinary mails. If, as so computed, the offered delivery date is later than the
required delivery date, the offer may be considered nonresponsive and rejected.

2. F.O.B. POINT: Supplies shall be delivered to:

ADDRESS SPECIFIED ON EACH DELIVERY ORDER

3. F.O.B. DESTINATION (APR 1984).

(a) The term "F.O.B. DESTINATION", as used in this clause, means-

(1) Free expense to the NAFI, on board the carrier's
conveyance, at a specified delivery point where the consignee's facility (plant,
warehouse, store, lot, or other location to which shipment can be made) is
located; and (2) Supplies shall be delivered to the destination consignee's
wharf (if destination is a port city and supplies are for export), warehouse
unloading platform, or receiving dock, at the expense of the Contractor. The
NAFI shall not be liable for any delivery, storage, demurrage, accessorial, or
other charges involved prior to the actual delivery (or constructive placement"
as defined in carrier tariffs) of the supplies to the destination, unless such
charges are caused by an act or order of the NAFI acting in its contractual
capacity. If rail carrier is used, supplies will be delivered to the specified
unloading platform of the consignee. If motor carrier (including "piggyback") is
used, supplies shall be delivered to truck tailgate at the unloading platform of
the consignee. If the Contractor uses rail carrier or freight forwarder for less
than carload shipments, the contractor will assure that the carrier will furnish
tailgate delivery if transfer to truck is required to complete delivery to
consignee.

(b) The Contractor shall-

(1) (i) Pack and mark the shipment to comply with
contract specifications; or

(ii) In the absence of specifications, prepare the
shipment in conformance with carrier requirements;

(2) Prepare and distribute commercial bills of lading;

(3) Deliver the shipment in good order and condition to
the point of delivery specified in the contract;

(4) Be responsible for any loss of and/or damage to the
goods occurring before receipt of the shipment by the consignee at the delivery
point specified in the contract;

(5) Furnish a delivery schedule and designate the mode

of delivering carrier; and

(6) Pay and bear all charges to the specified point of
delivery.

4. TERM OF CONTRACT: The term of this contract will be for 120 months (10
years). All percentages shall remain firm and fixed for this period.

5. DELETED.

F-4
<PAGE> 59
6. DELIVERY SITES: Upon contract award, delivery orders will be issued for
Aviano Air Base, Italy, Rhein Main Air Base, Germany and Ramstein Air Base,
Germany. Delivery orders may also be issued under the resulting contract for 9
other USAFE command bases:

Moron Air Base, Spain
Incirlik Air Base, Turkey
Izmir Air Base, Turkey
RAF Alconbury, United Kingdom
RAF Croughton, United Kingdom
RAF Fairford, United Kingdom
RAF Lakenheath, United Kingdom
Mildenhall, United Kingdom
Spangdahlem Air Base, Germany

In addition, other DoD NAFI's located in the European Theater may issue
delivery orders against the resulting contract, (Ref. Para H-3).

F-5
<PAGE> 60
SECTION G

CONTRACT ADMINISTRATION DATA

1. CONTRACTING OFFICER'S TECHNICAL REPRESENTATIVE (COTR):
The COTR is responsible for performing all administrative functions necessary to
ensure performance of this contract, for the Air Force only.

Wayne P. Sellers
Unit 3050, Box 160
APO AE 09094-0160

2. QUALITY ASSURANCE EVALUATOR (QAE)
The Quality Assurance Evaluator will monitor the installation progress to insure
that the LFTS meets the requirements of the SOW and EPS.

The Lodging Manager at each base location will serve as the QAE.

3. CONTRACTING OFFICER (CO):
The CO is responsible for issuing any amendment to the Request for Proposal and
any modification to the contract(s). The address for the CO is:

AFNAF PURCHASING OFFICE
9504 IH 35 NORTH, SUITE 370
SAN ANTONIO, TX 78233

4. CALL DETAIL REGISTER (CDR): The Government shall provide the
contractor, on the 15th of each month, 2 copies of the CDR for the previous
month. This will include information that the contractor specifies. The
Government shall also send the contractor a check for the percentage of the
amount of funds collected for telephone calls for the preceding month. In the
event the billing exceeds the income recorded through the CDR the contractor
shall be responsible for paying the difference.

5. BILLING AND COLLECTION: Percent of money from toll calls that the
contractor will receive from the lodging is based on the number of long distance
calls recorded by the LFTS call detail recording on a monthly basis:

(1) Dial Out Direct (DOD) calls placed against guest authorization
codes.

(2) Operator-assisted DOD calls charged to guest authorization
codes.

6. NONAPPROPRIATED FUND INSTRUMENTALITY (NAFI) DESIGNATED: For the
purpose of this purchase, the designated NAFI will be the NAFI identified on
each order issued against this contract as the NAFI receiving the services
ordered.

G-1
<PAGE> 61
SECTION G

CONTRACT ADMINISTRATION DATA

1. CONTRACTING OFFICER'S TECHNICAL REPRESENTATIVE (COTR):
The COTR is responsible for performing all administrative functions necessary to
ensure performance of this contract.

Wayne P. Sellers
Unit 3050, Box 160
APO AE 09094-0160

2. QUALITY ASSURANCE EVALUATOR (QAE)
The Quality Assurance Evaluator will monitor the installation progress to insure
that the LFTS meets the requirements of the SOW and EPS.

The Lodging Manager at each base location will serve as the QAE.

3. CONTRACTING OFFICER (CO):
The CO is responsible for issuing any amendment to the Request for Proposal and
any modification to the contract(s). The address for the CO is:

AFNAF PURCHASING OFFICE
9504 IH 35 NORTH, SUITE 370
SAN ANTONIO, TX 78233

4. CALL DETAIL REGISTER (CDR): The Government shall provide the contractor, on
the 15th of each month, 2 copies of the CDR for the previous month. This will
include information that the contractor specifies. The Government shall also
send the contractor a check for the percentage of the amount of funds collected
for telephone calls for the preceding month. In the event the billing exceeds
the income recorded through the CDR the contractor shall be responsible for
paying the difference.

5. BILLING AND COLLECTION: Percent of money from toll calls that the contractor
will receive from the lodging is based on the number of long distance calls
recorded by the LFTS call detail recording on a monthly basis:

(1) Dial Out Direct (DOD) calls placed against guest authorization
codes.

(2) Operator-assisted DOD calls charged to guest authorization
codes.

6. NONAPPROPRIATED FUND INSTRUMENTALITY (NAFI) DESIGNATED: For the purpose of
this purchase, the designated NAFI will be the NAFI identified on each order
issued against this contract as the NAFI receiving the services ordered.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

Section G -- Contract Administration Data

1. Acknowledged.

2. Acknowledged.

3. Acknowledged, and clarified in Section II response to SOW. Since long
distance will be carried over the USFI network, the last sentence is
not applicable.

4. Billing and Collection: Acknowledged, and clarified in Section B
response located at Section IV of USFI response.

5. Nonappropriated Fund Instrumentality (NAFI) Designated: Acknowledged.

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SECTION H

SPECIAL PROVISIONS

1. DELETED.

2. CONTRACTING OFFICER'S AUTHORITY
The Contracting Officer is the only person authorized to approve changes in any
of the requirements under this contract and not withstanding any provisions
contained elsewhere in this contract, the said authority remains solely in the
Contracting Officer. In the event the Contractor effects any such change at the
direction of any person other than the Contracting Officer, the change will be
considered to have been without authority and will not be recognized for
payment by the Government.

3. CONTRACT USAGE
The Government retains the right to incorporate any Department of Defense (DoD)
Nonappropriated Fund Instrumentality (NAFI) located in the EUROPEAN THEATER into
this contract by the issuance of Delivery Orders. The Government further retains
the right to negotiate for the incorporation of these bases consistent with the
functionalities and requirements identified in this contract.

4. RIGHTS IN DATA
The rights obtained by the Government in technical data are set forth in the
Right Technical Data Clause incorporated in the contract, and nothing elsewhere
in this contract or in any documents incorporated by reference in this contract
shall be construed as in any way altering such right except as restricted by the
express terms, if any, of this contract as to data called for and furnished for
provisioning purposes only.

5. UTILITY SERVICES
The Government will provide free of charge at existing outlets all necessary
utility services (except long distance telephone services) required for
performance of this contract. The Government will make available a telephone
for contractor's use in the performance of this duties wider this contract. The
Contractor shall carefully conserve utilities furnished.

6. SUPERVISION AND CONTROL
The Government shall not exercise any supervision or control over the
contractor's employees performing services under this contract. Such employees
shall be accountable not to the Government but solely to the contractor, who in
turn is responsible to the Government.

7. QUALIFICATION OF CONTRACTOR PERSONNEL
a. All maintenance services under resultant contract are to be performed by
competent personnel, experienced and highly qualified to provide the required
services in accordance with the best commercial practices, without unnecessary
delays.

