FUSION TELECOMMUNICATIONS INTERNATIONAL INC (Form: S-1/A, Received: 12/22/2004 17:31:08)

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 2004

Registration No. 333-120412

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Amendment No. 1
to

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

Delaware 4813 58-2342021

(State or Other Jurisdiction of Employer (Primary Standard Industrial (I.R.S. Employer

Incorporation or Organization Number) Classification Code Number) Identification Number)

420 Lexington Avenue, Suite 518
New York, New York 10170
(212) 972-2000
(Address and Telephone Number of Principal Executive Offices)

Heitz & Associates, P.C.
345 Woodcliff Drive
Fairport, New York 14450
(585) 387-0000

(Name, Address and Telephone Number of Agent for Service)

Copies of all communications to:

Arthur Marcus, Esq. David Alan Miller, Esq. William R. Heitz, Esq.

Gersten, Savage, Kaplowitz, Graubard Miller Heitz & Associates, P.C.

Wolf & Marcus, LLP 600 Third Avenue 345 Woodcliff Drive

101 East 52nd Street New York, New York 10016 Fairport, New York 14450

New York, New York 10022-6018 212-818-8800 585-387-0000

212-752-9700 Fax: 212-818-8881 Fax: 585-387-0130

Fax: 212-813-9768

Approximate date of commencement of proposed sale to the public: As soon as practicable following the date on which this Registration Statement becomes effective.

If any securities being offered 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: [X]

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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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. [ ]

(continued on next page)

CALCULATION OF REGISTRATION FEE

Proposed

Maximum Proposed Amount of

Title of Each Class of Securities to be Amount to be Offering Price Maximum Registration

Registered (1) Registered Per Security (2) Offering Price Fee

Common Stock $.01 par value
      Per share, (the “Common Stock”) (3) 3,823,750 $7.00 $26,766,250 $ 3,391.28

Redeemable Common Stock
      Purchase Warrants (4) 3,823,750 $ .05 $ 191,188 $ 24.22

Common Stock Issuable Upon Exercise
      of Redeemable Warrants 3,823,750 $8.00 $30,590,000 $ 3,600.44

Representative’s Purchase Option 332,500 $ .0001 $100 $ .01

Common Stock Issuable Upon Exercise
      of the Representative’s Purchase Option 332,500 $8.75 $ 2,909,375 $ 342.43

Redeemable Warrants Underlying
      Representative’s Purchase Option 332,500 $ .0625 $20,782 $ 2.44

Common Stock Issuable Upon Exercise of Redeemable Warrants

      Underlying the Representative’s Purchase Option
332,500 $8.00 $ 2,660,000 $ 313.08

Selling Securityholder Redeemable
      Warrants (5) 3,141,838 $ .05 $ 157,092 $ 19.90

Common Stock Issuable Upon Exercise

      of the Selling Securityholder

      Redeemable Warrants 3,141,838 $8.00 $25,134,704 $ 3,184.57

Total Registration Fee: $10,878.37

Previously Paid Registration Fee: $11,224.86

(1) Pursuant to Rule 416, also being registered are such additional securities as may become issuable pursuant to antidilution provision of the Representative’s Warrants, stock splits, stock dividends or similar transactions.

(2) Estimated solely for the purpose of calculating the registration fees.

(3) Includes 498,750 shares of common stock issuable upon exercise of the underwriter’s over allotment option.

(4) Includes 498,750 Redeemable Warrants issuable upon exercise of the underwriter’s over allotment option.

(5) Represents Redeemable Warrants issuable to investors upon their conversion of series C preferred stock.

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.

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: one to be used in connection with an initial public offering of 3,325,000 shares of our common stock and 3,325,000 purchase warrants (the “Prospectus”) and one to be used in connection with the potential resale of an aggregate of 3,141,838 purchase warrants by certain selling securityholders (the “Selling Securityholder Prospectus”). The Prospectus and Selling Securityholder Prospectus will be identical in all respects except for the alternate pages for the Selling Securityholder Prospectus included herein which are labeled “Alternate Page for Selling Securityholder Prospectus.”

The information in this preliminary prospectus supplement and the accompanying prospectus is not complete and may be changed. This preliminary prospectus supplement and the accompanying prospectus are not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion
December 22, 2004

PRELIMINARY PROSPECTUS

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

3,325,000 Shares of Common Stock
and
3,325,000 Redeemable Common Stock Purchase Warrants

___________

This is our initial public offering of 3,325,000 shares of our common stock and 3,325,000 redeemable common stock purchase warrants. We anticipate that the offering price per share of our common stock will be between $5.00 and $7.00 and that the offering price per warrant will be $.05.

Each purchase warrant will entitle you to purchase one share of our common stock for $____ (100% of the offering price of one share of our common stock) during the four-year period beginning on the first anniversary of the date of this prospectus. The warrant excercise price will increase to $____ (133% of the offering price of one share of our common stock) on the eighteen month anniversary of the date of this prospectus provided that the registration statement covering the shares of common stock underlying the purchase warrants has been effective for at least sixty (60) days prior to the exercise price reset date.

Prior to this offering, there has been no public market for our securities and we cannot assure you that a market will develop. We have applied to list our common stock and purchase warrants on the American Stock Exchange under the symbols FSN and FSNW, respectively.

Investing in our securities involves a high degree of risk. Please see the section entitled “Risk Factors” beginning on page 9 to read about risks you should consider carefully before buying our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

___________

Underwriting

Initial public discount and Per Share Total

offering price commissions Proceeds to us Proceeds to Us(1)

Per share of common stock
$

$

$

$

Per purchase warrant

Total
$

$

$

$

______________

(1) Before deduction of our other expenses related to this offering, estimated at $625,000.

Our underwriters have an option to purchase up to an additional 498,750 shares of our common stock and/or 498,750 purchase warrants to cover over allotments.

Our underwriters are offering our securities as set forth in the section entitled “Underwriting.” Our underwriters expect to deliver our securities to purchasers on or about _____, 2005.

The date of this prospectus is December 22, 2004.

Table of Contents

Prospectus Summary 3

Summary Historical Financial Data 7

Risk Factors 9

Special Note Regarding Forward-Looking Statements 17

Use of Proceeds 17

Dividend Policy 18

Capitalization 19

Dilution 20

Management's Discussion and Analysis of Financial Condition and Results of Operations 23

Operating Expenses 25

Company Highlights 26

Business 38

History and Corporate Information 38

Services 38

Growth Strategy 40

Marketing 42

Network Strategy 43

Dynamics of the Global Communications Market 45

Competition 50

Government Regulation 51

Trademarks 52

Employees 53

Properties 53

Legal Proceedings 54

Management 55

Executive Officers and Senior Management 55

Board of Directors 57

Advisory Board 59

Board Committees 60

Certain Relationships and Related Transactions 64

Principal Stockholders 66

Description of Securities 68

Shares Eligible for Future Sale 71

Underwriting 72

Legal Matters 74

Experts 74

Where You Can Find More Information 74

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell shares of common stock and purchase warrants and seeking offers to buy shares of common stock and purchase warrants only in jurisdictions where offers and sales are permitted.

Until _______, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotment or subscription.

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed information regarding us, the securities being sold in this offering, the risk factors and the financial statements and notes thereto appearing elsewhere in this prospectus.

About Us. We seek to become a leading provider of VoIP (Voice Over Internet Protocol) and other Internet services to, from, in and between emerging markets in Asia, the Middle East, Africa, the Caribbean and Latin America. With our lead product, VoIP, we currently provide a full suite of communications services to corporations, Postal Telephone and Telegraph companies (PTTs), international carriers, government entities, Internet service providers (ISPs) and consumers in over 45 countries. In the near future we intend to provide service to cable operators. Our infrastructure features Softswitch technology which consists of computerized switching system software integrated with computer servers. Because of its modular structure, this Softswitch technology enables us to more rapidly deploy our products and services, and more quickly and economically expand our capacity and geographical reach. We started to migrate customers to our new Softswitch in August 2004 and began to rely on it in October 2004.

In the spring of 2000, our board of directors assembled a new management team who restructured and refined our business and corporate strategy. As part of this refinement and restructuring we exited non-core operations, such as providing domestic long distance services, local access and consulting services, and focused on the emerging markets and new services, such as VoIP. Our management team has significant experience in communications and international business development and has demonstrated a keen ability to establish relationships with local partners in emerging countries, who can distribute and support our products and services. Since January 2004, we have raised $5.9 million in financing from the sale of our equity securities and converted $0.6 million in debt. The funds from these offerings helped us to increase revenues in the first nine months of 2004 by 63.0% over the prior year period to $40.5 million and develop our Softswitch based infrastructure. In addition, our improved financial condition enabled us to further reduce accounts payable and debt by $3.5 million in 2004, which includes $2.2 million in negotiated reductions with vendors and other debtors.

Services. Although VoIP is our lead product, we provide a full suite of services which we believe gives us a competitive advantage over other providers. Our services include:

• VoIP: Our VoIP services have accounted for the majority of our revenues in 2004. VoIP enables customers, typically for a lower cost than traditional telephony, to place voice calls anywhere in the world using their PC, IP phone or regular telephone when accompanied by a hardware device. VoIP services utilize the Internet as opposed to circuit switching (traditional telephony technology), thereby offering cost savings to customers. These services are offered directly to corporations around the world, on a private label, co-branded or wholesale basis to ISPs, PTTs and, in the future, cable operators who wish to market to corporations and consumers under their own brand name, or through our retail services company, Efonica F-Z, LLC. Efonica offers PC-to-Phone and IP Phone-to-Phone services to customers located in Asia, the Middle East and Africa, and is currently expanding into Latin America. Advanced services that will shortly be available to customers include voicemail, call waiting and call forwarding.

• Additionally, we enter into VoIP interconnect agreements with PTTs or other carriers in our target markets. These agreements enable us to terminate traffic into a country and in some cases originate traffic from that country through the PTT or other carrier. We use capacity on these networks to carry our own retail traffic in addition to selling capacity to other carriers desiring to send retail traffic to an end-user at that specific destination. As we grow, we intend to use an increasing percentage of our capacity for higher margin, retail traffic.

• Managed private networks: We offer managed end-to-end networks that typically connect multinational corporations or government facilities in emerging markets with locations in other countries. End-to-end networks describes an entire private network service which is contracted for and managed by a single provider as a service to the customer. We also market this service to software developers, call centers, and telemarketing facilities, all of which rely on high quality, reliable service. In markets where we do not have network facilities deployed, we utilize other carriers’ networks, allowing us to provide an integrated global network that can connect a customer

• to virtually anywhere in the world. We also offer services on a private label basis as a subcontractor for other communication carriers that are seeking network connectivity to countries that they do not otherwise service.

• Internet Access: We offer peering with multiple tier-one Internet backbone providers utilizing an intelligent routing capability. This ensures efficiency, speed and reliability. The tier-one providers we utilize own or control a national network that trades traffic with other national providers. Tier-one Internet backbone providers describes large Internet carriers that have deployed a substantial network that is under their own direct management. This traffic trading is referred to as “peering.” A tier-one provider can carry its own Internet traffic across the country and hand it off at any one of the public or private hand-off locations known as "peering points," metropolitan access points or national access points. In select locations such as India, we have established Internet points of presence (PoPs) that are then connected to our New York facility. This, in turn, provides interconnectivity with the Internet and peering with the top Internet backbone networks. In regions where we do not own network facilities, we utilize other carriers’ facilities. We also provide services on a private label basis as a subcontractor for other communication carriers that are seeking Internet access in countries that they do not otherwise service.

• Internet video conferencing: We offer an Internet-based video conferencing service that can be initiated instantly on a personal computer (similar to popular instant messaging services) and can handle from two to two hundred participants per conference, of which six can be visually displayed. The service can be installed in a matter of minutes and only requires a standard camera and headset to operate. We are marketing our desktop video conferencing service directly to multinational corporations seeking to enhance face-to-face communications without the costly inefficiencies of business travel, and to our international partners to distribute within their country.

• Co-location: We offer facility co-location services to other communication service providers, enabling them to co-locate their equipment within our facility, or lease a portion of our equipment. Often, we provide wholesale services to the parties who co-locate with us.

For the nine months ended September 30, 2004, voice accounted for 92.5% of our revenues, of which 68.4% was VoIP, 24.1% was traditional telephony and the remaining 7.5% was other services.

We generate 93% of our revenues from U.S. based customers. We generate 3%, 4% and 26% of our consolidated revenues from our joint ventures in India and globally through our Efonica FL-LLC and Pakistan, respectively. We have financed our operations from inception from financing activities and we have experienced significant operating and net losses since inception. We had net losses of $19,141,739, $9,358,524 and $4,176,571 for the years ended December 31, 2001, 2002 and 2003, respectively. For the nine months ended September 30, 2003 and 2004, our net loss was $4,105,236 and $2,226,815, respectively.

Strategy. Our strategy is to gain early entry in an emerging country and then market advanced communication services such as VoIP, private networks, Internet access, Internet video conferencing, and other Internet services. In many cases, we will establish a foothold within an emerging market through a partnership with a local organization. We believe that working with strong local partners allows us to best distribute services and attract, retain and support customers. These local partners offer time to market advantages as their existing infrastructure, sales distribution channels, and technical support can be utilized, while simultaneously reducing the capital needed to enter the market. Additionally, these partners typically provide or arrange for the last mile connectivity that is required for the delivery of local Internet access and private networks. This last mile connectivity, which is the connection between the in-country telecommunicat ions facility and the customer’s physical location, in combination with local support, expands the geographic coverage of our global service offering and helps differentiate us from our competitors.

We work with our partners to enable them to distribute and support our products and services which can be Fusion branded, co-branded or private labeled. Our private label alternative allows our partners to market our products, technology platform and global reach under their own brand. This alternative is ideal for partners that do not have the capital, expertise and technology platform required to deliver our services but want to build or leverage their own brand.

The Offering

Securities Offered 3,325,000 shares of our common stock and 3,325,000 purchase warrants. Each purchase warrant will entitle you to purchase one share of our common stock for $____ (100% of the offering price of one share of our common stock) during the four-year period beginning on the first anniversary of the date of this prospectus. The warrant exercise price will increase to $____ (133% of the offering price of one share of our common stock) on the eighteen month anniversary date of issuance provided that the registration statement covering the shares of common stock underlying the purchase warrants has been effective for at least sixty (60) days prior to the exercise price reset date. We may redeem the purchase warrants, at any time after they become exercisable, for $.01 per purchase warrant, on not less than thirty (30) days’ prior written notice if the last sale price of our common stock has been at least 200% of the then-current exercise price of th e purchase warrants (initially $____) for the twenty (20) consecutive trading days ending on the third day prior to the date on which notice is given.