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b. Prior to award of the contract, at the request of the Government,
the low bidder may be required to submit evidence of responsibility which shall
include a statement as to personnel resources and facilities with which they
intend to perform the contract, and a list of firms for which similar
maintenance has been provided in the past year for systems of the type listed
herein.

8. RISK OF LOSS OR DAMAGE

The Contractor and its insurer, if any, relieve the Government of responsibility
for all risks of loss or damage to the systems/equipment called for under this
contract prior to their/its formal acceptance by the Government. The Contractor
shall not be liable for loss of, or damage to, supplies caused by the negligence
of officers, agents, or employees of the Government acting within the scope of
their employment. In addition, the Contractor and its insurers, if any, relieve
the Government of all responsibility for all risks of loss or damage to
Contractor-owned equipment instruments and tools caused by nuclear radiation,
radioactive contamination, war, insurrection, rebellion, or weapons of war.

9. SITE PREPARATION
a. Equipment space and environmental specifications for site
preparation shall be furnished in writing by the Contractor. These
specifications shall be in such detail as to ensure that the equipment to be
installed shall operate efficiently from the point of view of environment.

b. At the request of the Government, the Contractor will prepare, in
cooperation with the Government, a detailed site plan. This detailed site plan,
which will be tailored to the Government facilities, will be prepared within
thirty (30) calendar days after notification by the Government, and will
supplement the general specifications furnished as part of the equipment
proposal, if required.

c. The Government shall prepare site at its own expense and in
accordance with the specifications furnished by the Contractor.

d. If any required alterations or modifications in site preparation are
attributable to incomplete or erroneous equipment space and environmental
specifications or to the detailed site plan provided by the Contractor, the
alterations or modifications shall be made at the expense of the Contractor.

e. The Contractor shall inspect the site within sixty (60) days from
receipt of written notice from the Government that the site is ready for
inspection and shall notify the Government in writing of any site deficiencies
requiring corrective action within ten (10) days from the date of inspection.
Such inspection shall not be construed to be acceptance of power and air
conditioning facilities.

10. MODIFICATIONS

a. The Government shall have the option to have all Contractor
sponsored engineering changes which are available at the time of installation or
are later offered at no cost, incorporated into the equipment covered by this
contract.

b. The contractor shall notify the Government of all such changes prior
to commencing any modifications. All Contractor sponsored modifications, except
changes required to correct safety hazards, which may impact on system
performance or the performance of any attached devices not supplied under this
contract, shall be subject to approval by the Government prior to commencing the
modification. In the event a modification is made to correct a safety hazard and
such modification results in degraded system performance, the contract shall
provide any additional equipment or software necessary to bring the system up to
its former performance level or other wise compensate the Government for loss of
system performance capability.

c. All modifications, except safety changes, shall be accomplished at
the site.

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11. SUBSTITUTIONS AND ADDITIONS
In the event the contractor commercially announces newer components that can be
technically substituted for items listed in Section B, the contractor may
propose said items for contract substitution after the new item is commercially
announced. Substitution may be authorized by a bilateral contract modification,
when the item(s) provide at least equivalent performance with economic benefits
or significantly enhanced performance at no additional cost to the Government or
a combination of both of the above. The Government reserves the right to accept
or reject the contractor substituted components proposal.

12. POST-AWARD CONFERENCE
If a post-award conference is deemed necessary by the Contracting Officer, it
will be held within 30 days after contract award at AFNAF Purchasing Office,
9504 IH 35 North, Suite 370, San Antonio TX 78233. The purpose of the conference
is to review with the contractor the requirements of the contract, coordinate
installation, training and contractor personnel support. The contractor will be
notified of the date of the conference at least five days prior to the
conference.

13. RELEASE OF PROGRAM INFORMATION
The Contractor shall not hold any discussions or release any information or data
pertaining to this program without the approval of AFNAF Purchasing Office. This
restriction applies to all releases of information to the public, industry or
Government organization except as follows:

a. Information for actual or potential subcontractors or vendors
necessary for the Contractor's accomplishment of this program.

b. Information to be supplied to a duly authorized representative of
AFNAF Purchasing Office.

14. INCORPORATION OF PLANS, TEST PROCEDURES AND PROGRAMS
Plans, test procedures, programs, drawings and specifications submitted are
incorporated by reference in this contract upon approval by the Contracting
Officer at no change in contract price. Subsequent to Contracting Officer
approval, such plans, test procedures, programs, drawings, and specifications
shall become the basis for accepting the applicable service or item(s) under
this contract and for the contractor to perform the tasks thereunder.

15. DIGGING PERMITS
The contractor shall obtain digging permits prior to commencing any digging or
excavating on the base. Digging permits may be obtained from the Base Civil
Engineer.

16. SUPPORT CONTRACTOR FOR SYSTEMS ENGINEERING AND TECHNICAL ASSISTANCE (SETA)
Technical, schedule, and cost information (including data providing pursuant to
requirements for this contract) may be evaluated by a Systems Engineering and
Technical Assistance Contractor pursuant to its contract with the Government.

17. LOCAL AREA REQUIREMENTS
The contractor shall be responsible for making provision with the Host Base
Security Police for issuance of installation identifications, vehicle control,
personal identification cards/controlled area/restricted area badges as
required. Contractor personnel shall comply with local security requirements and
instructions as provided by each installation commander or his duly appointed
representative(s).

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18. SUPERVISION OF EMPLOYEES
The contractor shall select, supervise, and exercise control and direction over
its employees under this contract. Contractor shall not supervise, direct or
control the activities of Department of Defense personnel. Except as may be
otherwise expressly specified herein, the contractor shall provide all necessary
administration and other support to its employees.

19. INSURANCE
For the purpose of the clause of this contract entitled "Insurance-Work On A
Government Installation" (9Apr 1984) (FAR 52.228-5. See 1-1.I.23) the minimum
coverage required during the term of this contract shall be as follows:

(1) Comprehensive General Liability
(Bodily Injury)
$500,000.00/per person

(2) Comprehensive Automobile Liability
$200,000.00/per person
For Bodily Injury
$500,000.00/per occurrence
For Bodily Injury
$20,000.00/per occurrence
For Property Damage

(3) Workmen's Compensation IAW Applicable Statutes

(4) Employer's Liability $100,000.00

20. INTERCONNECTION
The contractor fully acknowledges the rights of the Air Force and other vendors
to interconnect with the contractor's intrasystem wiring as the requirements may
occur during the life of this contract. In this regards, the contractor further
agrees to use best efforts to achieve this goal and resolve interconnection
problems with reasonable, prudent, and timely actions on all occasions.

21. PERIODIC PROGRESS MEETING

a. Program management personnel, contracting personnel, and other
Government personnel as appropriate, may be required to meet periodically
with the contractor to review contract progress and performance. At these
meetings personnel will apprise the Government of problems, if any, being
experienced. Appropriate action shall be taken to resolve outstanding issues.

b. Program management personnel shall determine the frequency of these
meetings based on the contractor's performance.

22. TECHNICAL GUIDANCE

a. Technical guidance under this contract will be given to the
contractor by the supporting Base Communications Squadron. Technical guidance
is defined as that process by which the contractor receives guidance and
approvals in his technical efforts as it relates to an element of work or task
solely within the existing requirements of the contract as a result of technical
review of the contractor's work by the supporting Base Communications Squadron.
If unable to obtain support from the Base Communications Squadron, contact Wayne
Sellers. 06371476595.

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b. Only the Contracting Officer (CO) is authorized to redirect the
effort or in any way modify any of the terms of this contract. Such redirection
or modification of contract terms shall be accomplished by issuance of change
orders or supplemental agreements to this contract signed by the CO. In any
event, if the contractor believes technical guidance given involves a change to
the scope of the contract, he will immediately notify the CO pursuant to FAR
52.243-7, "Notification of Changes".

23. CONTRACTOR USE OF TELEPHONE SYSTEM
Any cable system provided by the contractor under this contract is for the
exclusive use of the Department of Defense base for which this contract applies.
The contractor shall not use the cable, lines, or any equipment installed under
this contract, whether installed prior to cutover or as a result of expanded
service. It shall be clearly understood by the contractor that expanded services
requested by the Contracting Officer or his duly authorized representative are
within the scope of the contract up to the capacity of the switch as limited by
this contract.

24. APPROVAL OF CONTRACT DATA ITEMS AND RELATED WORK
The contractor shall proceed with the work related to a specific data item, as
identified in the DD Form 1423 (Contract Data Requirements List), only after
approval has been obtained, This paragraph does not apply to data items and
related work if approval is not required on the DD Form 1423. Data items
requiring approval are identified by the "A" in block 8 of the Contract Data
Requirements List.

25. RELOCATION
The Contracting Office, after approval of Installation Commander shall
negotiate with the contractor to relocate switch.

26. ADVERTISING OF AWARD
The Contractor agrees not to refer to awards in commercial advertising in such a
manner as to state or imply that the product or service provided is endorsed or
preferred by the Federal Government or is considered by the Government to be
superior to other products or services.

27. OPTION TO BUY EQUIPMENT
Upon completion of the performance period of each site (10 years), and prior to
removal of any contractor owned equipment, the Government shall have the option
to buy existing equipment at fair market value which shall be negotiated between
the contracting officer and the contractor for each site.

28. HOST NATION REQUIREMENTS
During the execution of the services provided under this contract, the
Contractor must ensure the Host Nation Equivalent Requirements have
priority/precedence.

29. PERFORMANCE PERIOD
The performance period for each site will commence upon actual completion of
installation, inspection and acceptance by the ordering NAFI for the system
ordered for that particular site and shall not exceed a period of l0 years from
that date.

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USFI NETWORK SERVICES, INC.
RESPONSE TO REQUEST FOR PROPOSAL (RFP) F41999-96-R-0022
TELEPHONE SERVICES FOR TEMPORARY LODGING FACILITIES IN EUROPE

Section H-- Special Services

1 Deletion acknowledged.

2 Acknowledged.

3 Acknowledged, with clarification in USFI response Section IV paragraph
4.12.

4 USFI requests clarification on this paragraph.

5 Acknowledged.

6 Acknowledged.

7 Acknowledged.

8 Acknowledged.

9 Acknowledged.

lO MODIFICATIONS: Since the Government is not purchasing anything under
this solicitation, engineering change proposals which exceed the
performance levels specified in the SOW will be included or not
included at USFI's discretion. Any proposed changes on the part of USFI
will be fully coordinated with the appropriate Government
representative. All hazardous conditions will be corrected immediately.

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SECTION I

CONTRACT CLAUSES

1. DEFINITIONS (1975 MAY) - As used throughout this contract, the following
terms and abbreviation have the meanings set forth below:

a. The term "contract" means this agreement or order and any
modifications hereto

b. The abbreviation "NAFT" means Nonappropriated Fund Instrumentality
of the United States Government.

c. The term "Contracting Officer" means the person executing or
responsible for administering this contract on behalf of the NAFI, which is a
party hereto, or his successor or successors.

d. The term "Contractor" means the party responsible for providing
supplies and/or services at a certain price or rate to the NAFI under this
contract.

2. DISPUTES (1979 DEC)

a. Except as otherwise provided in this contract, any dispute or claim
concerning this contract which is not disposed of by agreement shall be decided
by the Contracting Officer; who shall state his decision in writing and mail or
otherwise furnish a copy of it to the Contractor. Within 90 days from the date
of receipt of such copy, the Contractor may appeal by mailing or otherwise
furnishing to the Contracting Officer a written appeal addressed to the Armed
Services Board of Contract Appeals, and the decision of the Board shall be
final and conclusive; provided that if no such appeal is filed, the decision of
the Contracting Officer shall be final and conclusive. The Contractor shall be
afforded an opportunity to be heard and to offer evidence in support of any
appeal under this clause. Pending final decision on such a dispute, however, the
Contractor shall proceed diligently with the performance of the contract and in
accordance with the decision of the Contracting Officer unless directed to do
otherwise by the Contracting Officer.

b. This "Disputes" clause does not preclude consideration of law
questions in connection with decisions provided for in paragraph "a" above,
provided, that nothing in this contract shall be construed as making final the
decision of any administrative official, representative, or board on a question
of law.

3. LAW GOVERNING CONTRACTS ( 1970 JUL) - In any dispute arising out of this
contract, the decision of which requires consideration of law questions, the
rights and obligations of the parties shall be interpreted and determined in
accordance with the substantive laws of the United States of America.

4. LEGAL STATUS (1973 JUL) - The NAFI is an integral part of the Department of
Defense and is an instrumentality of the United States Government. Therefore,
NAFI contracts are United States Government contracts; however, they do not
obligate appropriated funds of the United States.

5. EXAMINATION OF RECORDS (1979 DEC)

a. This clause is applicable if the amount of this contract exceeds
$10,000 and the contract was entered into by means of negotiation. The
Contractor agrees that the Contracting Officer or his duly authorized
representative shall have the right to examine and audit the books and records
of the Contractor directly pertaining to the contract during

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the period of the contract and until the expiration of three years after the
final payment under the contract.

b. The Contractor agrees to include the clause in "a" above in all
subcontracts hereunder which exceed $10,000.

6. ASSIGNMENT (1987 SEP) - No assignment by the Contractor, assigning its rights
or delegating its obligations under this contract will be effective and binding
on the NAFI until the written terms of the assignment have been approved in
writing by the Contracting Officer.

7. GRATUITIES (1984 JUL)

a. The NAFI may, by written notice to the Contractor, terminate the
right of the Contractor to proceed under this contract if it is found, after
notice and hearing, by the Secretary of the Air Force or his duly authorized
representative, that gratuities (in the form of entertainment, gifts, or
otherwise) were offered or given by the Contractor, or any agent, or
representative of the contractor, to any officer or employees of the Government
or the NAFI with a view toward securing favorable treatment with respect to the
awarding or amending, or the making of any determinations with respect to the
performing of such contract.

b. In the event this contract is terminated as provided in paragraph
"a" hereof, the NAFI shall be entitled (i) to pursue the same remedies against
the Contractor as it could pursue in the event of a breach of contract by the
Contractor, and (ii) as a penalty in addition to any other damages to which it
may be entitled by law, to exemplary damages in an amount (as determined by the
Secretary of the Air Force or his duly authorized representative) which shall be
not less than three nor more than ten times the cost incurred by the
Contractor in providing any such gratuities to any such officer or employee.

c. The rights and remedies of the NAFI provided in this clause shall
not be exclusive and are in addition to any other rights and remedies provided
by law or under this contract.

8. TERMINATION FOR CONVENIENCE (1984 FEB) - The Contracting Officer, by written
notice, may terminate this contract, in whole or in part, when it is in the best
interest of the NAFI. If this contract is for supplies and is so terminated, the
Contractor shall be compensated in accordance with FAR, Sub Parts 49.1 and 49.2
in effect on this contract's date. To the extent that this contract is for
services and is so terminated, the NAFI shall be liable only for payment in
accordance with the payment provisions of this contract for services rendered
prior to the effective date of termination, providing there are no Contractor
claims covering nonrecurring costs for capital investment. If there are any such
Contractor claims, they shall be settled in accordance with FAR, Sub Parts 49.1
and 49.2.

9. TERMINATION FOR DEFAULT (1987 SEP) -

(a) (1) The NAFI may, subject to paragraphs (c) and (d) below, by
written notice of default to the Contractor, terminate this contract in whole or
in part if the Contractor fails to -

(i) Deliver the supplies or perform the service within the
time specified within this contract or any Extension;

(ii) Make progress, so as to endanger performance of this
contract (but see subparagraph (a)(2) below);or

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(iii) Perform any of the other provisions of this contract
(but see subparagraph (a)(2) below).

(2) The NAFI's right to terminate this contract under subdivisions
(1)(ii) and (1)(iii) above, may be exercised if the Contractor does not cure
such failure within 10 days (or more if authorized in writing by the
Contracting Officer) after receipt of notice from the Contracting Officer
specifying the failure.

(b) If the NAFI terminates this contract in whole or in part, it may
acquire, under the terms and in the manner the Contracting Officer considers
appropriate, supplies or services similar to those terminated, and the
Contractor will remain liable to the NAFI for any excess costs for those
supplies or services. However the Contractor must continue the work not
terminated.

(c) The Contractor shall not be liable for any excess costs if the
failure to perform the contract arises from causes beyond the control and
without the fault or negligence of the Contractor. Examples of such causes
include (1) acts of God or of the public enemy, (2) act of the NAFI in either
its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6)
quarantine restrictions, (7) strikes, (8) freight embargoes, and; (9) unusually
severe weather. Defaults by subcontractors at any tier for any reason do not
constitute causes beyond the control and without the fault or negligence of the
Contractor.

(d) If this contract is terminated for default, the NAFI may require
the Contractor to transfer title and deliver to the NAFI as directed by the
Contracting Officer, any

(1) completed supplies, and

(2) partially completed supplies and materials, parts, tool dies,
jigs, fixtures, plans, drawings, information, and contract rights (collectively
referred to as manufacturing materials in the clause) that the Contractor has
specifically produced or acquired for the terminated portion of this contract.
Upon direction of the Contracting Officer, the Contractor shall also protect and
preserve property in its possession in which the NAFI has an interest.

(e) The NAFI shall pay the contract price for completed supplies
delivered and accepted. The Contractor and Contracting Officer shall agree on
the amount of payment for manufacturing materials delivered and accepted and for
the protection and preservation of the property. Failure to agree will be a
dispute under the Disputes Clause. The NAFI may withhold from these amounts any
sum the Contracting Officer determines to be necessary to protect the NAFI
against loss because of outstanding liens or claims of former lien holders.

(f) If, after termination, it is determined that the Contractor was not
in default, or that the default was excusable, the rights and obligations of the
parties shall be the same as if the termination had been issued for convenience
of the NAFI

(g) The rights and remedies of the NAFI in this clause are in addition
to any other rights and remedies provided by law or under this contract.