Common equity outstanding prior

to the offering

Class A common stock 17,480,562 shares

Common stock 0 shares

Common equity to be outstanding

after the offering

Class A common stock 17,480,562 shares

Common stock 7,118,353 shares

Purchase warrants to be

outstanding after the

offering 6,466,838 purchase warrants

Use of proceeds At an assumed initial offering price of $6.00 per share of common stock and $.05 per warrant we estimate that we will receive approximately $17,616,562 in net proceeds after deducting commissions and offering expenses. We intend to use approximately $5,016,250 of the net proceeds of the offering for working capital and general corporate purposes; $2,100,000 for repayment of certain indebtedness; $2,000,000 to fund the purchase of equipment for expanded capacity and service offerings; $1,250,000 for marketing and advertising; and $7,250,000 for international deployment, including the purchase of business licenses, network equipment and securing letters of credit and bonds, all as more particularly described herein. Any net proceeds from the exercise of the Underwriters’ over allotment option will be added to working capital.

Proposed American Stock Exchange

symbols Common Stock: FSN

Purchase Warrants: FSNW

Corporate information Fusion was incorporated in Delaware in September 1997. Our principal executive offices are located at 420 Lexington Avenue, Suite 518, New York, NY 10170. The main telephone number is (212) 972-2000. Our web site is www.fusiontel.com . The information contained in our web site is not part of this prospectus.

Certain terms used in this

Prospectus In this prospectus “common stock” refers to our common stock, par value $.01 per share and “purchase warrants” refers to the redeemable common stock purchase warrants being sold in this offering. We refer sometimes to our common stock and purchase warrants as our “securities.”

The information in this prospectus reflects a recapitalization of the old common stock outstanding by a conversion rate of 3.5 shares of old common stock into one share of class A common stock, or an aggregate of 17,480,562 shares of class A common stock. The class A common stock has the same voting and other rights as the new common stock being sold in this offering except that it is not publicly transferable until after the first anniversary of the date of this prospectus, at which time it will automatically convert into the same class of new common stock being sold in this offering. Prior to the conversion date of the class A common stock, holders may convert their stock after the effective date of the prospectus, by entering into a lock up agreement with the company until the first anniversary of this prospectus, which restriction on public sale can be released only with the consent of the representative. The series C preferred stock converts into shares of common stock, subject to a lock up agreement for one year, and warrants equivalent to those offered hereby. The warrants being offered by this prospectus and the warrants issued on conversion of the series C preferred stock and to the representative will be exercisable for the common stock. The data in this prospectus has been adjusted for the recapitalization.

Except as set forth in the financial statements or as otherwise specifically stated, all information in this prospectus assumes:

• no conversion of the 17,480,562 shares of class A common stock into an equal number of shares of our common stock;

• no exercise of our underwriters’ over-allotment option to purchase up to 498,750 shares of our common stock and/or 498,750 purchase warrants;

• no exercise of the purchase warrants offered by us in the offering;

• no exercise of the representative’s purchase option to purchase up to 332,500 shares of our common stock and/or 332,500 purchase warrants;

• no exercise of 3,141,838 warrants issued to investors in our offering of series C preferred stock to purchase an equal number of shares of our common stock;

• the mandatory conversion of series C preferred stock into 3,141,838 shares of our common stock;

• no exercise of 286,567 warrants to purchase 286,567 shares of our common stock;

• no exercise of 1,802,019 options outstanding, which were granted under our plans to purchase 1,802,019 shares of our common stock;

• 2,680,857 shares of our common stock reserved for issuance under our 1998 Stock Option Plan; and

• the conversion of an aggregate of $2,508,333 of convertible promissory notes into 651,515 shares of our common stock.

SUMMARY HISTORICAL FINANCIAL DATA

The following financial information should be read in conjunction with “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto contained elsewhere in this prospectus:

(unaudited)

Years Ended December 31, Nine Months Ended September 30,

2001 2002 2003 2003 2004 (1)

Consolidated Statement of
Operations:

Revenues $ 29,614,565 $ 28,422,149 $33,725,275 $ 24,840,556 $ 40,499,353

Loss from operations (11,629,584) (10,014,342) (7,541,513) (5,289,855) (2,976,652)

Loss from continuing operations (12,112,228) (9,358,524) (4,385,191) (4,105,236) (2,226,815)

Income/(loss) from discontinued
operations (7,029,511) 0 208,620 0 0

Net loss (19,141,739) (9,358,524) (4,176,571) (4,105,236) ( 2,226,815)

Operating Data:

Adjusted EBITDA (2) $ (6,622,602) $ (6,980,268) $(4,519,932) $ (3,315,615) $ (1,483,078)

Capital expenditures 501,882 533,610 645,340 55,242 578,888

Consolidated Balance Sheet Data:

Cash and cash equivalents $ 0 $ 768,898 $ 3,240,652 $ 108,179 $ 4,619,248

Restricted cash 784,000 1,250,793 961,536 984,426 508,976

Total assets 14,273,723 12,287,532 13,033,913 10,630,670 15,046,671

Total debt 12,211,878 9,640,955 5,176,861 9,437,701 4,808,592

Preferred shares subject to
mandatory redemption 0 0 3,466,538 0 9,861,431

Total stockholders’ deficit (11,537,659) (14,800,981) (9,774,002) (14,727,648) (10,613,664)

The below summarizes actual and proforma as adjusted September 30, 2004 consolidated balance sheet data.

(unaudited)

As of September 30, 2004

Pro Forma

Actual As Adjusted (3)

Cash and cash equivalents $ 4,619,248 $20,976,498

Restricted cash 508,976 273,700

Total assets 15,046,671 31,403,921

Total debt 4,808,592 2,285,592

Preferred shares subject to
mandatory redemption 9,861,431 0

Total stockholders’ (deficit) equity (10,613,664) 18,752,350

(1) We adopted the provisions of SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity.” SFAS No. 150 requires us to classify as a long-term liability our series C preferred stock and classify dividends and accretion from the series C preferred stock as interest expense. For the nine months ended September 30, 2004, interest expense includes $1,180,730 related to dividends and accretion on the series C preferred shares subject to mandatory redemption.

(2) EBITDA is defined as net income (loss) adjusted for depreciation and amortization, interest and taxes. Adjusted EBITDA represents EBITDA adjusted for forgiveness of debt and loss on impairment. We believe Adjusted EBITDA is useful to investors as a way of viewing our opeating results because it assists in analyzing the performance of our underlying business without the impact of certain significant nonrecurring transactions such as impairment losses associated with divested businesses and forgiveness of debt which vary significantly between periods and are not recurring in nature. Although we use Adjusted EBITDA as one of several financial measures to assess our operating performance, its use is limited as it excludes certain significant expenses. Adjusted EBITDA is not intended to represent cash flows for the period presented, nor has it been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Generally Accepted Accounting Principles.

(3) The proforma as adjusted column of this consolidated balance sheet data table reflects (a) the conversion of all outstanding series C preferred shares into common stock upon completion of this offering, (b) the repayment of $1,523,100 in debt and $516,000 in interest payable to certain officers and directors, and (c) a refinancing transaction that occurred subsequent to September 30, 2004, whereby the Company received net cash proceeds of $1,330,000 ($1,400,000 for a convertible note net of a $70,000 advisory fee) and refinanced $1,108,333 of existing notes payable and accrued interest in exchange for a convertible note. The $1.1 million note was refinanced as the interest rate was reduced from 13% to 6.5%, the term was extended two years, and collateral related to the refinanced debt was released. These two notes aggregate $2,508,333 and automatically convert upon the completion of this Offering into 651,515 shares of common stock based upon a conversion price of $3.85 per share and (d) the issuance and sale by us of 3,325,000 shares of common stock and common stock purchase warrants in this offering at an assumed initial public offering price of $6.00 and $0.05, respectively, after deducting estimated underwriting discounts and commissions and estimated offering expenses, as if these events had occurred as of September 30, 2004.

Years Ended December 31, Nine Months Ended September 30,

2001 2002 2003 2003 2004 (1)

A reconciliation of net loss to
Adjusted EBITDA follows:

Net loss $(19,141,739) $(9,358,524) $(4,176,571) $(4,105,236) $ (2,226,815)

(Income)/loss from discontinued
operations 7,029,511 0 (208,620) 0 0

Loss from continuing
operations (12,112,228) (9,358,524) (4,385,191) (4,105,236) (2,226,815)

Adjustments:

Interest expense, net 595,116 1,175,714 919,590 671,364 1,433,849

Depreciation and amortization 2,069,361 2,546,869 2,128,610 1,616,607 1,484,418

Forgiveness of debt 0 (1,812,092) (3,918,295) (1,779,033) (2,174,530)

Loss on impairment 2,825,149 467,765 735,354 280,683

Adjusted EBITDA $ (6,622,602) $(6,980,268) $(4,519,932) $(3,315,615) $ (1,483,078)

RISK FACTORS

An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before you decide to invest in our securities. If any of the following events actually occur, our business could be seriously harmed. In such case, the value of your investment may decline and you may lose all or part of your investment. You should not invest in our securities unless you can afford the loss of your entire investment.

Risks Related to Business

We have a history of operating losses, a working capital deficit and a stockholders’ deficit and there can be no assurance that we will ever achieve profitability.

There can be no assurance that any of our business strategies will be successful or that we will ever achieve profitability. At September 30, 2004, we had a working capital deficit of approximately $6,600,000 and a stockholders’ deficit of approximately $10,614,000. We have continued to sustain losses from operations and for the years ended December 31, 2003, 2002 and 2001, we have incurred a net loss applicable to common stockholders of approximately $4,812,000, $10,001,000 and $19,142,000, respectively. We incurred a net loss applicable to common stockholders of approximately $2,613,000 and $4,676,000 for the nine-month periods ended September 30, 2004 and 2003. In addition, we have not generated positive cash flow from operations for the years ended December 31, 2003, 2002 and 2001 and the nine months ended September 30, 2004. We may not be able to generate future profits and may not be able to support our operations, or otherwise establish a return on invested capital.

We have substantial past due liabilities which are payable on demand, which if called would result in a severe liquidity crisis.

As of September 30, 2004, our liabilities, other than the recorded liability to holders of the series C preferred stock, totaled approximately $15.7 million. Approximately $2.4 million of these liabilities are past due and payable on demand. Of the $2.4 million, approximately $900,000 is owed to one equipment vendor and $200,000 of interest is owed to two different individuals, such interest is to be paid from the proceeds of this offering. While we are working to change the payment terms of certain of these liabilities as well as to reduce the extent of these liabilities through negotiations, including the equipment vendor, we may not be able to make the required principal and interest payments. Certain of our indebtedness is payable on demand. In the event that a demand is made on these liabilities, there could be a severe liquidity crisis.

If we are unable to manage our growth or implement our expansion strategy, we may increase our costs without maximizing our revenues.

We may not be able to expand our product offerings, our client base and markets, or implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth will place a significant strain on our administrative, operational and financial resources and may increase our costs. If we are unable to successfully manage our future growth, establish and continue to upgrade our operating and financial control systems, recruit and hire necessary personnel or effectively manage unexpected expansion difficulties, we may not be able to maximize revenues or profitability.

The success of our planned expansion is dependent upon market developments and traffic patterns which will lead us to make expenditures that may not result in increased revenues.

Our purchase of network equipment and software will be based in part on our expectations concerning future revenue growth and market developments. As we expand our network, we will be required to make significant capital expenditures, including the purchase of additional network equipment and software, and to add additional employees. To a lesser extent our fixed costs will also increase from the ownership and maintenance of a greater amount of network equipment including our Softswitch, gateways, routers, satellite equipment, and other related systems. If our traffic volume were to decrease, or fail to increase to the extent expected or necessary to make efficient use of our network, our costs as a percentage of revenues would increase significantly.

We may be unable to adapt to rapid technology trends and evolving industry standards which could lead to our products becoming obsolete.

The communications industry is subject to rapid and significant changes due to technology innovation, evolving industry standards, and frequent new service and product introductions. New services and products based on new technologies or new industry standards expose us to risks of technical or product obsolescence. We will need to use technologies effectively, continue to develop our technical expertise and enhance our existing products and services in a timely manner to compete successfully in this industry. We may not be successful in using new technologies effectively, developing new products or enhancing existing products and services in a timely manner or that any new technologies or enhancements used by us or offered to our customers will achieve market acceptance.

Our growth is dependent upon our ability to build new relationships with PTTs, bring on new customers and to obtain the necessary licenses in new countries in which we have not previously operated, of which there can be no assurance.

Our ability to grow through quick and cost effective deployment of our IP services is due, in part, to our ability to create new interconnection agreements with PTTs, and other licensed carriers, to sign contracts with new customers, and, in many cases, to enter into joint venture or strategic agreements with local partners, as well as to obtain the necessary licenses to operate in emerging markets. While we pursue several opportunities simultaneously, we might not be able to create the necessary partnerships and interconnections, expand our customer base, deploy networks and generate profitable traffic over these networks within the time frame envisioned.

We are pursuing new business lines, which require specialized skill sets. Our ability to effectuate our business plan is due, in part, to the roll out of new services, including PC-To-Phone, IP Phone-To-Phone and Internet video conferencing.

Our ability to deploy new products and services may be hampered by technical and operational issues which could delay our ability to derive profitable revenue from these service offerings. These issues include our ability to competitively price such products and services, in addition, certain service offerings such as IP video are relatively new in our industry and the market potential is relatively untested. Additionally, our ability to market these products and service offerings may prove more difficult. To date, we have not significantly focused on selling Internet video conferencing and thus have derived extremely limited revenue from this service, and there can be no assurance that we will increase our current focus and/or derive significant revenue from this service.

The communications services industry is highly competitive and we may be unable to compete effectively.

The communications industry, including Internet and data services, is highly competitive, rapidly evolving, and subject to constant technological change and intense marketing by providers with similar products and services. We expect that new competitors, as well as gray market operators (operators who arrange call termination in a manner that bypasses the PTT, resulting in high margins for the gray market operator and substantially lower revenues for the PTT), are likely to join existing competitors in the communications industry, including the market for VoIP, Internet and data services. Many of our current competitors are significantly larger and have substantially greater market presence as well as greater financial, technical, operational, marketing and other resources and experience than we do. In the event that such a competitor expends significant sales and marketing resources in one or several markets we may not be able to compete successfully in such markets. We believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect our gross margins if we are not able to reduce our costs commensurate with such price reductions. In addition, the pace of technological change makes it impossible for us to predict whether we will face new competitors using different technologies to provide the same or similar services offered or proposed to be offered by us. If our competitors were to provide better and more cost effective services than ours, our business initiatives could be materially and adversely effected.