10. INSPECTION AND ACCEPTANCE (1989 DEC) - Inspection and acceptance will be at
destination, unless otherwise provided in this contract. Notwithstanding the
requirements for any NAFI inspection and test contained in specifications
applicable to this contract, except where specialized inspections or tests are
specified for performance solely by the NAFI, the Contractor, shall perform or
have performed the inspections and tests required to substantiate that the
supplies provided under the contract conform to the drawings,
specifications, and contract requirements listed herein, including if applicable
the technical requirements for the manufacturers' part numbers specified herein.

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11. VARIATION IN QUANTITY (1973 JUL) - No variation in quantity of any item
called for by this contract will be accepted unless authorized by the
Contracting Officer.

12. PAYMENTS (1989 SEP) - Unless otherwise specified, payment will be made on
partial deliveries accepted by the NAFI. Payments and penalties for late
payments are subject to the requirements established by the Prompt Payment Act,
as amended, and as implemented for NAFI's. If the NAFI makes payment but such
payment fails to include a prompt payment penalty due to the Contractor within
10 days from when the contract payment is made, penalty amounts will not be paid
unless the Contractor makes a written request within forty days after the date
of payment.

13. HOLD AND SAVE HARMLESS (1973 JUL) - The Contractor shall indemnify, save
harmless, and defend the NAFI, its outlets and customers from any liability,
claimed or established for violation or infringement of any patent, copyright,
or trademark right asserted by any third party with respect to goods hereby
ordered or any part thereof. Contractor further agrees to hold the NAFI
harmless from all claims or judgments for damages resulting from the use of
products listed in this contract, except for such claims or damages caused by,
or resulting from negligence of NAFI customers, employees, agents, or
representatives. Also, Contractor shall at all times hold and save harmless the
NAFI, its agents, representatives, and employees from any and all suits, claims,
charges, and expenses which arise out of acts or omissions of Contractor, its
agents, representatives, or employees.

14. MODIFICATIONS (1975 JAN) - No agreement or understanding to modify this
contract will be binding upon the NAFI unless made in writing and signed by a
Contracting Officer from the office that issued the contract or its successor.

15. TAXES (1987 SEP) -

a. Except as may be otherwise provided in this contract, the contract
price includes all taxes, duties or other public charges in effect and
applicable to this contract on the contract date, except any tax, duty, or other
public charge, which by law, regulation or governmental agreement, is not
applicable to expenditures made by the NAFI or on its behalf; or any tax, duty,
or other public charge from which the Contractor, or any subcontractor
hereunder, is exempt by law, regulation or otherwise. If any such tax, duty, or
other public charge has been included in the contract price, through error or
otherwise, the contract price shall be correspondingly reduced.

b. If for any reason, after the contract date of execution, the
Contractor or subcontractor is relieved in whole or in part from the payment or
the burden of any tax, duty, or other public charge included in the contract
price, the contract price shall be correspondingly reduced; or if the Contractor
or subcontractor is required to pay in whole or in part any tax, duty, of other
public charge which was not applicable at the contract date of execution the
contract price shall be correspondingly increased.

16. PROOF OF SHIPMENT (1987 OCT) - (Applicable to shipments outside the United
States through the Defense Transportation System [DTS] and Parcel Post
shipments to overseas destinations.)

a. Notwithstanding any clause of this contract to the contrary, payment
will be made for items not yet received, upon receipt of an invoice accompanied
by an appropriate proof of shipment. If shipment is made by insured parcel post,
the contractor must furnish a

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copy of the Insured Mail Receipt issued by the US Postal Service. Otherwise, a
stamped copy of a Certificate of Mailing issued by the US Postal Service must be
furnished. If shipment is made by a common carrier (rail, air or motor freight),
the Contractor must furnish a signed copy of the shipping document on which
items are receipted for by the common carrier. A signed receipt by a NAFI
representative at the delivery point (CCP or POE) is also acceptable evidence of
proof of shipment.

b. Forwarding a proof of shipment and an invoice for payment by the
Contractor shall be construed as a certification by the contractor that the
items shipped conform to the specifications.

c. Notwithstanding any provisions of this clause or any payment made
pursuant to the terms of this clause prior to receipt of the items contracted
for, the NAFI retains the right to inspect upon receipt and the right to reject
nonconforming items. The liability of the Contractor with respect to items for
which payments have been made will, after inspection by the NAFI or after the
expiration of a reasonable time following delivery to the NAFI within which
inspection may be made, whichever occurs first, be limited to (i) exceptions
taken at the time of inspection, and (ii) latent defects, fraud, or such gross
mistakes as amount to fraud. -

17. COMMERCIAL WARRANTY (1978 DEC) - The Contractor agrees that the supplies or
services furnished under this contract shall be covered by the most favorable
commercial warranties the Contractor gives to any customer for such supplies or
services and that the rights and remedies provided herein are in addition to and
do not limit any rights afforded to the NAFI by any other clause of this
contract. The printed terms and conditions of such warranty will be provided
to the NAFI with the delivery of any supplies covered.

18. ADVERTISEMENTS (1973 JUL) - Contractor agrees that none of its nor its
agent's advertisements, to include publications, merchandise, promotions,
coupons, sweepstakes, contest, sales brochures, etc, shall state, infer or imply
that the Contractor's products or services are approved, promoted, or indorsed
by the NAFI Any advertisement, including cents-off coupons, which refers to a
NAFI will contain a statement that the advertisement is neither paid for, nor
sponsored in whole or in part by, the particular activity.

19. DISCOUNTS FOR PROMPT PAYMENT (1987 SEP) -

a. Discounts for prompt payment will not be considered in the
evaluation of offers. However, any offered discount will form a part of the
award, and will be taken if payment is made within the discount period indicated
in the offer by the offeror. As an alternative to offering a prompt payment
discount in conjunction with the offer, offerors awarded contracts may include
prompt payment discounts on individual invoices.

b. In connection with any discount offered for prompt payment, time
shall be computed from (1) the date of completion of performance of the
services or delivery of the supplies to the carrier if acceptance is at point of
origin, or date of delivery at destination or port of embarkation if delivery
and acceptance are at either of these points, or (2) the date a proper invoice
or voucher is received in the office specified by the NAFI, if the latter is
later than date of performance or delivery. For the purpose of computing the
discount earned, payment shall be considered to have been made on the date
which appears on the payment check or the date on which a wire transfer was
made.

20. INVOICES (1989 SEP):

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a. An invoice is a written request for payment under the contract for
supplies delivered or for services rendered. In order to be proper, an invoice
should include (and in order to support the payment of interest penalties, must
include) the following:

(i) Invoice date;

(ii) Name of Contractor,

(iii) Contract number (including order, number, if any),
contract line item number, contract description of supplies or services,
quantity, contract unit of measure and unit price, and extended total;

(iv) Shipment number and date of shipment (Bill of Lading
number and weight of shipment will be shown for shipments on Government Bills of
Lading)

(v) Name and address to which payment is to be sent (which
must be the same as that in the contract or on a proper notice of assignment);

(vi) Name (where practicable), title, phone number and mailing
address of person to be notified in event of a defective invoice; and

(vii) Any other information or documentation required by other
provisions of the contract (such as evidence of shipment). Invoices shall be
prepared and submitted in duplicate (one copy shall be marked Original") unless
otherwise specified.

b. For purposes of determining if interest begins to accrue under the
PROMPT PAYMENT ACT (PUBLIC LAW 97-177):

(i) A proper invoice will be deemed to have been received when
it is received by the office designated in the contract for receipt of invoices
and acceptance of the supplies delivered or services rendered has occurred.

(ii) Payment shall be considered made on the date on which a
check for such payment is dated.

(iii) Payment terms (e.g. "Net 20") offered by the contractor will
not be deemed Required payment dates.

(iv) The following periods of time will not be included:

(A) After receipt of improper invoice and prior to notice of
any defect or impropriety, but not to exceed three days for meat and meat food
products, five days for perishable agricultural commodities, and 15 days in all
other cases, and

(B) Between the date of a notice of any defect or impropriety
and the date a proper invoice is received. When the notice is in writing, it
shall be considered made on the date shown on the notice."

21. NOTIFICATION OF DEBARMENT/SUSPENSION STATUS (JUN 1985) The
Contractor shall provide immediate notice to the Contracting Officer in the
event of being suspended debarred or declared ineligible by any other Federal
Department or agency, or upon receipt of a notice of proposed debarment from
another DOD Agency, during the performance of this contract.

22. INTEGRITY OF UNIT PRICES (SEP 1987):

a. Any proposal submitted for the negotiation of prices for items of
supplies shall distribute costs within contracts on a basis that ensures that
unit prices are in proportion to the items base cost (e.g., manufacturing or
acquisition costs). Any method of distributing costs to line items that distorts
unit prices shall not be used. For example, distributing costs equally among
line items is not acceptable except when there is little or no variation in base
cost. Nothing in this paragraph requires submission of cost or pricing data not
otherwise required by law or regulation.

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b. The requirement in paragraph (a) of this clause does not apply to
any Department of Defense (DOD) and National Aeronautics and Space
Administration (NASA) contract or subcontract item of supply for which the unit
price is, or is based on, an established catalog or market price for a
commercial item sold in substantial quantities to the general public. A price is
based on a catalog or market price only if the item being purchased is
sufficiently similar to the catalog or market price commercial item to ensure
that any difference in price can be identified and justified without resort to
cost analysis.

c. The Offeror/Contractor shall also identify those supplies which it
will not manufacture or to which it will not contribute significant value when
requested by the Contracting Officer. However, for DOD and NASA contracts, the
information shall not be required for commercial items sold in substantial
quantities to the general public when the price is, or is based on, established
catalog or market prices.

d. The Contractor shall insert the substance of this clause, less
paragraph (c), in all subcontracts.

23. SOLICITATION DEFINITIONS (JUL 1987) "Offer" means "Proposal" in negotiation.
"Solicitation" means a request for proposals (RFP) or a request for quotations
(RFQ) in negotiation. "Government" means United States Government. (End of
provision)

24. ACCEPTANCE (1989 SEP) - Acceptance of the supplies or services or a written
notice of rejection must be accomplished on or before the fifth working day
following delivery of the supplies or services. Unless otherwise specified in
this contract.

25. NON-WAIVER OF DEFAULTS (1987 SEP) - Any failure by the NAFI at any time, or
from time to time, to enforce or require strict performance of any terms or
conditions of this contract will not constitute waiver thereof and will not
affect or impair such terms or conditions in any way or the NAFI's right at any
time to avail itself of such remedies as it may have for any breach or breaches
of such terms and conditions.

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LIST OF FAR CLAUSES INCORPORATED BY REFERENCE

The provisions of the following clauses set forth in the Federal Acquisition
Regulation (FAR) or DOD FAR Supplement are hereby incorporated into this order
or contract by reference with the same force and effect as though herein set
forth in full. As used in the following clauses, the term "Government" is
deleted and the abbreviation "NAFI" is substituted in lieu thereof. The date of
each clause shall be the current date set forth in FAR or DOD FAR Supplement on
the issuance date of this order or contract. Clauses made inapplicable by the
reference or by the kind of order or contract (e.g. orders or contract for
services instead of supplies) are self deleting. The complete text of any
clause incorporated in this order or contract by reference may be obtained from
the Contracting Officer.

CLAUSE
NO. REFERENCE CLAUSE TITLE
---------------------------------------

26 52.243-1 Changes - Fixed-Price

27 52.232-11 Extras

28 52.246-16 Responsibility for Supplies

29 52.225-11 Restrictions on Certain Foreign
Purchases

30 52.222-4 Contract Work Hours and Safety
Standards Act - Overtime Compensation

31 52.222-20 Walsh-Healy Public Contracts Act

32 52.222-26 Equal Opportunity

33 52.203-1 Officials not to Benefit

34 52.203-5 Covenant Against Contingent Fees

35 52.222-35 Affirmative Action for Special Disabled
and Vietnam Era Veterans

36 52.222-36 Affirmative Action for Handicapped
Workers

37 52.223-2 Clean Air and Water

*38 52.225-7001 Buy American Act and Balance of
Payments Program

(NOTE: The 25% differential specified in DOD 7060.3, paragraph D1c(3), shall be
used for evaluation in lieu of the 50% differential prescribed in FAR, Part 25.)

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39 52.222-3 Convict Labor

40 52.247-52 Clearance and Documentation
Requirements - Shipments to DOD Air or
Water Terminal Transshipment Points

*41 52.225-7002 Qualifying Country Sources as
Subcontractors

42 52.203-7 Anti-Kickback Procedures

*43 52.203-7001 Special Prohibition on Employment

44 52.203-10 Price or Fee Adjustment for Illegal or
Improper Activity

45 52.203-11 Certification any Disclosure Regarding
Payments to Influence Certain Federal
Transactions (Included if contract is
expected to exceed $100,000)

46 52.203-12 Limitation on Payments to Influence
certain Federal Transactions (Included if
contract is expected to exceed $100,000)

47 52.203-13 Procurement Integrity - Service
Contracting

*48 52.225-7007 Trade Agreements Act

*49 52.225-7036 North American Free Trade Agreement
Implementation Act

*50 52.225-7037 Duty-Free Entry-NAFTA Country End
Products and Supplies

51 52.225-14 Inconsistency Between English Version
and Translation of Contract**

**In the event of inconsistency between any terms of this contract any
translation thereof into another language, the English language meaning shall
control.

52 52.227-1 Authorization and Consent

53 52.227-3 Patent Indemnity

54 52.227-19 Commercial Computer Software-
Restricted Rights

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55 225-227-7019 Identification of Restricted Rights
Computer Software

56 225-227-7013 Rights In Technical Data
& Computer

*Denotes DOD FAR Supplement

ADDITIONAL GENERAL PROVISIONS APPLICABLE TO SERVICES
(FULL TEXT NOT REQUIRED)

57 52.243-1 ALT I Changes - Fixed Price

58 52.246-4 Inspection of Services -
Fixed Prices (1992 Feb)

59 52.222.41 Services Contract Act of 1965, as
Amended (1989 May)
(NOTE: Applicable to orders in excess of $2,500.00)

60. ORDERING (APR 1984).

a. Any supplies and services to be furnished under this contract shall
be ordered by the issuance of delivery orders by the individuals or activities
designated in the Schedule. Such orders may be issued under this contract from
date of award through 120 months.

b. All delivery orders are subject to the terms and conditions of this
contract. In the event of conflict between a delivery order and this contract,
the contract shall control.

c. If mailed, a delivery order is considered "issued" when the NAFI
deposits the order in the mail. Orders may be issued orally or by written
telecommunications only if authorized in the Schedule.

61. DELIVERY ORDER LIMITATIONS (APR 1984).

a. Minimum Order: When the NAFI requires supplies or services covered
by this contract in an amount of less than one system per base, the NAFI is not
obligated to purchase, nor is the Contractor obligated to furnish, those
supplies or services under the contract.

b. Maximum Order: The Contractor shall not be obligated to honor-

(1) Any order for a single item in excess of one system per base;

(2) Any order for a combination of items in excess of one system per
base; or

(3) A series of orders from the same ordering office within one
system per base days that together call for quantities
exceeding the limitation in subparagraph (1) or (2) above.

c. If this is a requirements contract (i.e., includes the Requirements
clause at subsection 52.216-21 of Federal Acquisition Regulation (FAR)), the
NAFI is not required to order a part of any one requirement exceeds the
maximum-order limitations in paragraph (b) above.

d. Notwithstanding paragraphs (b) and (c) above, the Contractor shall
honor any order exceeding the maximum order limitations in paragraph (b), unless
that order (or orders) is returned to the ordering office within 10 days after
issuance, with written notice stating the Contractor's intent not to ship the
item (or items) called for and the reasons.

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Upon receiving this notice, the NAFI may acquire the supplies or services from
another source.

62. INDEFINITE QUANTITY (APR 1984).

a. This is an indefinite quantity contract for the supplies or services
specified, and effective for the period stated, in the Schedule. The quantities
of supplies and services specified in the Schedule are estimates only and are
not purchased by this contract.

b. Delivery or performance shall be made only as authorized by orders
issued in accordance with the Ordering clause. The Contractor shall furnish to
the NAFI, when and if ordered, the supplies or services specified in the
Schedule up to and including the quantity designated in the Schedule as the
"maximum." The NAFI shall order at least the quantity of supplies or services
designated in the schedule as the "minimum."

c. Except for any limitations on quantities in the Delivery-Order
Limitations clause or in the Schedule, there is no limit on the number of orders
that may be issued. The NAFI may issue orders requiring delivery to multiple
destinations or performance at multiple locations.

d. Any order issued during the effective period of this contract and
not completed within that period shall be completed by the Contractor within the
time specified in the order. The contract shall govern the Contractor's and
NAFI's rights and obligations with respect to that order to the same extent as
if the order were completed during the contract's effective period; provided,
that the Contractor shall not be required to make any deliveries under this
contract after date specified on the delivery order.

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EQUIPMENT PERFORMANCE SPECIFICATION

FOR A

EUROPEAN

LODGING FACILITY

TELECOMMUNICATIONS SYSTEM

(LFTS)

Section J, Attachment 1
Page 1 of 21
<PAGE> 81
EQUIPMENT PERFORMANCE SPECIFICATION
FOR A
LODGING FACILITY
TELECOMMUNICATIONS SYSTEM
(LFTS)

1. ITEM DESCRIPTION.

1.1 General. This Equipment Performance Specification (EPS) defines the
requirements for a new Lodging Facility Telecommunications System (LFTS),
including hotel/motel accounting and management features. The contractor shall
provide a LFTS consisting of all new equipment including the basic digital
switching system, attendant consoles, administrative terminals, subscriber line
circuit equipment, trunk circuit equipment, distribution frames, wire and cable
plant, house wire, customer premise equipment, uninterrupted power supply (UPS),
outside plant (black) cable, and all other ancillary Hotel/Motel equipment and
software necessary to provide service for a complete telecommunication system.
This system shall have a modular architecture with an expansion capability.
Centrex service is not acceptable.