Industry consolidation could make it more difficult for us to compete.

Companies offering Internet, data and communications services are, in some circumstances, consolidating. We may not be able to compete successfully with businesses that have combined, or will combine, to produce companies

with substantially greater financial, sales and marketing resources, larger client bases, extended networks and infrastructures and more established relationships with vendors, distributors and partners than we have. With these heightened competitive pressures, there is a risk that our financial performance could be adversely impacted and the value of our common stock could decline.

Certain of our competitors are emerging from bankruptcy and may have an advantage over us in pricing.

Several companies in the telecommunications industry have gone through bankruptcy proceedings and have emerged, or are expected to emerge, as viable competitors. These companies may emerge with cost structures that are significantly lower than those companies that have not entered into and emerged from bankruptcy proceedings, allowing them to market services at lower prices. This in turn may result in us having to reduce our prices, which would have an adverse impact on our future profitability.

Our ability to provide services is often dependent on our suppliers and other service providers who may not prove to be effective.

A majority of the voice calls made by our clients are connected through other communication carriers which provide us with transmission capacity through a variety of arrangements. Our ability to terminate voice traffic in our targeted markets is an essential component of our ongoing operations. If we do not secure or maintain operating and termination arrangements, our ability to increase services to our existing markets, and gain entry into new markets, will be limited. Therefore, our ability to maintain and expand our business is dependent, in part, upon our ability to maintain satisfactory relationships with incumbent and other licensed carriers, ISPs, international exchange carriers, satellite providers, fiber optic cable providers and other service providers, many of which are our competitors, and upon our ability to obtain their services on a cost effective basis, as well as the ability of such carriers to carry the traffic we route to their networks or provide network capacity. If a carrier does not carry traffic routed to it, or provide required capacity, we may be forced to route our traffic to, or buy capacity from, a different carrier on less advantageous terms, which could reduce our profit margins or degrade our network service quality. In the event network service is degraded it may result in a loss of customers. To the extent that any of these carriers raise their rates, change their pricing structure, or reduce the amount of capacity they will make available to us, our revenues and profitability may be adversely affected.

We rely on third party equipment suppliers who may not be able to provide us the equipment necessary to deliver the services that we seek to provide.

We are dependent on third party equipment suppliers for equipment and hardware components, including Cisco, Nuera, Juniper Networks, Santa Cruz Networks and Veraz. If these suppliers fail to continue product development and research and development or fail to deliver quality products or support services on a timely basis, or we are unable to develop alternative sources, if and as required, it could result in our inability to deliver the services that we currently and intend to provide.

We rely on the cooperation of PTTs who may hinder our operations in certain markets.

In some cases we will require the cooperation of the PTT or another carrier in order to provide services under a license or partnership agreement. In the event the PTT or another carrier does not cooperate, our service roll-out may be delayed, or the services we offer could be negatively affected. If we acquire a license for a market and the PTT or incumbent carrier desires to negatively affect our business in the area, they may be in a position to significantly delay our ability to provide services in that market and ultimately make it not worth pursuing.

If we do not operate our new Softswitch technology effectively, many of the potential benefits of the new technology may not be realized.

We have made a fundamental change in our business operations by migrating to new Softswitch technology. There are inherent risks associated with using such a relatively new technology. We may be required to spend additional time or money on integration of this technology, which could otherwise be spent on developing our services. We expect to experience a temporary decline in revenues during and immediately following the migration to the new softswitch technology. If we do not operate the technology effectively or if we and our technical staff spend too much time on operational issues, it could result in increased costs without the corresponding benefits.

Our Efonica joint venture relies on outside vendors to provide key functions, including billing and providing of service(s) which may result in inefficiencies which we cannot control.

We rely on outside vendors to support certain capabilities including billing, provisioning and certain other back office services for our IP Phone-to-Phone, and PC-to-Phone services. In the event that any of these outside vendors, for any reason, fail to adequately perform in a timely and effective manner, there will be an interruption in these services.

If we are unable to develop and maintain successful relationships with our joint venture partners, we could fail in an important market.

We are engaged in certain joint ventures where we share control or management with a joint venture partner. If we are unable to maintain a successful relationship with a joint venture partner, the joint venture’s ability to move quickly and respond to changes in market conditions or respond to financial issues, can erode and reduce the potential for value creation and return on investment. For example, our joint venture partner in India has been unable to pay us in a timely manner for services rendered. Further, the joint ventures may also restrict or delay our ability to make important financial decisions, such as repatriating cash to us from such joint ventures. This uncertainty with our joint ventures could result in a failure in an important market.

Should our joint venture partners decide to raise capital, it could result in our ownership or voting control falling below the majority and we would be unable to consolidate our financial statements.

If our joint ventures decide to raise capital, we may find ourselves unable to consolidate our financial statements, resulting in loss of revenue. Our Pakistan, Efonica and Estel joint ventures accounted for 26%, 4% and 3% of our consolidated revenues, respectively. In addition, the resulting ownership change may cause us to lose our current voting controls and accordingly, we may not have the same ability to control the operations of the joint venture.

We need to retain key management personnel and hire additional qualified personnel. If we cannot retain qualified management personnel, we may not be able to hire suitable replacements.

We anticipate that in order to successfully implement our business strategy, including the expansion of the geographic scope of our operations, we will be required to recruit and hire a substantial number of sales and other personnel. Failure to attract and retain additional qualified sales and other personnel, including management personnel who will train and integrate our new employees, in addition to their role in continuing to manage our growth strategy, could adversely affect us. The loss of services by any of our key management personnel or executive officers could materially and adversely affect our business and our future prospects. We have not entered into employment agreements with any of our senior officers, except Matthew Rosen, our President and Chief Operating Officer. Additionally, Mr. Marvin Rosen does not receive compensation for his services as our Chief Executive Officer and there is no guarantee that he will spend a substantial portion of his time working for us. To the extent that he devotes his time to other endeavors and not to us, our business could be adversely affected. The loss of either Matthew or Marvin Rosen could adversely affect our business.

Service interruptions could affect our business.

Our networks have been and may be shut down from time to time as a result of disputes with PTTs, vendors, carriers or general service providers due to billing disputes, late payments, or other issues. As an example, in 2002, we experienced a service interruption which resulted in a loss of revenues of approximately $8.2 million and a loss of $395,000 in gross profits. Any future network shut downs can have a significant negative impact on revenue and cash flows and there is no assurance that we will be able to quickly resolve disputes, if ever.

We are dependent on our information and processing systems for effective billing and client service.

Sophisticated back office information and processing systems are vital to our growth and our ability to monitor costs, bill clients, provision client orders, and achieve operating efficiencies. Our plans for the development and implementation of these systems rely, for the most part, on having the capital to purchase and maintain required software, choosing products and services offered by third party vendors, and integrating such products and services with existing

systems. We also may require customized systems in order to meet our requirements which may delay implementation and increase expenses. These systems must also integrate with our network infrastructure. In the event that these systems do not integrate with our network infrastructure, our ability to manage our operational or financial systems will be inhibited. We cannot ensure that they will be implemented at all, or that, once implemented, they will perform as expected. Furthermore, our right to use some of these systems is dependent upon license agreements with third party vendors. These third-party vendors may cancel or refuse to renew some of these agreements, and the cancellation or non-renewal of these agreements may harm our ability to bill and provide services efficiently.

Breaches in our network security systems may hurt our ability to deliver services and reputation and result in liability.

We could lose clients and expose ourselves to liability if there are any breaches to our network security systems, which could jeopardize the security of confidential information stored in our computer systems. In the last four years we experienced two known breaches of network security, which resulted in a temporary failure of network operations. Any network failure could harm our ability to deliver certain services, our reputation and subject us to liability.

We face additional risks because we do business on an international level.

There are certain risks inherent in doing business internationally, especially in emerging markets, such as unexpected changes in regulatory requirements, the imposition of tariffs or sanctions, licenses, customs, duties, other trade barriers, political risks, currency devaluations, high inflation, corporate law requirements, and even civil unrest. Many of the economies of these emerging markets are weak and volatile. We may not be able to mitigate the effect of inflation on our operations in these countries by price increases, even over the long-term. Further, expropriation of private businesses in such jurisdictions remains a possibility, whether by outright seizure by a foreign government or by confiscatory tax or other policies. Deregulation of the communications markets in developing countries may not continue. Incumbent providers, trade unions and others may resist legislation directed toward deregulation and may resist allowing us to interconnect to their network switches. The legal systems in emerging markets frequently have insufficient experience with commercial transactions between private parties. Consequently, we may not be able to protect or enforce our rights in any emerging market countries. Governments may change resulting in cancellations or suspensions of operating licenses, confiscation of equipment and/or rate increases. The instability of the laws and regulations applicable to our businesses and their interpretation and enforcement in these markets could materially and adversely affect our business, financial condition, or results of operations.

Regulatory treatment of VoIP outside the United States varies from country to country. Some countries are considering subjecting VoIP services to the regulations applied to traditional telephone companies and they may assert that we are required to register as a telecommunications carrier in that country. In such cases, our failure to register could subject us to fines, penalties, or forfeiture. Regulatory developments such as these could have a material adverse effect on our international operations.

The success of our business depends on the acceptance of the Internet in emerging markets that may be slowed by limited bandwidth, high bandwidth costs, and other technical obstacles.

The ratio of telephone lines per population, or teledensity, in most emerging countries is low when compared to developed countries. Bandwidth, the measurement of the volume of data capable of being transported in a communications system in a given amount of time, remains very expensive in these regions, especially when compared to bandwidth costs in the United States. Prices for bandwidth capacity are generally set by the government or incumbent telephone company and remain high due to capacity constraints among other things. While this trend tends to diminish as competitors roll out new bypass services, these rollouts may be slow to occur. Further, constraints in network architecture limit Internet connection speeds on conventional dial-up telephone lines, and are significantly less than the up to 1.5 megabits per second connection speed on direct satellite link or DSL lines and cable modems in the United States. These speed and cost constraints may severely limit the quality and desirability of using the Internet in emerging countries and can be an obstacle to us entering emerging markets.

We need to obtain additional licenses and approvals in order to expand our services and enter new markets.

We must, from time to time, obtain additional licenses and approvals from governmental agencies in order to provide our services. There may be difficulties or delays in obtaining them. If we encounter difficulties or delays in obtaining licenses, our ability to provide new services and expand into new markets could be adversely affected.

Additional taxation and the regulation of the communications industry may slow our growth, resulting in decreased demand for our products and services and increased costs of doing business.

We could have to pay additional taxes because our operations are subject to various taxes. We structure our operations based on assumptions about various tax laws, U.S. and international tax treaty developments, international currency exchange, capital repatriation laws, and other relevant laws by a variety of non-U.S. jurisdictions. Taxation or other authorities might not reach the same conclusions we reach. We could suffer adverse tax and other financial consequences if our assumptions about these matters are incorrect or the relevant laws are changed or modified.

We are subject to varying degrees of international, federal, state, and local regulation. Significant regulations imposed at each of these levels govern the provision of some or all of our services and affect our business. We cannot assure you that we or our joint venture partners, have, or, will receive the international, United States Federal Communications Commission (“FCC”), or state regulatory approvals we or they require. Nor can we provide you with any assurance that international, FCC or state regulatory authorities will not raise material issues with respect to our compliance with applicable regulations or that the cost of our compliance will not have a materially adverse effect on our financial condition or results of operations.

The U.S. Federal Government and state authorities have the power to revoke our regulatory approval to operate internationally, interstate, or intrastate, or to impose financial penalties if we fail to pay, or are delinquent in paying, telecommunications taxes or regulatory fees or fail to file necessary tariffs or mandatory reports. We are currently, and have been, delinquent in such financial obligations and required filings in the past. Furthermore, delays in receiving required regulatory approvals or the enactment of new and adverse legislation, regulations or regulatory requirements could also have a materially adverse affect on our condition. In addition, future legislative, judicial and regulatory agency actions could alter competitive conditions in the markets in which we intend to operate, to our detriment.

In addition to new regulations being adopted, existing laws may be applied to the Internet, which could hamper our growth.

New and existing laws may cover issues that include: sales and other taxes; user privacy; pricing controls; characteristics and quality of products and services; consumer protection; cross-border commerce; copyright, trademark and patent infringement; and other claims based on the nature and content of Internet materials. This could delay growth in demand for our products and services and limit the growth of our revenue.

We are exposed to fluctuations in exchange rates and exchange control regulations, which could adversely affect our profit margins.

Our business plan contemplates that during the next twelve months we will begin to earn more revenues paid in foreign currencies. We also expect to have more costs payable in foreign currencies. There may be instances where we have net foreign currency exposure. Some of these foreign currencies might be subject to exchange control regulations or other impediments to convertibility to U.S. dollars. We may not be able to hedge our currency risks. To the extent that we are unable or choose not to convert these currencies to U.S. dollars or utilize them to pay our expenses in-country, we might earn revenues which we are unable to repatriate outside of the country in which they are earned. We do not anticipate that this will have a materially adverse effect on our financial statements.

Since Indian law limits the percentage of foreign investment in companies in the telecommunications sector, we could lose control of our operations in India.

We currently own a 49% direct interest in Estel Communications Private Ltd. (“Estel”), the joint venture through which we conduct our operations in India. In addition we have voting rights in another 1.01% of Estel, giving us voting control over 50.01% of Estel until May 2007. However, our percentage ownership remains subject to regulation by the Government of India. If Indian law changes it could result in a loss of operational control and an inability to consolidate our revenues.

Our Indian partner currently manages Estel’s operations, which negatively affects our ability to control our operations in India.

Our Indian partner currently manages Estel’s operations. Our operations in India are dependent on our relationship with our partner. Limited financial resources have caused a strain between the joint venture partners, and may inhibit future growth prospects.

An unfavorable change in current regulations or the interpretation thereof, may result in the loss of our voting control in Estel. In addition, we may not be able to further capitalize on our relationship with Estel if our partner is incapable or unwilling to invest its proportional share of capital in this joint venture.