2. APPLICABLE DOCUMENTS.

3. SYSTEM REQUIREMENTS.

3.1 General System Requirements.

3.1.1 System Compatibility and Interface. The LFTS shall be compatible with the
existing base Dial Central Office (DCO), local commercial telephone system, and
government furnished equipment (GFE). The contractor shall provide an
asynchronous RS-232C port to interface to a GFE property management system.

3.1.2 Direct Dialing. The switching system shall be capable of performing Direct
Outward Dialing (DOD), Direct Inward Dialing (DID), and Direct Distance Dialing
(DDD) to the Public Switched

Section J, Attachment 1
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<PAGE> 82
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425 21 March 95

Telephone Network without the need of an attendant. DOD, DID, and DDD shall each
be assigned to properly class marked stations.

3.1.3 Flexibility of Connection. Any station directory number shall be
assignable to any switching system line equipment terminal by programming
internal switching system memory.

3.1.4 DTMF Dialing Operation. The equipment shall automatically interconnect
station lines in response to off-hook Dual Tone Multi-Frequency (DTMF) signals
without the aid of an attendant.

3.1.6 Trunking. The switching system shall provide trunk circuit interfaces with
standard signaling modes. The system shall recognize and respond to the various
signaling and supervision methods using trunk cards with programmable and/or
strapping options to provide satisfactory trunk operation.

3.1.7 Traffic.

3.1.7.1 Grades of Service. The switching system shall be designed with
sufficient intra-system circuit paths between line ports and trunk ports to meet
the following grades of service:

Intra-office Paths P.005
Incoming Registers
without start signal P.001
with start signal P.01
DTMF Senders P.001

Section J, Attachment 1
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<PAGE> 83
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425 21 March 95

3.1.7.2.1 Traffic Measurement and Analysis Report. This report provides data
concerning use and congestion in the switching system. This report will be used
to determine whether the switching system is provided adequate traffic capacity
and to determine whether existing facilities are adequate. (Reference CDRL
sequence number A006).

3.1.9 System Failures.

3.1.9.1 Major. A failure resulting from: loss of call processing on greater than
= 10% of equipped lines or trunks, or greater than = 10 equipped lines or
trunks, whichever is greater: failure of the billing system or any component of
the system, or a major alarm.

3.1.9.2 Minor. A failure resulting from: loss of call processing of greater than
2% less than 10% of equipped lines or trunks or 2 equipped lines or trunks,
whichever is greater; any abnormal hardware or software condition which requires
maintenance action to restore the LFTS to normal operation, or a minor alarm.

Section J, Attachment 1
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<PAGE> 84
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425 21 March 95

3.1.10 Environmental Conditions.

3.1.10.1 Temperature. The switching system shall operate continuously at ambient
temperature between 10 C and 30 C (50 F and 86 F) without degradation of
performance. The switching system shall operate at extreme ambient temperatures
of 5 C and 40 C (41 F and 104 F) for a minimum of 24 continuous hours. Ambient
refers to conditions at a location 5 feet above the floor and 15 inches in front
of the equipment.

3.1.11 System Availability. Availability is defined as the percentage of total
time that the switching system is able to perform its intended function.
Availability for the LFTS shall be 99.99%.

3.2 System Design.

3.2.2 Dialing Plan. The Dialing Plan for the switching system shall utilize the
NNX codes assigned by the local Telephone Company (TELCO). It shall be capable
of three, four, and five

Section J, Attachment 1
Page 5 of 21
<PAGE> 85
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425 21 March 95

digit station numbers and one, two, and three digit access codes. Numbering
shall be approved by the Lodging Facility Manager (LFM) and not in conflict with
any computer management system already in place. Trunk access codes and feature
operating codes shall be established by the contractor, with final approval by
the government.

FOR EXAMPLE:

<TABLE>
<CAPTION>
Dial Code
---------
<S> <C>
0 Lodging Attendant
1 through 6 Station Number
7
8
*90
91
91-800
</TABLE>

- ----------
* Access to off base operator assisted calls shall be restricted to lodging
attendant.

3.2.3 Administrative Terminal (AT). The contractor shall provide an AT for
exclusive use by the Lodging Facility personnel. The terminal shall provide
access to the switching system and allow additions, deletions, and changes to be
made to administrative data (station features, telephone numbers,
authorization codes, class of service, etc.) and call detail and billing
parameters. The AT shall consist of an alphanumeric keyboard, printer, and VDT.
The contractor shall perform the initial translations.

3.2.4 Call Detail Recording (CDR).

3.2.4.1 Call Detail Recording. The LFTS shall automatically collect, sort, and
store CDR data (items [1] through [8]). The CDR subsystem shall store the
processed CDR data on disks. The storage capacity of the disks shall be no less
than 20,000 call records. An audible and visible alarm shall activate when the
disks are nearing capacity. The CDR subsystem shall read and display the stored
data from the disks and shall provide a local hardcopy printout on command.
Reading and changing the storage device, or printing of stored data shall not
result in the loss of data or interfere with data collection. The CDR subsystem
shall be equipped with the necessary hardware and

Section J, Attachment 1
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<PAGE> 86
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425, 21 March 95

software to allow the user to enter any time interval and sort on any one of
the following parameters (with the exception of items [3], [6], and [7]):

[1] Time interval alone (i.e. all calls placed in the initially
specified time interval).

[2] Room number/extension number.

[3] Called number(s) (segregated by area and NNX codes).

[4] Toll and non-toll calls.

[5] Time call originated (date, hour, minute).

[6] Time call completed (date, hour, minute).

[7] Duration of call (accurate to at least five seconds).

[8] Authorization code (minimum of five digits).

3.2.4.2 Call Sorting. After selecting the time interval and one or more of the
previous parameters, with no more than five operator entries, the CDR
subsystem shall display, and print on command, the following data:

[1] Calling number.

[2] Called number.

[3] Time call originated (date, hour, minute).

[4] Time call completed (date, hour, minute), or alternatively,
duration of call.

[5] Authorization code/Account code.

[6] Toll charge (dollars, cents).

Section J, Attachment 1
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<PAGE> 87
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425 21 March 95

3.2.5 Call Billing/Room Status Subsystem (CBRSS). The LFTS shall be equipped
with all necessary hardware and software to provide the call billing/room status
function (CBRSS). The CBRSS will not be installed on the SIMS computer. It may
be installed on the PBX or a separate computer(s) depending on the vendor's
solution. The CBRSS subsystem will have at least two communication ports, one to
SIMS, and one to a printer to list all call account/room status records and
print reports. The CBRSS will pass both the call account record and the room/bed
housekeeping and occupancy status record to SIMS as well as to the CBRSS
printer. The capability to send a call record to SIMS and the printer
simultaneously as well as the ability to select either option alone is required.
The format of the call accounting and the room status records sent to the
printer can be determined by the vendor but must be understandable by the
attendant i.e. each field value must be identified by a clear text label. The
call accounting records and room status records will be passed to the SIMS when
it is connected. If SIMS is not available, CBRSS must be able to store at least
20000 call records with the capacity to run reports with the same options
outlined in EPS paras 3.2.4.1 and 3.2.4.2. It must also be able to continue
routing the call billing/room status records to the printer, easily identifying
that it must be manually posted. CBRSS data shall not be lost due to commercial
AC power outage.

3.2.5.1 Call Billing Function. Charges shall be automatically computed for
commercial, DDD, and Lodging operator assisted toll calls and billed to
the calling station. Direct dialed and operator assisted toll calls originated
by the lodging attendant and extended to a station number shall be billed to the
station number for single occupancy quarters and to the applicable
authorization/account code for multiple occupancy quarters. The toll rate data
base shall be software programmable and based upon necessary tariff parameters
(e.g., area and NNX codes, trunk group, mileage, etc.) and inputs from the LFM.
The contractor shall provide protection of, and access to, the data base by
means of a password(s). The contractor shall perform the initial programming and
shall maintain and update the data base as rate changes occur for the life of
the contract.

3.2.5.2 Room/Bed Housekeeping and Occupancy Status. The CBRSS shall store and
display the status of each guest room by room number. Housekeeping status shall
be updated by the housekeeper dialing codes from the room phone. The system
shall print, on command, a housekeeping report that contains the following data:

Section J, Attachment 1
Page 8 of 21
<PAGE> 88
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425. 21 March 95

[1] Room number (capable of 5 alphanumeric characters).

[2] Cleaning status (clean or not clean).

[3] Inspection status (inspected or not inspected).

[4] Occupancy status (occupied or not occupied).

[5] Room requires maintenance.