Estel has been unable to pay us in a timely manner for services rendered. We cannot be assured that Estel will make the payments due us in a timely manner in the future or that we will be fully paid for past obligations by Estel.

Risks related to the offering

The offering price of our securities is arbitrary, and as a result the stock price may decline after the offering.

The offering price of our securities was arbitrarily determined by negotiation between us and our underwriters and may not bear a direct relationship to our assets, revenues, book value, results of operations or any other objective standard. Accordingly, our stock price may suffer a decline in value.

A significant portion of the proceeds of this offering will be used for the repayment of debt to certain of our officers and directors and will not be used to fund our operations.

We will use approximately $2,100,000, of the proceeds of this offering to repay certain indebtedness. These amounts consist primarily of (i) approximately $1,065,000, including accrued interest of approximately $313,000 through September 30, 2004, owed to Marvin Rosen, (ii) approximately $812,000, including accrued interest of approximately $143,000 through September 30, 2004, owed to Philip Turits and members of his family to repay demand notes; and (iii) approximately $162,000, including accrued interest of approximately $60,000 through September 30, 2004, owed to Evelyn Langlieb Greer. The use of a significant portion (12%) of the net proceeds from this offering to repay this indebtedness instead of funding our operations could have a material adverse affect on our business and hamper our growth prospects.

We have broad discretion as to the use of the net proceeds from this offering and we may use the proceeds of this offering in a manner that you may not approve.

We have broad discretion as to the use of the net proceeds we will receive from the offering. We cannot assure you that we will apply these funds effectively or in a manner that you would approve. If we do not utilize the net proceeds of the offering effectively, our business and prospects may be seriously harmed and the value of our securities may decrease.

Our principal stockholders will continue to hold a substantial portion of our stock after the offering, which means that they will have significant voting control.

Our executive officers and directors collectively will control approximately 23.2% of our outstanding common stock after the offering and, therefore they will be able to significantly influence the vote on matters requiring stockholder approval, including the election of directors. This control means that purchasers of our securities being sold in the offering will not be able to effectively influence the manner in which we are governed.

There may be substantial sales of our common stock after the expiration of lock-up periods and upon the exercise of warrants, which could cause the price of our stock to fall.

After the offering, 24,598,915 shares of both classes of our common stock will be outstanding, including 17,480,562 shares of our class A common stock. All of the 3,325,000 shares of our common stock sold in the offering will be freely tradable, except for shares purchased by holders subject to lock-up agreements or by any of our existing “affiliates,” as that term is defined in Rule 144 under the Securities Act, which generally includes officers, directors or 10% stockholders. The class A common stock may not be converted into common stock until one year after the offering unless the holder executes and delivers, after the effective date of this prospectus, a one year lock up agreement from the effective date of the prospectus. The remaining 3,793,353 shares of of our common stock outstanding after the offering and the 17,480,562 shares of class A common stock outstanding will be restricted as a result of its terms or lock-up agreements from transfer for 12 months after the date of this prospectus. Our underwriter in its sole discretion, however, may waive or permit us to waive the lock-up at any time for common stockholders. In addition, we will have an aggregate of 6,466,838 warrants which are exercisable into common stock. Sales of a substantial number of shares of our common stock could cause the price of our securities to fall.

Our stock price may be volatile because of factors beyond our control. As a result, you may lose all or a part of your investment.

Our securities have not previously been publicly traded. Following the offering, the market price of our securities may decline substantially. In addition, the market price of our securities may fluctuate significantly in response to a number of factors, many of which are beyond our control, including, but not limited to, the following:

• our ability to obtain securities analyst coverage;

• changes in securities analysts’ recommendations or estimates of our financial performance;

• changes in market valuations of companies similar to us; and announcements by us or our competitors of significant contracts, new offerings, acquisitions, commercial relationships, joint ventures or capital commitments; and

• the failure to meet analysts’ expectations regarding financial performances.

Furthermore, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. A securities class action lawsuit against us, regardless of its merit, could result in substantial costs and divert the attention of our management from other business concerns, which in turn could harm our business.

Investors in the offering will suffer immediate and substantial dilution.

The assumed public offering price of $6.00 per share of our common stock is substantially higher than the pro forma net tangible book value per share of our outstanding common stock immediately after the offering. Accordingly, if you purchase our common stock in the offering, you will experience immediate and substantial dilution of approximately $5.23 per share, or approximately 87% of the assumed offering price. See “Dilution” for a more detailed description of the dilution you will experience if you purchase our common stock in the offering.

If you do not exercise your purchase warrants prior to 18 months it will cost you more to exercise.

The purchase warrants contain a feature that provides for an increase in the exercise price after 18 months. During the first 18 months, the purchase warrants will be exercisable at $_______ per share (100% of the per share offering price). Thereafter, the exercise price will increase to $_______ per share (133% of the per share offering price). In order to exercise the warrants, we must have an effective registration statement. In the event that a holder of the purchase warrants does not exercise during the first 18 months, the holder will have to pay a higher price to exercise. In addition, the existence of the 18 month reset provision may adversely affect the market price of the purchase warrants.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The forward-looking statements involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, but are not limited to:

• general economic and business conditions;

• our business strategy for expanding our presence in our industry;

• anticipated trends in our financial condition and results of operations;

• the impact of competition and technological change;

• existing and future regulations effecting our business; and

• other risk factors set forth under “Risk Factors” in this prospectus.

You can identify forward-looking statements generally by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “intends,” “plans,” “should,” “could,” “seeks,” “pro forma,” “anticipates,” “estimates,” “continues,” or other variations thereof, including their use in the negative, or by discussions of strategies, opportunities, plans or intentions. You may find these forward-looking statements under the captions “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussions and Analysis of Financial Condition and Results of Operations,” and “Business,” as well as under other captions elsewhere in this prospectus. These forward-looking statements necessarily depend upon assumptions and estimates that may prove to be incorrect.

Although we believe that the assumptions and estimates reflected in the forward-looking statements contained in this prospectus are reasonable, we cannot guarantee that we will achieve our plans, intentions or expectations. The forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ in significant ways from any future results expressed or implied by the forward-looking statements.

USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $17,616,562 from the sale of the 3,325,000 shares of common stock and 3,325,000 purchase warrants being offered by us, assuming an initial public offering price of $6.00 per share and $.05 per warrant, after deducting approximately $1,308,000 for underwriting discounts and commissions and estimated expenses of approximately $1,188,000. If our underwriters exercise their over-allotment option in full, we will receive an additional $2,821,000 from the sale of an additional 498,750 shares of our common stock and 498,750 purchase warrants, after deducting approximately $196,000 for underwriting discounts and commissions.

The following table describes the expected allocation of the net proceeds of the offering, assuming that our underwriters do not exercise their over-allotment option:

Application of Percentage of

Net Proceeds Net Proceed

To fund the purchase of equipment for expanded capacity
and service offerings $ 2,000,000 11.4 %

Payment of certain indebtedness ⁽¹⁾ 2,100,000 11.9

International deployment including purchase of business license,
network equipment and securing letters of credit and bonds. 7,250,000 41.1

Marketing and Advertising 1,250,000 7.1

Working capital and general corporate purposes 5,016,250 28.5

Total $17,616,250 100 %

(1) Of such amount, (i) approximately $1,065,000, including accrued interest of approximately $313,000 through September 30, 2004, will be paid to Marvin Rosen to repay demand notes that bear interest at 4.75% per annum (except for one note for $125,000 which bears interest at 9.25%), (ii) approximately $812,000, including accrued interest of approximately $143,000 through September 30, 2004, will be paid to Philip Turits and members of his family to repay demand notes. Philip and Lisa Turits’ notes bear interest at 4.75% per annum, except for one note for $125,000 which bears interest at 9.25%, and Michael Turits’ note bears interest at 12.00% per annum, and (iii) approximately $162,000, including accrued interest of approximately $60,000 through September 30, 2004, will be paid to Evelyn Langlieb Greer for a note that bears interest at 15% per annum. The proceeds of these loans were utilized for international deployment, working capital and the purchase of equipment.

We believe that the net proceeds of the offering will be sufficient to fund the purchase of equipment to expand our infrastructure domestically and deploy our business internationally. Our management will have broad discretion in the use of the net proceeds of the offering. Investors will be relying on the judgment of our management regarding the application of the proceeds of the offering.

Until we use the net proceeds as discussed above, we may invest the net proceeds from the offering in short term direct obligations of the United States or Federal agencies, in each case with maturities of less than one year, short term certificates of deposit or other time deposits with banks or corporate bonds.

DIVIDEND POLICY

During 2004, we paid dividends to the holders of our series A convertible preferred stock and series B convertible redeemable preferred stock in the form of common stock at the rate of $2.98 per share times the aggregate dividends due to these stockholders.

The series C preferred stock is entitled to receive cumulative pro rata dividends at the rate of 8% per annum of the stated value of $90 per share. The dividends are payable in cash, annually, commencing on December 19, 2004. As of December 22, 2004, we had not made the required dividend payment.

We do not anticipate paying any cash dividends on either of our classes of common stock in the foreseeable future but plan to retain future earnings, if any, to be used in implementing our business plan.

CAPITALIZATION

The following table sets forth our consolidated capitalization as follows:

• On an actual basis, as of Sep tember 30, 2004.

• On a pro forma basis to reflect (1) the automatic conversion of all of our outstanding series C preferred stock into an aggregate of 3,141,838 shares of common stock, which will occur upon completion of the offering, (2) the repayment of $1,523,000 in debt and $516,000 in interest payable to certain officers and directors and (3) a transaction that occurred subsequent to September 30, 2004, whereby the Company received net cash proceeds o f $1,330,000 ($1,400,000 for a convertible note net of $70,000 advisory fee) and refinanced $1,1 08,333 of existing notes payable and accrued interest in exchange for a convertible note. The two notes aggregate $2,508,333 and automatically convert upon the completio n of this Offering into 651,515 shares of common stock based upon a conversion price of $3.85 per sh are.

• On a pro forma as adjusted basis to give effect to the receipt of the net proceeds from the sale by us in this offering of shares of common stock and purchase warrants at an assumed initial public offering price of $6.00 per common share and $.05 per purchase warrant, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

September 30, 2004

Proforma

Actual Pro Forma as adjusted

(unaudited) (unaudited) (unaudited)

Cash and cash equivalents $    4,619,248 $ 3,910,248 $ 21,526,498

Long-term debt, including current portion:

      Notes payable to related parties 2,752,467 229,467 229,467

      Notes payable 153,358 153,358 153,358

      Short-term borrowing obligations 531,387 531,387 531,387

      Capital leases 1,371,380 1,371,380 1,371,380

Convertible preferred stock, series C, subject to
      mandatory redemption (a) 9,861,431 — —

Stockholders’ deficit:

Common Stockholders’ equity (deficit):
      Common stock, $0.01 par value: 105,000,000 shares
      authorized, 0 shares issued and outstanding, actual;
      105,000,000 shares authorized, 3,793,353 shares
      issued and outstanding pro forma; 105,000,000 shares
      authorized, 7,118,353 shares issued and outstanding
      proforma, as adjusted
37,934 71,184

Common stock, class A $0.01 par value: 21,000,000
      shares authorized, 17,480,562 shares issued and
      outstanding, actual; 21,000,000 shares authorized,
      17,480,562 shares issued and outstanding pro forma;
      21,000,000 shares authorized, 17,480,562 shares issued
      and outstanding, pro forma as adjusted 174,806 174,806 174,806

      Capital in excess of par value 64,899,255 77,161,085 94,744,085

      Accumulated other comprehensive income 100,938 100,938 100,938

      Accumulated deficit (75,788,663) (75,788,663) (75,788,663)

       Total stockholders’ (deficit) equity (10,613,664) 1,686,100 19,302,350

       Total capitalization $    4,056,359 $ 3,971,692 $ 21,587,942

(a) Each share of series C preferred stock is convertible into our common stock at a conversion price equal to the lesser of (i) 75% of the initial public offering price of common stock, or (ii) $3.15 per share.

(b) The table above excludes the following:
1,696,508 shares of class A common stock issuable upon the exercise of options outstanding at September 30, 2004, at a weighted average exercise price of $5.53 per share; and 286,567 shares of class A common stock issuable upon the exercise of warrants outstanding at September 30, 2004, at a weighted average exercise price of $3.61 per share.

DILUTION

When you purchase a share of our common stock, you will suffer immediate per share “dilution” in an amount equal to the difference between the price you paid per share and the net tangible book value per share after the offering. Net tangible book value per share represents the amount of our tangible assets less the amount of our liabilities divided by the number of shares of our common stock outstanding.

As of September 30, 2004, our net tangible book value available to our common stockholders was $(10,532,811) or $(0.60) per share of our common stock. Our net tangible book value per share is based on 17,480,562 shares outstanding as of September 30, 2004.

As of September 30, 2004, our pro forma net tangible book value would have been $1,766,953 or $0.08 per share of common stock. Our pro forma net tangible book value gives effect to the conversion of all of our outstanding series C preferred stock into 3,141,838 shares of our common stock and a transaction that occurred subsequent to September 30, 2004, whereby the Company received net cash proceeds of $1,330,000 ($1,400,000 for a convertible note net of a $70,000 advisory fee) and refinanced $1,108,333 of existing notes payable and accrued interest in exchange for a convertible note. The two notes aggregate $2,508,333 and automatically convert upon the completion of this offering into 651,515 shares of common stock based upon a conversion price of $3.85 per share. Our pro forma net tangible book value per share is based upon a total of 21,273,915 shares of both classes of our common stock outstanding.

Giving effect to the issuance of 3,325,000 shares of common stock and 3,325,000 purchase warrants offered by us at an initial public offering price of $6.00 per share and $.05 per warrant (after the deduction of estimated underwriting discounts and offering expenses payable by us), our net tangible book value on a pro forma as adjusted basis as of September 30, 2004, would have been $19,383,203 or $0.79 per share. This represents an immediate increase in net tangible book value of $0.71 per share to our existing stockholders and an immediate dilution of $5.21 per share to investors in the offering.

The following table illustrates this dilution per share of common stock as of the closing of the offering in an adjusted pro forma net tangible book value basis:

Initial public offering price per share $6.00

      Net tangible book value per share available to common
            stockholder as of Sept. 30, 2004 $(0.60)

            Increase attributable to pro forma adjustments
                  before offering $  0.68

                   Pro forma net tangible book value per share
                        before offering $  0.08

                  Increase per share attributable to new investors
                        in the offering $  0.71

Pro forma net tangible book value per share after
      the offering $0.79

Dilution per share to new investors in the offering $5.21

If the over-allotment option is exercised in full, the proforma net tangible book value after this offering would be $0.88 per share, which would result in dilution to new investors in this offering of $5.12 per share. If all stock options and warrants outstanding at September 30, 2004 were exercised, the proforma net tangible book value after this offering would be $1.20 per share, which would result in dilution to new investors in this offering of $4.80 per share.

The following table shows as of September 30, 2004, the number of shares of both classes of our common stock to be owned following the offering by existing securityholders and the new investors in the offering:

Shares purchased Total consideration

Average

Number Percent Amount Percent price/share

Existing securityholders 21,273,915 86.48% $78,576,388 79.75% $3.69

New investors 3,325,000 13.52% 19,950,000 20.25% $6.00

Total 24,598,915 100.00% $98,526,388 100.00%

Selected Financial Data

The following table sets forth selected historical financial data as of and for each of the periods ended December 31, 1999, 2000, 2001, 2002 and 2003, and September 30, 2003 and 2004. The selected financial data as of December 31, 2001, 2002 and 2003 are derived from consolidated financial statements of Fusion Telecommunications International, Inc., which have been audited, by Rothstein, Kass & Company, PC., independent auditors. The consolidated financial statements, and the report thereon, as of December 31, 2002 and 2003, and for each of the three years ended December 31, 2003, are included elsewhere in this prospectus. The historical financial data as of and for the nine months ended September 30, 2003 and 2004 are derived from our unaudited consolidated financial statements. The following financial information should be read in conjunction with “Management’s Discussion and Analysis and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

Nine months

Years Ended December 31, ended September 30,

1999 2000 2001 2002 2003 2003 2004

Revenues $    3,714,290 $24,806,641 $  29,614,565 $  28,422,149 $33,725,275 $24,840,556 $40,499,353

Operating expenses:

Cost of revenues 3,926,451 16,886,171 24,591,188 25,443,863 29,246,014 21,432,409 34,517,162

Depreciation and
      amortization 1,647,904 745,145 2,069,361 2,546,869 2,128,610 1,616,607 1,484,418

Loss on impairment — 6,861,412 2,825,149 467,765 735,354 280,683 —

Selling, general and
      administrative expenses 5,893,989 9,614,610 11,758,451 9,977,994 9,156,810 6,800,712 7,474,425

Operating loss (7,754,054) (9,300,697) (11,629,584) (10,014,342) (7,541,513) (5,289,855) (2,976,652)

Other income (expense)

Interest expense, net (63,120) (113,436) (595,116) (1,175,714) (919,590) (671,364) (1,433,849)

Forgiveness of debt — — — 1,812,092 3,918,295 1,779,033 2,174,530

Other — — — — — — 49,899

Minority interests 531,317 2,017,389 112,472 19,440 157,617 76,950 (40,743)

468,197 1,903,953 (482,644) 655,818 3,156,322 1,184,619 749,837

Loss from continuing
      operations (7,285,857) (7,396,744) (12,112,228) (9,358,524) (4,385,191) (4,105,236) (2,226,815)

Discontinued operations:

Income (loss) from
      discontinued operations (1) (25,949,828) 7,588,938 (7,029,511) — 208,620 — —

Net income (loss) $(33,235,685) $ 192,194 $(19,141,739) $  (9,358,524) $ (4,176,571) $ (4,105,236) $ (2,226,815)

Losses applicable to
      common stockholders:

Loss from continuing
      operations $  (7,285,857) $ (7,396,744) $(12,112,228) $  (9,358,524) $ (4,385,191) $ (4,105,236) $ (2,226,815)

Preferred stock dividends — — — (642,552) (635,254) (570,685) (385,918)

Net loss applicable to
      common stockholders
      from continuing
      operations (7,285,857) (7,396,744) (12,112,228) (10,001,076) (5,020,445) (4,675,921) (2,612,733)

Income (loss) from
      discontinued operations (25,949,828) 7,588,938 (7,029,511) — 208,620 — —

Net income (loss)
      applicable to common
      stockholders $(33,235,685) $     192,194 $(19,141,739) $(10,001,076) $ (4,811,825) $(4,675,921) $(2,612,733)

Nine months

Years Ended December 31, ended September 30,

1999 2000 2001 2002 2003 2003 2004

Basic and diluted net loss
      per common share:

      Loss from continuing
            operations $ (0.89) $ (0.81) $ (1.30) $ (1.01) $ (0.37) $ (0.35) $ (0.16)

      Income (loss) from
            discontinued operations (3.15) 0.83 (0.76) — 0.02 — —

Net income (loss)
      applicable to
      common stockholders $ (4.04) $ 0.02 $ (2.06) $ (1.01) $ (0.35) $ (0.35) $ (0.16)

Weighted average shares
      outstanding

Basic and diluted 8,218,367 9,082,483 9,305,857 9,885,901 13,616,803 13,209,897 16,444,858

Operating Data:

Adjusted EBITDA (2) $  (5,574,833) $ (5,348,063) $  (6,622,602) $  (6,980,268) $(4,519,932) $  (3,315,615) $ (1,483,078)

Capital expenditures (6,049,699) (7,295,721) (501,882) (533,610) (645,340) (55,242) (578,888)

Summary Cash Flow Data:

Net cash used in operating
activities $(12,175,123) $ (4,917,915) $  (9,561,199) $  (4,322,231) $(5,056,370) $  (3,726,228) $ (3,885,825)

Net cash provided by (used
      in) investing activities (6,049,699) (5,564,562) (1,271,632) (901,056) (612,635) (37,169) 177,660

Net cash provided by
      financing activities 20,741,578 7,374,117 10,618,846 5,992,185 8,140,759 3,102,678 5,086,761

Balance Sheet Data
      (at period end):

Cash $ 3,322,345 $ 213,985 $ — $ 768,898 $  3,240,652 $ 108,179 $   4,619,248

Restricted cash — — 784,000 1,250,793 961,536 984,426 508,976

Property and equipment 7,684,197 15,109,868 13,686,124 12,700,397 11,858,931 12,848,883 13,173,616

Property and equipment, net 7,180,231 12,438,899 10,145,087 7,429,433 5,054,973 5,966,584 4,929,090

Total assets 24,593,019 18,806,300 14,273,723 12,287,532 13,033,913 10,630,670 15,046,671

Total debt 3,389,794 7,616,413 12,211,878 9,640,955 5,176,861 9,437,701 4,808,592

Redeemable preferred stock — — — — 3,466,538 — 9,861,431

Total stockholders’ deficit (6,871,098) (665,330) (11,537,659) (14,800,981) (9,774,002) (14,727,648) (10,613,664)

Adjusted EBITDA:

Net income (loss) $(33,235,685) $ 192,194 $(19,141,739) $(9,358,524) $(4,176,571) $(4,105,236) $ (2,226,815)

Income (loss) from
      discontinued operations (25,949,828) 7,588,938 (7,029,511) — 208,620 — —

Loss from continuing
      operations (7,285,857) (7,396,744) (12,112,228) (9,358,524) (4,385,191) (4,105,236) (2,226,815)

Adjustments

      Interest expense, net 63,120 113,436 595,116 1,175,714 919,590 671,364 1,433,849

      Depreciation and
            amortization 1,647,904 745,145 2,069,361 2,546,869 2,128,610 1,616,607 1,484,418

      Forgiveness of debt — — — (1,812,092) (3,918,295) (1,779,033) (2,174,530)

      Loss on impairment — 1,190,100 2,825,149 467,765 735,354 280,683 —

Adjusted EBITDA from
       continuing operations $  (5,574,833) $(5,348,063) $  (6,622,602) $(6,980,268) $(4,519,932) $(3,315,615) $ (1,483,078)

(1)		The December 31, 2000 income from discontinued operations includes a $16.4 gain on the sale of one of our subsidiaries which is net with a loss of $8.8 million from the discontinued operations of three subsidiaries.


(2)		EBITDA is defined as net income (loss) adjusted for depreciation and amortization, interest and taxes. Adjusted EBITDA represents EBITDA adjusted for forgiveness of debt and loss on impairment. We believe Adjusted EBITDA is useful to investors as a way of viewing our operating results because it assists in analyzing the performance of our underlying business without the impact of certain significant nonrecurring transactions such as impairment losses associated with divested businesses and forgiveness of debt which vary significantly between periods and are not recurring in nature. Although we use Adjusted EBITDA as one of several financial measures to assess our operating performance, its use is limited as it excludes certain significant expenses. Adjusted EBITDA is not intended to represent cash flows for the period presented, nor has it been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Generally Accepted Accounting Principles.

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

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

Overview

We are an international communications carrier delivering VoIP, private networks, Internet access, IP video conferencing and other advanced services to, from, in and between emerging markets in Asia, the Middle East, Africa, the Caribbean and Latin America. In 2000, after early acquisitions, our focus on domestic retail and residential services and incurring significant losses, our board of directors selected a new management team to develop and initiate a new corporate strategy, improve our operational and financial performance and identify growth opportunities.

The new corporate strategy focused our resources on VolP and the emerging international markets, and we exited the more highly competitive, infrastructure-dependent businesses that characterized us in 2000 and 2001. Since then, we sought to gain early entry in high growth emerging markets, often in partnership with local organizations that have strong distribution channels, regulatory experience, market intelligence, the ability to deliver local loops and the capability of providing customer service support. This approach enabled us to introduce our IP communications services in these markets, thereby benefiting from the time-to-market advantages, expanded geographic reach and reduced capital requirements that local partnerships afford. We embarked on a network strategy that employs the most currently available Softswitch technology, relieving us of the burden of costly, inefficient legacy systems and allowing more rapid and cost-effective deployment and expansion of services worldwide. Additionally, long-range efforts in cost controls and reductions were initiated, which included significant reductions in staffing, fixed overhead expenses and debt. The combination of these efforts has led to improved financial results.

The following table summarizes our results of operations for the periods indicated:

(unaudited)

Nine Months

Years Ended December 31, Ended September 30,

2001 2002 2003 2003 2004

Revenues $  29,614,565 $28,422,149 $33,725,275 $24,840,556 $40,499,353

Operating expenses:

      Cost of revenues 24,591,188 25,443,863 29,246,014 21,432,409 34,517,162

      Depreciation and amortization 2,069,361 2,546,869 2,128,610 1,616,607 1,484,418

      Loss on impairment 2,825,149 467,765 735,354 280,683

      Selling, general and
            administrative 11,758,451 9,977,994 9,156,810 6,800,712 7,474,425

Operating loss (11,629,584) (10,014,342) (7,541,513) (5,289,855) (2,976,652)

Other income (expense)

      Interest expense, net (595,116) (1,175,714) (919,590) (671,364) (1,433,849)

      Forgiveness of debt 0 1,812,092 3,918,295 1,779,033 2,174,530

      Other 0 0 0 0 49,899

      Minority interests 112,472 19,440 157,617 76,950 (40,743)

(482,644) 655,818 3,156,322 1,184,619 749,837

Loss from continuing operations (12,112,228) (9,358,524) (4,385,191) (4,105,236) (2,226,815)

Income (loss) from discontinued
      operations (7,029,511) 0 208,620 0 0

Net loss $(19,141,739) $ (9,358,524) $ (4,176,571) $ (4,105,236) $ (2,226,815)

The following table presents our historical operating results as a percentage of revenues for the periods indicated:

(unaudited)

Nine Months

Years Ended December 31, Ended September 30,

2001 2002 2003 2003 2004

Revenues 100.0% 100.0% 100.0% 100.0% 100.0%

Operating expenses:

      Cost of revenues 83.0% 89.5% 86.7% 86.3% 85.2%

      Depreciation and amortization 7.0% 9.0% 6.3% 6.5% 3.7%

      Loss on impairment 9.5% 1.6% 2.2% 1.1% 0.0%

      Selling, general and
            administrative 39.7% 35.1% 27.2% 27.4% 18.5%

Operating loss (39.3)% (35.2)% (22.4)% (21.3)% (7.4)%

Other income (expense)

      Interest expense, net (2.0)% (4.1)% (2.7)% (2.7)% (3.5)%

      Forgiveness of debt 0.0% 6.4% 11.6% 7.2% 5.4%

      Other 0.0% 0.0% 0.0% 0.0% 0.1%

      Minority interests 0.4% 0.1% 0.5% 0.3% (0.1)%

(1.6)% 2.3% 9.4% 4.8% 1.9%

Loss from continuing operations (40.9)% (32.9)% (13.0)% (16.5)% (5.5)%

Income (loss) from discontinued
      operations (23.7)% 0.0% 0.6% 0.0% 0.0%

Net loss (64.6)% (32.9)% (12.4)% (16.5)% (5.5)%

Revenues

Since our restructuring in 2001, we have generated the majority of our revenue from voice traffic sold to other carriers, with a primary focus on VoIP terminations to the emerging markets. We have increased our business in this area through an internal focus on the growth of our existing customer base, adding new customers, and the establishment of in-country partnerships that help us to more quickly deploy direct VoIP terminating arrangements with PTTs and other licensed carriers in emerging markets. Although we believe that this business continues to be strong, ongoing competitive and pricing pressures have caused us to increase our focus on higher margin, value-added services (VoIP to consumers and businesses, Internet access, IP videoconferencing and private networks) and market them to, or in conjunction with, international carriers, ISP’s, cable companies and wireless operators on a direct, co-branded or private label basis.

In an effort to further increase margins, expand our customer base, and develop more stable revenue streams, we have begun to target enterprise customers (large corporations, government entities and other businesses). Revenues generated from sales to these customers are primarily derived from the sale of the value-added services mentioned above. With a primary focus on marketing VoIP services to these Enterprise customers, we believe we will recognize higher margin and stronger growth opportunities. While this does not yet represent a significant portion of our revenue base, we expect to continue to increase the our emphasis in this area. We believe that this will complement our carrier business with a higher margin and more stable customer base. In the third and fourth quarter of 2004, we expect to experience a temporary decline in revenues during, and immediately following, the migration to the new Softswitch technology.

In 2002, we established Efonica F-Z, LLC as a retail services company marketing VoIP products to consumer and corporate customers in emerging markets. Beginning in the Middle East, Asia and Africa, then extending into Latin America, Efonica’s services are primarily sold through distribution channels on a pre-paid basis. Efonica’s customers can place calls from anywhere in the world to any destination using a PC, IP telephone or regular telephone when accompanied by a hardware device that may be purchased through Efonica. We believe that the introduction of advanced features such as voicemail, call waiting and call forwarding enhance this value-added offering. Since its inception in 2002, Efonica’s VoIP revenue grew from $0 to $0.3 million in 2003, and to $1.7 million in the first nine months of 2004.