3.2.7 Power Requirements. The switching and billing system shall include an
Uninterrupted Power Supply (UPS) system powered by the commercial AC power. The
UPS shall provide sufficient standby power to operate the switching and billing
system for a minimum of four (4) hours should the commercial AC power be
interrupted. The UPS shall automatically disconnect the batteries from the
switching and billing system should the battery voltage fall below the
manufacturer's low voltage limit. The UPS shall be sized at cutover for the
expansion capacity of the switching system. Batteries shall be of the
maintenance free, sealed recombining type. These batteries shall utilize an
immobilized electrolyte and vent no gases. Power faults shall be indicated by a
visual and audible alarm remoted to the immediate area of the attendant console.
Audible alarms remoted to the attendant position shall have a means of being
silenced at the attendant position.

3.3 System Features. The LFTS switching system shall be configured to include
system features described below.

3.3.1 Message Waiting. The contractor shall provide the attendant console or
message waiting center instruments with the ability to activate and deactivate a
message waiting lamp at each station instrument with message waiting
capability.

Section J, Attachment 1
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<PAGE> 89
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425 21 March 95

3.3.2 Authorization/Account Code Calling. The LFTS shall have the capability of
random generation and activation and deactivation of authorization/account
codes. The authorization codes shall not be less than 5 digits and shall be
assignable to any station line when properly classmarked. The authorization/
account code shall be assignable from the administration terminal by lodging
personnel.

3.3.6 Automated Attendant. The LFTS shall provide the automated attendant
capability for all incoming trunks (city and base). All incoming calls shall be
routed to an automated attendant system. This system shall inform the caller,
via announcement, that a room number can be dialed directly if the caller knows
the number, otherwise, the call will be reverted to the attendant. This

Section J, Attachment 1
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<PAGE> 90
CSPO/PGE EPS-93F-CSPO-015A
Scott AFE IL 62225-5425. 21 March 95

AA system may be internal to the switching system or may be provided via an
external system. The specific announcements will be identified by the LFM.

3.3.7 Automatic Call Distribution. When specified in the site SOW, the LFTS
shall provide Automatic Call Distribution (ACD). The ACD feature shall provide
for efficient distribution and handling of a large volume of incoming calls to a
group of telephone instruments (termed ACD agent positions) designated for this
purpose. The application of the ACD feature will be to support offices which
routinely handle large volumes of call traffic, such as lodging reservations and
comparable activities. The ACD feature shall be capable of supporting at least 1
ACD group consisting of 10 ACD agent positions and at least 15 ACD directory
numbers (DNs) per group in accordance with the definitions provided below.

3.3.7.1 ACD Operation.

3.3.7.1.2 ACD Directory Number and Queue Assignments. The ACD feature shall
support multiple ACD directory numbers. The number of ACD numbers assigned at a
particular site will be a function of the projected traffic characteristics of
each ACD facility. If shall be possible to assign multiple ACD agents to an
individual ACD. The assignment of specific ACD agents to specific ACD directory
numbers shall be programmable in the system data base via the Administrative
Terminal (AT).

3.3.7.1.3 Non-ACD Directory Number Allocations. Each ACD agent position shall be
assignable one or multiple directory numbers to receive or originate non-ACD
calls.

3.3.7.1.4 Recorded Announcement and Music On Hold Treatment. When the number of
incoming calls in queue exceeds the number of idle ACD agents, the system shall
route the call

Section J, Attachment 1
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<PAGE> 91
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425 21 March 95

to a recorded announcement to inform the calling party of the delay. Incoming
calls shall be routed to the announcement either when the call is initially
placed in the queue or after an established time delay threshold as measured
from the time that the call was originally placed in queue. Following the
application of the recorded announcement, the LFTS shall provide wither "silent
hold" treatment or music on hold treatment, as specified in system translations.
Silent hold treatment or music on hold treatment shall be provided to the
calling party until the call is answered by the ACD agent or until the call is
abandoned. A capability shall be provided to periodically play recorded
announcements over the silent hold or music on hold treatment for the duration
(until an agent answers or the call is abandoned).

3.3.7.1.5 ACD Night Service. ACD night service shall provide treatment for
incoming calls to ACD DNs that are not in service after normal business hours.
The night service function shall provide the capability to:

a. Route incoming ACD calls to a recorded announcement, or

b. Forward the incoming ACD calls to a designated night service
directory number.

3.3.7.2 ACD Agent Positions.

a. Provide visual indicators which present information on the state of
each non-supervisory agent assigned to an ACD supervisor. As a
minimum, the information provided to an ACD supervisor position
shall include the following:

(1) Agent position is in active/inactive state

(2) Agent is busy processing an ACD call

(3) Agent is waiting for an ACD call

Section J, Attachment 1
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CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425. 21 March 95

(4) Agent is busy on a non-ACD call.

b. Provide access to visual display of summary information on the status
of all agents assigned to an ACD supervisor. As a minimum, the ACD
summary information shall include the following:

(1) Number of positions wither active or inactive

(2) Number of agents busy on ACD calls

(3) Number of agents in the make busy mode

(4) Number of agents waiting for ACD calls

(S) Number of agents busy on non-ACD calls

(6) Number of calls waiting in each ACD queue allocated to the ACD
supervisor and the waiting time of the first call waiting in
each queue or some other statistically meaningful measurement
of agent call handling performance (e.g. average speed of
answer).

c. Have access to ACD management reports specified in para 3.3.7.4.
3.3.7.2.2 ACD Agent Position Equipment Characteristics. As a minimum, ACD Agent
positions shall be equipped with a telephone instrument that incorporates an
LED, LCD, or comparable visual display for presenting calling source information
and other relevant data to facilitate ACD agent call processing. For ACD
facilities which require ACD management reporting functions, ACD supervisory
position(s) shall be equipped with visual display units and/or printers for
providing ACD performance statistics to ACD supervisors. Specific quantities of
ACD agent positions, ACD supervisory positions, visual display units and
printers will be identified in the site SOW.

3.3.7.3 ACD Agent Features.

Section J, Attachment 1
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CSPO/PGE EPS-93F-CSPO-015A
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3.3.7.3.2 Emergency Alert. When specified in the site SOW, the contractor shall
provide an emergency alert capability. Activation of a special emergency button
on the agent's phone shall automatically print the date, time, called station
number, and calling station number or incoming trunk identity at the AT printer
of the LFTS serving the called station and simultaneously signal the supervisor.

3.3.7.3.4 Call Force. The call force feature shall allow subsequent incoming
calls to be placed on the line without requiring the agent to physically hang
up.

3.3.7.4 ACD Management Reports. ACD management reports shall be generated which
include detailed information on the number of incoming ACD calls, ACD calls
completed, ACD calls not completed and reasons that calls were not completed,
ACD queue statistics and other data which may be used by management and
administrative personnel to assess call handling efficiency. Information similar
to the following shall be included in ACD management reports:

a. A count of the number of incoming ACD calls

b. A count of the number of completed ACD calls

c. A count of the number of calls not completed because the incoming
call queue threshold has been exceeded

d. A count of the number of calls not completed because the maximum
time a call can wait in queue has been exceeded

e. The number of ACD calls abandoned by the calling party

f. A count of the number of calls received during night service

Section J, Attachment 1
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CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425. 21 March 95

g. Average speed of answer

h. Average number of calls in queue

i. Average holding time

j. Duration of the longest call held in queue.

3.4 Attendant Console.

3.4.1 Attendant Console Capabilities.

3.4.1.1 Attendant Console. The attendant console shall operate with keys or
pushbuttons. There shall be no cords for call completion or extension.

3.4.2 Attendant Console Features.

3.4.2.1 Split Calling. The attendant shall be able to converse privately with
either the calling or the called party on all calls.

Section J, Attachment 1
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<PAGE> 95
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425. 21 March 95

3.4.2.3 Call Transfer. The attendant shall be able to transfer trunk calls to
and from any station line. The attendant shall be able to transfer any trunk
call to a conference circuit.

3.4.2.4 Call Hold. The attendant shall be able to place an incoming call on
hold.

3.4.2.5 Class of Service Override. The attendant shall be able to override any
line or trunk class of service marking for the purpose of accessing and
switching the circuit.

3.4.2.6 Conference Calls. The attendant shall be able to establish user defined
conference calls of up to six parties.

3.5 Station Features for Administrative Telephones. The following station
features shall be assignable to administrative office phones:

3.5.1 Call Transfer. Subscribers shall be able to transfer any in progress call
to another station without assistance from the attendant.

3.5.2 Call Hold. Subscribers shall be able to place an in-progress call on hold.

3.5.3 Three-way Conference. Properly class marked subscribers shall be able to
place a call on hold and then add a third party to an in progress local or trunk
call without attendant assistance.

3.6 Premise Equipment.

Section J, Attachment 1
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<PAGE> 96
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425. 21 March 95

color as agreed to by the LFM. Telephone instruments shall, as a minimum,
consist of the base unit with DTMF keypad, handset, handset cord and fully
modular mounting cord.