Our increased focus on VoIP services resulted in a growing upward trend in voice traffic carried over Internet protocol. During the first nine months of 2004, voice traffic terminated on our network was 68% VoIP, compared to 51% VoIP in the first nine months of 2003.

We also receive revenues from other services, including co-location and the sale of customer premise equipment. These services currently represent a small portion of the revenue base.

OPERATING EXPENSES

Our operating expenses are categorized as cost of revenues, selling, general and administrative expenses, depreciation and amortization and loss on impairment.

Cost of revenues includes costs incurred with the operation of our leased network facilities, and the purchase of voice termination and IP services from other telecommunications carriers and ISP’s. As we have increased the percentage of VoIP traffic carried on the network, our fixed network cost of voice services to carriers as a percentage of the voice revenues has declined. This is illustrated by the decrease of this percentage to 1.8% in the first nine months of 2004 from 3.3% in the first nine months of 2003. We also continue to work to lower the variable component of the cost of revenue through the use of least cost routing, continual negotiation of usage-based and fixed costs with domestic and international service providers.

Selling, general and administrative expenses include salaries and benefits, commissions, occupancy costs, sales, marketing and advertising, professional fees and other administrative expenses.

Depreciation and amortization includes depreciation of our communications network equipment, amortization of leasehold improvements of our switch locations and administrative facilities, and the depreciation of our office equipment and fixtures.

COMPANY HIGHLIGHTS

The following summary of significant events from the past three fiscal years ended December 31, 2003 and the first nine months ended September 30, 2004, highlights the accomplishments and events that have influenced our performance during that time period.

First Nine Months 2004

• Capital fund-raising – We raised $4.6 million to complete the second traunche of a series C convertible preferred stock offering that had been initiated in November of 2003. Additionally, we raised $1.3 million from a common stock offering that was initiated in 2003.

• Revenue Growth – Revenue grew 63% in the first nine months of 2004 over the first nine months of 2003.

• Debt Reduction – We further reduced debt by negotiating $2.2 million in reductions of outstanding vendor obligations through settlements, and by another $1.3 million that was paid off in outstanding vendor obligations and notes. In addition, the Company converted $0.6 million of debt to series C convertible preferred stock and converted $0.1 million of outstanding vendor obligations to common stock.

• Purchase of Veraz Switch – In April of 2004, we invested in excess of $0.8 million in a Veraz Softswitch which is now operational. Management believes that compared to older infrastructure, this switch is easier to expand with reduced deployment time. Management also believes this will further enhance our service offerings, flexibility and will allow us to size the network equipment to the traffic as the volume grows, rather than requiring heavy capital investments in anticipation of future revenue growth.

• Reduced SG&A– As a percent of revenue, SG&A decreased from 27.4% in 2003 to 18.5% in 2004.

2003

• Capital fund-raising – In November 2003, we initiated a series C convertible preferred stock offering, with the first of two stock closings occurring in December 2003. In the first closing, the Company raised $2.5 million. We also raised $3.0 million from common stock purchases in 2003 initiated with the private placement from 2002, and we raised an additional $3.8 million from common stock purchases in 2003 associated with an equity offering initiated in 2003.

• Revenue Growth – Revenue grew $5.3 million, or 18.7%, from the prior year, excluding discontinued operations.

• Debt Reduction – We further reduced debt by negotiating $3.9 million in reduction of outstanding vendor obligations through settlements. We also converted $3.2 million in debt to preferred and common stock.

• Addition of San Jose Point of Presence – In November of 2003, we added network equipment and a PoP in San Jose, California, to support service to Asia.

• Successful bid of Government Contracts – We were awarded a subcontractor bid to be the provider for Internet access for seventeen U.S. Embassies and Consulates located in Asia and the Middle East, and we also were awarded a bid to supply a private network for the U.S. Department of Defense in the Persian Gulf.

• Reduced SG&A – We reduced SG&A by $0.8 million, or 8%, from the prior year, while total revenues increased 18.7%.

2002

• Capital fund-raising – We raised $0.7 million in an equity offering for series B preferred stock in March of 2002, which was extended until September of 2002. Additionally, we raised $1.6 million through an equity offering for common stock that was initiated in July of 2002, and was extended into 2003.

• Debt Reduction – We further reduced debt by negotiating $1.8 million in reductions and outstanding obligations through settlements, and we converted $3.7 million of debt into common stock.

• Revenue – Revenue decreased $1.2 million, or 4%, from the prior year, excluding discontinued operations. This decrease was primarily attributable to the loss of two large voice networks.

• Pakistan J.V. – We established a joint venture in mid 2002 that gave us a 75% equity interest in an entity which provides VoIP service to Pakistan.

• Efonica FC-LLC – We established a joint venture in December of 2002 that gave us a 50.2% equity interest in a company that provides VoIP services to consumers and corporations throughout emerging markets in the Middle East, Africa, Asia and Latin America.

• Reduced SG&A – SG&A decreased $1.8 million or 15.1% from 2001.

2001

• Capital fund-raising – We raised $4.2 million in an equity offering for series A preferred stock that was initiated in June of 2001, and closed in November of 2001. Additionally, we raised $0.8 million from a common stock offering.

• Revenue growth – Revenue grew $4.8 million, or 19%, from the prior year, excluding discontinued operations.

• Divestiture of Domestic Retail Services – In mid-2001, we divested the domestic retail telecommunications service by selling three different lines of business to three non-affiliated parties. This resulted in a loss from discontinued operations of approximately $7.0 million during 2001.

The information in our period-to-period comparisons below represents only our results from continuing operations.

Nine Months Ended September 30, 2004 Compared with Nine Months Ended September 30, 2003

Revenues

Revenues increased $15.7 million or 63.0% to approximately $40.5 million in the first nine months of 2004 compared to $24.8 million in the first nine months of 2003. Most of the increase ($13.5 million) was attributable to an increase in revenues in voice services, primarily VoIP terminating to the emerging markets sold to carriers. For the first nine months of 2004 we have added 15 new carrier customers representing an increase of revenue of $4.6 million. We have also experienced an increase in demand from Fusion’s existing customer base for VoIP services which contributed the balance of the increase of $7.5 million. In addition, during 2004, there was an increase of 10% in the total amount of VoIP traffic terminated, evidencing our increased focus on VoIP services. Our VoIP services to consumers more than quadrupled from $0.3 million in the first nine months of 2003 to $1.6 million in the first nine months of 2004, mainly due to the growth of our joint venture Efonica.

Consolidated revenues from our Enterprise services grew 66.7%, from $1.5 million in 2003 to $2.5 million in 2004, primarily due to the addition of Government-related contracts that were awarded in the latter part of 2003.

Operating Expenses

Cost of Revenues. Cost of Revenues increased $13.1 million or 61.1% to $34.5 million in 2004 from $21.4 million in 2003. This percentage increase is consistent with the percentage increase in revenues resulting from the higher volume discussed above.

Depreciation and Amortization. Depreciation and amortization decreased $.1 million or 8.2% for the first nine months of 2004 to $1.5 million from the first nine months of 2003 primarily due to the impairment of Fusion’s existing switch which was replaced with our new Softswitch at the end of 2003 and disposed of assets that are no longer generating revenue for us.

Loss on impairment. Loss on impairment was $0.3 million during the first nine months of 2003. This impairment related to the adjustment of equipment being used by our joint venture in India to its fair value based on estimated cash flows. No loss on impairments occurred during the nine months ended September 2004.

Selling, General and Administrative. Selling, general and administrative expenses increased $0.7 million or 9.9% to $7.5 million in 2004 from $6.8 million in 2003. This increase is primarily attributed to the increase of salaries in our Efonica joint venture of $0.2 million as more back office personnel were required to support its growth, and a small increase in salaries in Fusion of $.2 million. Selling, general and administrative expenses have declined as a percentage of revenue from 27.4% for the first nine months of 2003 to 18.5% for the first nine months of 2004. We believe that as we execute our business strategies, selling, general and administrative expenses as a percentage of revenue will decline.

Operating Loss. Our operating loss decreased $2.3 million or 43.7% to $3.0 million in the first nine months of 2004 from a loss of $5.3 million in the first nine months of 2003. The decrease in operating loss was primarily attributable to the increase in revenue and gross margin.

Other Income (Expense). Total other income (expense) decreased $0.4 million to $0.8 million in the first nine months of 2004 from $1.2 million in the first nine months of 2003. Interest expense increased $0.8 million to $1.4 million in 2004 from $0.8 million in 2003, primarily attributable to the adoption of SFAS 150 during 2003. This resulted in our recording $1.2 million in interest expense related to dividends and accretion on the series C convertible preferred stock subject to mandatory redemption for the nine months ended September 30, 2004, partially offset with a decrease in interest expense of $0.5 million during 2004 resulting from the reduction of average outstanding debt. Gain on debt forgiveness realized from vendor settlements increased in the first nine months of 2004 by $0.4 million to $2.2 million from $1.8 million for the nine months ended September 30, 2003. The 2004 gain on debt forgiveness is attributed to $0.2 million of settlements of capital lease obligations, $0.2 million of settlements of general obligations and $1.8 million of settlements of network obligations. Minority interest due from joint venture partners changed $118,000 to $(41,000) in 2004 from $77,000 in 2003.

Net Loss. Our 2004 net loss attributable to common stockholders was $2.6 million after giving effect to $0.4 million in dividends applicable to common stockholders. This was an improvement of $2.1 million from the prior year’s net loss applicable to common stockholders of $4.7 million. We anticipate that as we execute our business plan we will achieve net income in the future.

Adjusted EBITDA. EBITDA is defined as net income (loss) adjusted for depreciation and amortization, interest and taxes. Adjusted EBITDA represents EBITDA adjusted for forgiveness of debt and loss on impairment. We believe Adjusted EBITDA is useful to investors as a way of viewing our operating results because it assists in analyzing the performance of our underlying business without the impact of certain significant nonrecurring transactions such as impairment losses associated with divested businesses and forgiveness of debt which vary significantly between periods and are not recurring in nature. Although we use Adjusted EBITDA as one of several financial measures to assess our operating performance, its use is limited as it excludes certain significant expenses. Adjusted EBITDA is not intended to represent cash flows for the period presented, nor has it been presented as an alternative to operating income or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Generally Accepted Accounting Principles. Adjusted EBITDA was approximately $(1.5) million during the nine months ended September 30, 2004 compared to $(3.3) million during the nine months ended September 30, 2003.

Nine Months Ended Nine Months Ended

September 30, 2004 September 30, 2003

Net loss (2,226,815) (4,105,236)

Adjustments:

Interest expense, net 1,433,849 671,364

Depreciation and amortization 1,484,418 1,616,607

Forgiveness of debt (2,174,530) (1,779,033)

Loss on impairment 0 280,683

Adjusted EBITDA (1,483,078)
(3,315,615)

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Revenues

Revenues. Revenues from continuing operations increased $5.3 million or 18.7% to $33.7 million in 2003 compared to $28.4 million in 2002. Voice services sold to carriers represented approximately $5.0 million of this growth, partially fueled by growth in 2 international network deployments in the Middle East & Asia in late 2003. The remaining $0.3 million of the revenue increase was attributed to the introduction of VoIP services to consumers and corporations in early 2003, which was mainly fueled by the growth of our Efonica joint venture.

Operating Expenses

Cost of Revenues. Cost of Revenues increased $3.8 million or 14.9% to $29.2 million in 2003 from $25.4 million in 2002. This increase was caused by the growth in volume over the prior year as explained above. The improvement in gross margin of $1.5 million in 2003 is a result of a reduction in fixed cost of revenues that related to two large international voice networks of $0.5 million that were turned down late in 2002 due primarily to capital constraints and disputes with the vendors. In addition, we increased our efforts in utilizing least cost routing options which accounted for $1.0 of increased margin. We do not anticipate any further network shutdowns in the near future due to capital constraints.

Depreciation and Amortization. Depreciation and amortization from continuing operations decreased $0.4 million to $2.1 million in 2003 from $2.5 million in 2002. This decrease was attributable to fixed assets impaired during 2002 being depreciated during a portion of 2002 but not at all during 2003 the majority of which is associated with the abandonment of equipment located in a country where a Caribbean voice network had been deactivated as it was no longer producing revenue.

Loss on Impairment. Loss on Impairment increased $0.3 million in 2003. The $0.7 million recorded during 2003 relates to an impairment on switching equipment which was replaced by upgraded equipment and an impairment on equipment being used by the Company’s joint venture in India. These impairments were determined based upon estimated future cash flows from these assets. The $0.5 million impairment recorded during 2002 related to the termination and abandonment of a voice network located in the Caribbean which was deactivated and no longer generating revenue.

Selling General and Administrative. Selling, general and administrative expenses decreased $0.8 million or 8.2% to $9.2 million in 2003 from $10.0 million in 2002. This decrease is primarily attributed to reduction of salary expense of $.8 million on Fusion due to staff reductions.

Operating Loss. The operating loss decreased $2.5 million or 24.7% to $7.5 million in 2003 from $10.0 million in 2002, due to the items mentioned above.

Other Income (Expense). Total other income (expense) increased $2.5 million or 381.3% to $3.2 million in 2003 from $0.7 million in 2002, due to several factors. Interest expense decreased $0.3 million to $0.9 million in 2003 from $1.2 million in 2002, mainly due to settlements of $3.9 million and conversions of $3.2 million of outstanding debt. Gain on Debt Forgiveness increased by $2.1 million to $3.9 million, from $1.8 million. The 2003 gain on debt forgiveness of $3.9 million is attributed to $0.9 million of settlements of capital lease obligations and $3.0 million of settlements of network obligations. Minority interest due from joint venture partners increased $138,000 to $158,000 in 2003 from $20,000 in 2002.

Discontinued Operations. Income from discontinued operations in 2003 was $0.2 million due to the elimination of a prior accrual for a vendor obligation, as it was determined it was no longer due. There was no discontinued operations income in 2002. See “Discontinued Operations” note.

Net Loss. The factors discussed above resulted in a decrease in the 2003 net loss applicable to common stockholders by $5.2 million to $4.8 million in 2003 from $10.0 million in 2002 after giving effect to $0.6 million in stock dividends in both 2003 and 2002.