3.7.1 Distribution System Design. The distribution system shall consist of
transmission channels along with any associated terminals, splicing, etc.,
required to provide electrical connectivity from the terminal equipment to the
DF. The distribution plant shall be sized as specified in the delivery order.
The distribution plant shall be designed with all lines and spares being "fixed
count" (i.e., dedicated and accessible at the MDF) with no multiple connections
except as specified in the SOW. All outside plant cable pairs shall be
terminated on gas tube protectors at the DF and the terminal end.

Section J, Attachment 1
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<PAGE> 97
CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425. 21 March 95

weathertight enclosures, and all outdoor splices shall be direct buried using
filled, sealed enclosures. The use of buried distribution terminals is
prohibited. Any indoor filled cable shall not exceed 50 feet, shall be in
conduit, and shall run directly to the house terminal block. All indoor splices
shall be enclosed in a proper type of indoor splice enclosure. Filled cable run
indoors shall not be run between floors or inside walls, nor shall it be
terminated on protective devices if such device is part of the Main Distribution
Frame (MDF) or an Intermediate Distribution Frame (IDF). If a conduit is
available, it shall be used for cable entrance. The cable shall be run to the
protected terminal upwards in a vertical direction wherever possible and be
sealed to prevent jelly leakage. Where a cable enters a facility through an
exterior wail, it shall be properly sealed on both sides of entry to prevent any
kind of leakage. The contractor shall ensure cable installation does not cause
mechanical stress or strain to the cable, or result in sharp edges, burrs, or
other projections which may be injurious to the insulation or jackets of the
wiring. In addition, the contractor shall provide ground level (flush),
telephone warning, splice, and route signs at all underground/buried splice
locations and all changes of direction in excess of 30 degrees.

3.7.3 House Wire. House wire shall be extended from punch down terminal blocks
at the outside plant terminal location to intermediate terminal points within
each facility. Each station shall be provided with two individual pairs of wires
(4 conductors) from the building terminal. Station lines shall be terminated on
standard 2 pair flush mounted modular jacks at all locations except on masonry
walls. RJ-11 or similar jacks may be used on masonry wall locations. Jacks for
desk type phones shall be mounted no higher than 12 inches from floor level.
Jacks for wall type phones shall be mounted no lower than 52 inches and no
higher than 56 inches from the floor level. The contractor shall route all house
wire on the interior of the buildings. The contractor shall install all house
wire so that it is concealed inside walls, ceilings, or other parts of the
permanent structure. Where house wire can not be concealed, it shall be placed
in color coordinated raceways with the proper appliance for installing flush
mounted jacks, and require the approval of the BFM prior to installation.

4. QUALITY CONTROL.

4.1 Quality Control Program. The contractor shall establish a quality control
program to assure that the LFTS meets all of the performance criteria in this
specification. This program shall include physical inspections and functional
testing of the LFTS before, during and after cutover.

Section J, Attachment 1
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CSPO/PGE EPS-93F-CSPO-015A
Scott AFB IL 62225-5425 21 March 95

4.3 Installation Testing. The contractor shall perform an installation test of
the complete LFTS to ensure requirements of the SOW and EPS are met or exceeded.
Government representatives will be allowed to witness all inspections and tests
to assure conformance with the SOW and EPS. The contractor shall demonstrate to
the government representative, all requirements of the SOW and EPS, prior to
acceptance testing. The contractor shall notify the Contracting Officer no later
than 2 weeks prior to installation testing to allow sufficient time for a
government representative to observe. No official installation testing will take
place prior to a government representative arriving on site.(Reference CDRL
sequence number A008).

5. PREPARATION FOR DELIVERY.

5.1 Packaging shall be IAW the terms of the contract.

6. NOTES.

6.1 Acronyms.

BCE: Base Civil Engineer.

LFM: Lodging Facility Manager.

LFTS: Lodging Facility Telecommunications System.

BCO: Base Communications Officer.

CDRL: Contract Data Requirements List.

Section J, Attachment 1
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<PAGE> 99
CSPO/PGE EPS-93F-CSPO-015A
Scott AFE IL 62225-5425. 21 March 95

COTR: Contracting Officer Technical Representive

DTMF: Dual Tone Multi Frequency.

EPS: Equipment Performance Specification.

FAM: Functional Area Monitor.

FCA: Functional Configuration Audit.

IDF: Intermediate Distribution Frame.

IAW: In Accordance With.

MDF: Main Distribution Frame.

PCA: Physical Configuration Audit.

QAE: Quality Assurance Evaluator.

SIMS: Services Information Management System.

SOW: Statement of Work.

6.2 EFI&T. EFI&T, as used in this EPS, is defined as a contractor responsibility
to engineer, design, furnish, install, test, and maintain a system or single
item of equipment to provide a service to the government.

6.3 Point of Contact (POC). The LFM or authorized representative shall be the
sole focal point for all service requests.

6.4 Attendants. Attendants will be provided by the LFM.

Section J, Attachment 1
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Scott AFB IL 62225-5425. 21 March 95

6.5 Paragraph Referencing. Any reference to a paragraph is understood to include
all subparagraphs.

6.6 Response Time. All response times for work requests, outages, etc. are based
upon consecutive clock hours, unless otherwise stated, and shall begin from the
time that the contractor is first notified, verbally or in writing, whichever
occurs first, If verbally notified, a follow-up written verification will be
forwarded.

6.7 Outside Plant. That portion of the LFTS extending outward from the MDF up to
and including terminal blocks and intermediate distribution frames but excluding
premise equipment.

6.8 Premise Equipment. Premise equipment includes telephones, telephone cables,
modular jacks (usually flush mounted), grey wire runs to the intermediate
distribution frame or terminal blocks.

6.9 Inside Plant. That portion of the LFTS extending inward from, and including,
the MDF.

6.10 Two-Way Lines. All lines shall be two-way unless stated otherwise.

6.11 Demarcation Points. All government specified demarcation points will be
identified by the BCO during the contractor's site survey.

Section J, Attachment 1
Page 21 of 21
<PAGE> 101
SECTION J

LIST OF ATTACHMENTS

<TABLE>
<CAPTION>
ATCH# TITLE PAGES
- --------------------------------------------------------------------------------
<S> <C> <C>
1 Equipment Performance Specification For a European 1-21
Lodging Facility Telecommunications System (LFTS)
EPS-93F-CSPO-015A
CSPO/PGE
Scott AFB IL 62225-5425

2 DD Form 1423, Contract Data Requirements List 1-3
(A001-A0011)

3 DD Form 1664, Data Item Description
Telecommunication Systems Installation Plan 1-3
Cutover Plan 1
Post-Cutover Quality Control Report 1
Comm-Computer Systems Installation Records 1-4
(CSIRs)
Training Plan 1-2
Subscriber Education Pamphlet 1
Installation and Acceptance Test Plan 1-5
Test/lnspection Reports 1-5
Subscriber Ed. Pamphlet Standard Telephone Inst. 1
Subscriber Ed. Pamphlet LT1-Line Telephone Inst. 1

4 Appendix A - Ramstein Air Base Lodging Requirements 1-10

5 Appendix B - Rhein Main Air Base Lodging Requirements 1-5

6 Appendix C - Aviano Air Base Lodging Requirements 1-5
</TABLE>

J-1
<PAGE> 102
CONTRACT DATA REQUIREMENTS LIST FORM APPROVED
QMB NO. 0704-0188
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[ILLEGIBLE COPY]

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A. CONTRACT LINE ITEM NO.

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B. EXHIBIT

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C. CATEGORY:

TDP TM OTHER
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D. SYSTEM/ITEM

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E. CONTRACT/PR NO.

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F. CONTRACTOR

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1. DATA ITEM NO.

A001
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2. TITLE OF DATA ITEM

Telecommunications System Installation Plan
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3. SUBTITLE

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4. AUTHORITY (Data Accountant Document No.)

DI-GDRQ-80150
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5. CONTRACT REFERENCE

Para. 3.8.3
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6. REQUIRING OFFICE

USAFE/SVFS
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7. DD 259 REQ

yes
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8. APP CODE

A
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9. DIST STATEMENT REQUIRED

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10. FREQUENCY

One/R
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11. AS OF DATE

N/A
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12. DATE OF FIRST SUBMISSION

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13. DATE OF SUBSEQUENT SUBMISSION

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14. DISTRIBUTION

b. COPIES
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a. ADDRESSEE Final
Draft ---------------------------
Req Repro
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USAFE/SVFS 1 1
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15. TOTAL [arrow] 1 1
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16. REMARKS

See DID DD Form 1664, Telecommunications System Installation Plan.
Plan shall be provided 30 days after contract award.
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17. PRICE GROUP

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18. ESTIMATED TOTAL PRICE

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1. DATA ITEM NO.

A002
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2. TITLE OF DATA ITEM

Cutover Plan
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3. SUBTITLE

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4. AUTHORITY (Data Accountant Document No.)

DI-MGMT-80355
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5. CONTRACT REFERENCE

Para. 3.8.4
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6. REQUIRING OFFICE

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7. DD 259 REQ