Adjusted EBITDA. Adjusted EBITDA was approximately $(4.5) million during 2003 compared to approximately $(7.0) million during 2002.

Year Ended Year Ended

December 31, 2003 December 31, 2002

      Net loss $(4,176,571) $(9,358,524)

      Income from discontinued operations (208,620) 0

      Loss from continuing operations (4,385,191) (9,358,524)

      Adjustments

      Interest expense, net 919,590 1,175,714

      Depreciation and amortization 2,128,610 2,546,869

      Forgiveness of debt (3,918,295) (1,812,092)

      Loss on impairment 735,354 467,765



      Adjusted EBITDA $(4,519,932) $(6,980,268)

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Revenues

Revenues. Revenues from continuing operations decreased $1.2 million or 4.0% to $28.4 million in 2002 compared to $29.6 million in 2001. This decline was primarily due to the deactivation of two large voice networks in late 2001 caused by disputes with the related vendors and our inability to stay current with accounts payable.

Operating Expenses

Cost of Revenues. Cost of revenues increased $0.8 million or 3.5% to $25.4 million in 2002 from $24.6 million in 2001 due primarily to a less effective job in least cost routing during 2002 in comparison to 2001. In addition, there was a reduction in gross margin from 2002 versus 2001. This was caused partially by our increased cost of revenues, but also was impacted by our inability to stay current on our accounts payable and certain disputes, which resulted in the loss of a large Caribbean voice network that had been earning high gross margins during a significant portion of 2001.

Depreciation and Amortization. Depreciation and amortization from continuing operations increased $0.4 or 23.1% million to $2.5 million in 2002 from $2.1 million in 2001. The increase was attributable to recognition of the depreciation associated with the assets transferred from our discontinued retail communication service operations.

Loss on Impairment. The loss on impairment decreased $2.3 million to $0.5 million in 2002 from $2.8 million in 2001. The significant charge in 2001 relates primarily to a joint venture we had with Clarion Global Network, Inc. to form an entity called C&F Switching, LLC. The joint venture was created in order to combine efforts in building gateway telecommunications switches. In connection with this acquisition, we accounted for the transaction under the purchase method of accounting and allocated the purchase price of $2.5 million to goodwill and property and equipment. The goodwill was considered impaired during 2001 and is consequently included in loss on impairment. The $0.5 million loss on impairment in 2002 was related to the deactivation and abandonment of a large voice network in the Caribbean which was no longer generating revenue for us.

Selling, general and administrative. Selling, general and administrative expenses decreased $1.8 million or 15.1% to $10.0 million in 2002 from $11.8 million in 2001 primarily due to staff reductions and cost containment strategies after the divestiture of our domestic retail subsidiary.

Operating Loss. Our operating loss decreased $1.6 million or 13.9% to $10.0 million in 2002 from $11.6 million in 2001 due to the factors discussed above.

Other Income (Expense). Total other income (expense) changed 235.9% from $(0.5) million in expense in 2001 to $0.7 million in income in 2002. Interest expense increased from $0.6 million in 2001 to $1.2 million in 2002 due to

higher average borrowings during 2002, which was offset by a gain on debt forgiveness of $1.8 million, compared to zero in the prior year. The 2002 Gain on debt forgiveness of $1.8 million is attributed to $1.3 million settlement of a capital lease obligation, $0.4 million of settlements of general vendor obligations and $0.5 million of settlements of network vendor obligations. Minority interest due from joint venture partners decreased from $0.1 million in 2001 to $20,000 in 2002.

Discontinued Operations. There was no income or loss from discontinued operations in 2002. The 2001 loss from discontinued operations was $7.0 million.

Net Loss. The 2002 net loss applicable to common stockholders was $10.0 million, compared to $19.1 million in 2001, after giving effect to the $0.6 million of dividends in 2002. This $9.1 million decrease in net loss applicable to common stockholders is primarily attributed to the $7.0 million loss for discontinued operations in 2001 as well as other factors previously disclosed.

Adjusted EBITDA. Adjusted EBITDA was approximately ($7.0) million during 2002 compared to approximately ($6.7) million during 2001.

Year Ended Year Ended

December 31, 2002 December 31, 2001

Net loss $(9,358,524) $(19,141,739)

Loss from discontinued operations 0 7,029,511

Loss from continuing operations $(9,358,524) (12,112,228)

Adjustments:

Interest expense, net 1,175,714 595,116

Depreciation and amortization 2,546,869 2,069,361

Forgiveness of debt (1,812,092) 0

Loss on impairment 467,765 2,825,149

Adjusted EBITDA $(6,980,268) $ (6,662,602)

During 2001, we decided to cease the operations of our domestic retail telecommunication services. In connection with this decision, we opted out of a capital lease under which we were leasing switching equipment located in Miami, Florida and returned all of the switching equipment covered under the lease to the lessor. In 2002, we abandoned a telecommunications facility located in Miami, which was being used to house the switching equipment utilized by C&F Switching, LLC. The office was being leased under a non-cancelable operating lease agreement, which is currently the subject of an on-going litigation.

The principal costs of the discontinuation of the retail services included the remaining unpaid operating lease obligations on the Miami office space, which aggregated approximately $0.8 million (this amount includes a draw down on a letter of credit securing the lease of approximately $0.1 million). The costs also include the write-off of the remaining net book value of leasehold improvements made to the Miami location of approximately $0.3 million. In accordance with the provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we have not included the results of operations of our retail telecommunication services in the results from continuing operations. The results of operations for these services have been reflected in discontinued operations for the year ended December 31, 2001. The loss from discontinued operations for the year ended December 31, 2001, consists of the following:

Revenues $ 4,274,000

Cost of revenues (4,407,000)

Depreciation and amortization (424,000)

Selling, general and administrative expenses (5,049,000)

Interest expense (60,000)

Accrual of office lease expenses (1,073,000)

Write-off of leasehold improvements (291,000)

Net loss $(7,030,000)

During the year ended December 31, 2003, certain trade payables, associated with the discontinuation of our retail services, were determined not to be payable to a vendor, which resulted in a gain on trade payable reductions of approximately $0.2 million.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating and net losses. In addition, we have not generated positive cash flows from operations. As of September 30, 2004, we had an accumulated stockholders’ deficit of approximately $10.6 million and a working capital deficit of approximately $6.6 million. However, during the nine months ended September 30, 2004, we have been able to increase our revenues and renegotiate and pay down certain obligations, which has resulted in reduced losses and reduced outstanding debt.

Below is a summary of our cash flows for the periods indicated. These cash flow results are consistent with prior years in that we continued to use significant cash in connection with our operating and investing activities and had significant cash provided by financing activities.

A summary of our cash flows for the periods indicated is as follows:

Year Ended Year Ended Year Ended Nine months ended

December 31, 2001 December 31, 2002 December 31, 2003 September 30, 2004 (1)

Cash used in operating activities $ (9,561,199) $(4,322,231) $(5,056,370) $(3,885,825)

Cash provided by (used in)
investing activities (1,271,632) (901,056) (612,635) 177,660

Cash provided by financing activities 10,618,846 5,992,185 8,140,759 5,086,761

Increase (Decrease) in cash and

      cash equivalents (213,985) 768,898 2,471,754 1,378,596

Cash and cash equivalents, beginning

      of period (213,985) 768,898 3,240,652

Cash and cash equivalents, end

      of period $ 0 $     768,898 $  3,240,652 $ 4,619,248

(1) These figures include an aggregate of approximately $2.2 million that was paid during the period to satisfy past obligations.

Our cash flow results were impacted by the costs associated with implementing the new corporate strategy focusing our resources on VoIP and the emerging international markets, as we completed our exit from the more highly competitive, infrastructure dependent business that previously characterized us. We only started to migrate customers to our new Softswitch in August 2004 and began to rely on it in October 2004. Therefore, we have only recently completed the deployment of our packet-based network infrastructure including the latest Softswitch technology. Because certain of our costs are fixed, we would expect that as our revenues increase, total expenses will represent a smaller percentage of our revenues.

Source of Liquidity

As of September 30, 2004 we had cash and cash equivalents of approximately $4.6 million. In addition, as of September 30, 2004, we had approximately $0.5 million of cash restricted from withdrawal and held by banks as certificates of deposits securing letters of credit (equal to the amount of the certificates of deposit).

From our inception through September 2004, we financed our operations from cash provided from financing activities. These activities were primarily through the private placement of approximately $52.2 million of equity securities and $26.7 million of net proceeds resulting from the issuance of notes and capital leases.

Although we believe the net proceeds from this offering, together with our existing cash and cash equivalents and revenues from operations will be sufficient to meet our working capital and capital expenditure needs for the next 12 months, as to our long-term liquidity is dependent on our ability to attain future profitable operations. We cannot predict if and when we will be able to attain future profitability.

On November 10, 2004, we issued convertible promissory notes to one individual in the aggregate amount of $2,508,333, representing $1,400,000 in cash and $1,108,333 to refinance certain debt and accrued interest owed to an existing related party. This transaction generated $1,330,000 in net proceeds to us after deducting an advisory fee. The promissory notes bear interest at 6.5% per annum and are due on November 2006. The notes will automatically convert into common shares at a conversion price of $3.85 per share upon the closing of the offering.

Uses of Liquidity

Our short-term and long-term liquidity needs arise primarily from interest and principal payments relating to our debt and capital lease obligations, capital expenditures, working capital requirements as may be needed to support the growth of our business, and any additional funds that may be required for business expansion opportunities.

Our cash capital expenditures were approximately $0.6 million during the nine months ended September 30, 2004 and were $0.6 million during the year ended December 31, 2003. We expect our cash capital expenditures to be approximately $1.0 million for the full year ending December 31, 2004. The 2004 estimated capital expenditures include a significant investment we are making to upgrade our switching and transmission systems utilizing the latest softswitch technology.

Cash used in operations was approximately $5.1 million during the year ended December 31, 2003 and approximately $3.9 million during the nine months ended September 30, 2004. The cash used in our operations has historically been a function of our net losses, gains on forgiveness of debt, and changes in working capital as a result of the timing of receipts and disbursements. Our net cash used in operating activities included in our September 30, 2004 and December 31, 2003 cash flows statements include a significant amount of cash payments and forgiveness of debt that relates to liabilities from prior periods. Consequently, the resulting net cash used in operating activities during these two periods was negatively impacted. Now that we have paid and settled a significant amount of these old liabilities, as well as seeing an improvement in our operating results, we expect our net cash used in operating activities to improve during future periods. Additionally, the 2004 net cash used in operating activities includes approximately $1.2 million in interest and dividends accreted on our series C preferred stock. The accretion on this stock will cease upon completion of the offering.

We expect to use the net proceeds from this offering for working capital and general corporate purposes, for the repayment of certain indebtedness, for international deployment, including purchase of business license, network equipment and securing letters of credit and bonds, to fund the purchase of equipment for expanded capacity and service offerings, and marketing and advertising. We expect to continue to expand our business into new countries and geographic regions by purchasing business licenses; partnering with companies that own licenses, or partnering with a company to acquire a license. In connection with this activity, we will incur equipment costs associated with deploying a network and certain working capital expense associated with the development of partnerships or joint ventures. In some situations, we may also be required to guarantee payment or performance under agreements, and in these circumstances we would need to secure letters of credit or bonds to do so.

We intend to fund corporate overhead, including management salaries, from working capital and cash flow from operations.

Debt Service Requirements

At September 30, 2004, we had approximately $4.3 million of current and long-term notes payable and capital leases. We owe approximately $1.6 million in debt and accrued interest to two of our officers who have signed forbearance agreements, providing that they will not call due this debt and interest until such time that a successful offering is completed or March 31, 2005, whichever comes first. A significant portion of our debt is due during the 12 months subsequent to September 30, 2004 and approximately $1,523,000 in debt and $516,000 in accrued interest will be repaid with the proceeds from the offering. Also, this reduction in our debt balances is expected to result in a significant reduction in our interest expense in the future.

Capital Instruments

The only outstanding preferred stock we have as of September 30, 2004 is our series C preferred stock. This stock provides for the payment of dividends at a rate equal to 8.0% per annum. The dividends are payable in cash annually, commencing on the first anniversary of the initial closing of the series C preferred stock offering, unless the series C preferred stock is converted into common stock upon the completion of the offering, in which case no dividend will be due. If we choose to redeem the series C preferred stock, we are required to give holders 30 days notice of such redemption during which period holders shall have the right to convert to common stock at a price of $3.15 per share, subject to adjustment. So long as our common stock or other securities into which series C preferred stock is convertible into, is not publicly traded, at any time after the second anniversary of the initial closing of this offering, the holders of the series C preferred stock may require us to redeem their respective shares of the series C preferred stock may require us to redeem their respective shares of the series C preferred stock for cash equal to 112% of the stated value plus payment of accrued and unpaid dividends. Each share of the series C preferred stock is convertible, at the option of the holder at any time, at the conversion price of $3.15 per share. Upon the closing of this offering, the series C preferred stock shall automatically convert into shares of our new common stock at the lesser of (i) $3.15 per share or (ii) 75% of the offering price of the common stock, and, the holders of the series C preferred stock shall also receive a warrant equivalent to those offered hereby for each share of common stock issued.

Summary of Contractual Obligations

As of September 30, 2004

Payments due by period before the offering:

Less than More than

1 year 1-3 years 3-5 years 5 years Total

Contractual obligations:

Debt maturing within one year $ 2,905,825 $ 0 $ 0 $ 0 $ 2,905,825

Preferred shares subject to mandatory
redemption (1) 9,861,431 0 0 9,861,431

Capital leases 1,114,244 257,136 0 0 1,371,380

Operating leases 1,028,000 2,128,000 2,200,000 391,000 5,747,000

Minimum purchase commitments (2) 300,852 0 0 0 300,852

Total contractual cash obligations $ 5,348,921 $12,246,567 $2,200,000 $391,000 $20,186,488

(1)	This represents the obligation for the redemption of series C preferred stock plus accrued and unpaid dividends if we do not convert the shares to common stock in an initial public offering prior to the second anniversary of the initial closing. This obligation will be eliminated upon the occurrence of the initial public offering because this series C preferred stock will automatically convert into shares of our common stock in connection with the offering.


(2)	A settlement with a vendor that will require us to spend an additional $284,735 between October 1 and December 31, 2004. The remaining commitment amount relates to outstanding purchase orders of $16,117.

Critical Accounting Policies and Estimates

We have identified the policies and significant estimation processes below as critical to our business operations and the understanding of our results of operations. The listing is not intended to be a comprehensive list. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on our business operations is discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the Notes to Consolidated Financial Statements for the year ended December 31, 2003, included in this Form S-1. Our preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant.

Revenue Recognition — Our revenue is primarily derived from fees charged to terminate voice services over our network, and from monthly recurring charges associated with Internet and Private Line services.

Variable revenue is earned based on the number of minutes during a call and is recognized upon completion of a call, adjusted for allowance for doubtful accounts receivable and billing adjustments. Revenue for each customer is calculated from information received through our network switches. Customized software has been designed to track the information from the switch and analyze the call detail records against stored detailed information about revenue rates. This software provides us the ability to do a timely and accurate analysis of revenue earned in a period. Consequently, the recorded amounts are generally accurate and the recorded amounts are unlikely to be revised in the future.

Fixed revenue is earned from monthly recurring services provided to the customer that are fixed and recurring in nature, and are contracted for over a specified period of time. The initial start of revenue recognition is after the provisioning, testing and acceptance of the service by the customer. The charges continue to bill until the expiration of the contract, or until cancellation of the service by the customer. Additionally, the majority of our VoIP services to consumers are prepaid. The revenue received from the prepayments that is related to VoIP termination services in the current month is booked to the current month’s revenue, and the remainder of the prepayments are booked to deferred revenue, until usage occurs.

Accounts Receivable — Accounts receivable are recorded net of an allowance for doubtful accounts. On a periodic basis, we evaluate our accounts receivable and record an allowance for doubtful accounts, based on our history of past write-offs and collections and current credit conditions. Specific customer accounts are written off as uncollectible if the probability of a future loss has been established and payments are not expected to be received.

Cost of revenues and cost of revenues accrual — Cost of revenues is comprised primarily of costs incurred from other domestic and international telecommunications carriers to originate, transport and terminate calls. The majority of our cost of revenue is variable, based upon the number of minutes of use, with transmission and termination costs being the most significant expense. Call activity is tracked and analyzed with customized software that analyzes the traffic flowing through our network switches. Each period the activity is analyzed and an accrual is recorded for minutes not invoiced. This cost accrual is calculated using minutes from the system and the variable cost of revenue based upon predetermined contractual rates.

In addition to the variable cost of revenue, there are also fixed expenses. One category of fixed expenses are those that are associated with the network backbone connectivity to our switch facilities. These would consist of hubbing charges at our New York switch facility that allow other carriers to send traffic to our switch, satellite or cable charges to connect to our international network, or Internet connectivity charges to connect customers or vendors to Fusion’s switch via the public Internet, a portion of which are variable costs. The other category of fixed expenses is associated with charges that are dedicated point to point connections to specific customers (both private line and Internet access).

Income Taxes — We account for income taxes in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). SFAS 109 requires companies to recognize deferred tax liabilities and assets for the expected future income tax consequences of events that have been recognized in our consolidated financial statements. Deferred tax liabilities and assets are determined based on the temporary differences between the consolidated financial statements carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in the years in which the temporary differences are expected to reverse. In assessing the likelihood of utilization of existing deferred tax assets and recording a full valuation allowance, we have considered historical results of operations and the current operating environment.

Recently Issued Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to existing financial instruments the beginning of the first fiscal period after June 15, 2003. At December 31, 2003, our series C preferred stock qualifies under the provisions of SFAS 150 and has accordingly been classified as a liability. In the event we complete a successful qualified public offering for our stock, the series C preferred stock will be converted into shares of our common stock and will be reclassified from a liability to equity.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. We do not have any such derivative instruments as of June 30, 2004.

In January 2003, the FASB issued Financial Interpretation Number (“FIN”) No. 46, “Consolidation of Variable Interest Entities” and in December 2003, issued FIN 46R, which superseded FIN 46 (collectively “FIN 46”) to address perceived weaknesses in the accounting and financial reporting for investments or interests in entities commonly known as special purpose or off-balance-sheet entities. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was required to be applied to preexisting entities of companies as of the beginning of the first quarter after June 15, 2003. FIN 46 was required to be applied to all new entities with which we became involved beginning February 1, 2003. Provisions of FIN 46R are applicable to all entities subject to the Interpretation no later than the end of the first quarter after March 15, 2004. The adoption of FIN 46 did not have a material impact on our consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB No. 4, (Reporting Gains and Losses from Extinguishment of Debt), No. 44 (Accounting for Intangible Assets of Motor Carriers), No. 64, (Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements), Amendment of FASB Statement No. 13 (Accounting for Leases) and Technical Corrections.” This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as other income items.

notes to the interim and annual financial statements that include the period in which an exit activity is initiated and in any subsequent period until the activity is completed. SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS No. 146, a company may not restate its previously issued financial statements and the new statement grandfathers the accounting for liabilities that a company had previously recorded under EITF issue 94-3.

Inflation

We do not believe inflation has a significant effect on our operations at this time.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks that are inherent in our financial instruments. These instruments arise from transactions in the normal course of business.

At September 30, 2004, the majority of our cash balances were held primarily in the form of a short-term highly liquid investment grade money market fund in a major financial institution. Due to the short-term nature of our investments, we believe that we are not subject to any material interest or market rate risks.

We are subject to interest rate risk on certain of our convertible notes payable and our short-term borrowings. Our exposure to interest rate risk is limited as a significant portion of our debt is at fixed interest rates. Of the approximate $4.8 million debt balance as of September 30, 2004, only $0.5 million of this debt was variable. As such, we currently believe that our interest rate risk is fairly low.

We currently conduct a minimal portion of our business in currencies other than the United States dollar (approximately 3% of our revenues are denominated in foreign currencies). The foreign currencies are primarily the India Rupee and the SDR. The reporting currency for our financial statements is the United States dollar. The functional currency for all (except one) of our respective subsidiaries is the U.S. dollar. We have accounted for any adjustments resulting from foreign currency translations as an adjustment to “accumulated other comprehensive income” within the stockholders’ deficit section of the consolidated balance sheet. Based upon our current volume of activity in this country, foreign currency risk is considered minimal. However, in the future, we may conduct a larger percentage of our business in this currency or other foreign currencies that could have an adverse impact on our future results of operations.

BUSINESS

History And Corporate Information

We were founded as a Delaware corporation in September 1997 as a traditional U.S.-based domestic and international communications provider offering primarily domestic long distance services, local access, and consulting services. In 2000, we made a strategic decision to focus on VoIP and other Internet service business opportunities in emerging markets. This change was due to deteriorating margins and increasing competition in the domestic and international long distance business, and our expanding knowledge base in the area of VoIP and emerging markets. For these reasons, we sold our US domestic local access and services business lines in September 2001, and Integrated Telemanagment Solutions, Inc., a hospitality consulting company, in December 2001. Since then, we sought to gain early entry in high growth emerging markets often in partnership with local organizations that have strong distribution channels, regulatory experience, market intelligence, the ability to deliver local loops and the capability of providing customer service support.

Overview

We seek to become a leading provider of VoIP and other Internet services to, from and within emerging markets in Asia, the Middle East, Africa, the Caribbean, and Latin America. With our lead product, VoIP, we currently provide a full suite of communications services to corporations, PTTs, other licensed carriers, ISPs, government entities, and consumers. Beginning in 2005, we intend to market these services to cable operators. Our packet based network infrastructure includes the latest Softswitch technology which technology allows us to deliver IP services around the world with quality and reliability.

Through our key assets of market knowledge, technical expertise and strategic relationships, we believe we are poised to:

• Capitalize upon the growth in VoIP, a market that Insight Research Corporation expects to grow from $13 billion in 2002 to nearly $197 billion by 2007 and expand our international penetration of VoIP applications to consumers and corporations.

• Establish our company as an “early mover” in emerging markets through our product suite, technology platform and relationships with our partners.

• Continue to expand the number of international partnerships in key emerging markets to facilitate the distribution and local support of our product line and leverage our existing international partnerships to sell our additional services in targeted markets.

• Expand our emerging market network connectivity by acquiring additional communications licenses through existing and new strategic relationships.

We target markets that we believe have: (i) barriers to entry, (ii) substantial growth prospects, (iii) an increasing number of corporations operating within them, and (iv) a substantial quantity of voice and data traffic between the developed world (e.g., the United States and United Kingdom) and other countries within our network. In select emerging markets, we will deploy network facilities in order to connect that country to the United States.

We currently provide services to customers in over 45 countries. We believe that by using local partners in select markets, we can best distribute our services while providing a high level of local customer support.

Services

To date, we derive a significant portion of our revenues primarily from U.S.-based customers requiring voice and data connectivity to emerging markets. As we continue to execute our strategy, we anticipate a larger number of non-

U.S. based customers. We are currently seeking to expand our revenue stream by providing our services from, in and between emerging markets, which to date, have not generated material revenues for us.

We have service contracts with several customers, including government agencies. Our contracts with carriers typically have a one year renewable term, with no minimum volume per month, and allow the customer to terminate without penalty. Our contracts with corporate customers are typically for a one year term, and have an early cancellation penalty. Our government contracts range from one year to five year terms, and are terminable at the government’s option without penalty. For the years ended December 31, 2003 and 2002, the Telco Group accounted for 13.7% and 13.8%, respectively, of our total revenues and for the year ended December 31, 2001. Qwest Communications accounted for 16.0% of our total revenues for voice services.

We have tailored our service offerings to meet the needs of our target customers requiring services to, from, in and between emerging markets.

• VoIP: Our VoIP services have accounted for the majority of our revenues in 2004. For the nine months ended September 2004, our VoIP service accounted for 68.3% of our consolidated revenue. VoIP enables customers, typically for a lower cost than traditional telephony, to place voice calls anywhere in the world using their PC, IP phone or regular telephone when accompanied by a hardware device. VoIP services utilize the Internet as opposed to circuit switching (traditional telephony technology), thereby offering cost savings to customers. These services are offered directly to corporations around the world, on a private label, co-branded or wholesale basis to ISPs, PTTs and cable operators who wish to market to corporations and consumers under their own brand name, or through our retail services company, Efonica. Efonica offers PC-to-Phone and IP Phone-to-Phone services to customers located in Asia, the Middle East and Africa, and is currently expanding into Latin America. Advanced services that are expected to be available in 2005 to customers include voicemail, call waiting and call forwarding.

• Additionally, we enter into VoIP interconnect agreements with PTTs or other carriers in our target markets. These agreements enable us to terminate traffic into a country and in some cases originate traffic from that country through the PTT or other carrier. We use capacity on these networks to carry our own retail traffic in addition to selling capacity to other carriers desiring voice termination to that destination. As we grow, we intend to use an increasing percentage of our capacity for higher margin retail traffic.

• Managed private networks: We offer managed end-to-end networks that typically connect multinational corporations or government facilities in emerging markets with locations in other countries. We also market this service to software developers, call centers, and telemarketing facilities, all of which rely on high quality, reliable service. In markets where we do not have network facilities deployed, we utilize other carriers’ networks, allowing us to provide an integrated global network that can connect a customer to virtually anywhere in the world. We also offer services on a private label basis as a subcontractor for other communication carriers that are seeking network connectivity to countries that they do not otherwise service.

• Internet Access: We offer peering with multiple tier-one Internet backbone providers utilizing an intelligent routing capability. This ensures efficiency, speed and reliability. The tier-one providers we utilize own or control a national network that trades traffic with other national providers. This traffic trading is referred to as “peering.” A tier-one provider can carry its own Internet traffic across the country and hand it off at any one of the public or private hand-off locations known as “peering points,” metropolitan access points or national access points. In select locations such as India, we have established Internet PoPs that are then connected to our New York facility. This, in turn, provides interconnectivity with the Internet and peering with the top Internet backbone networks. In regions where we do not own network facilities, we utilize other carriers’ facilities. We also provide services on a private label basis as a subcontractor for other communication carriers that are seeking Internet access in countries that they do not otherwise service.

• Internet video conferencing: We offer an Internet-based video conferencing service that can be initiated instantly on a personal computer (similar to popular instant messaging services) and can handle from two to two hundred participants per conference, of which six can be visually displayed. The service can be installed

in a matter of minutes and only requires a standard camera and headset to operate. We are marketing our desktop video conferencing service directly to multinational corporations seeking to enhance face-to-face communications without the costly inefficiencies of business travel, and to our international partners to distribute within their country.

• Co-location: We offer facility co-location services to other communication service providers, enabling them to co-locate their equipment within our facility, or lease a portion of our equipment. Often, we provide wholesale services to the parties who co-locate with us.

Growth Strategy

Strategy: Our strategy is to gain early entry in an emerging country and then market advanced communication services such as VoIP, private networks, Internet access, IP video conferencing, and other Internet services. In many cases, we will establish a foothold within an emerging market through a partnership with a local organization. We believe that working in conjunction with local partners enables us to offer global services with local support.

The details of our strategy include:

• Establish Local Partners for In-Country Distribution and Support.

We believe that working with strong partners allows us to best distribute services and attract, retain and support customers. We seek to develop partnership arrangements in each of our markets. Local partners offer time to market advantages as their existing infrastructure, sales distribution channels, and technical support can be utilized, while simultaneously reducing capital needed to enter the market. Additionally, these partners typically provide last mile connectivity in their country required for the delivery of local Internet access and private networks. This last mile connectivity, which is the connection between the in-country telecommunications facility and the customer’s physical location, in combination with local support, expands the geographic coverage of our global service offering and helps differentiate us from our competitors.

We intend to work with our partners to enable them to distribute and support our products and services (either co-branded or private labeled). Our private label alternative enables our partners to market our products, technology platform and global reach under their own brand. This alternative is ideal for partners that do not have the capital, expertise and technology platform required to deliver our services but want to build their own brand. Local partners also offer critical insights into the regulatory environment and are familiar with the specific cultural nuances of their region. Additionally, we anticipate that prior to the rollout of any new services, our partners will work with us, contributing market intelligence, to ensure a successful introduction of new products. This partnering approach allows the local infrastructure to progress to a more technologically advanced platform while positioning us to benefit from the rapid growth and reserves that these technologies enable.

• Deploy IP infrastructure.

We deliver a broad array of IP based communication services, primarily VoIP, which require a lower capital investment than traditional strategies. This approach allows us to accomplish what we believe many of our partners in emerging markets are seeking a way to enhance existing in-country technology and service offerings at minimal cost. This allows the local infrastructure to progress to a more technologically advanced platform while positioning us to benefit from the rapid growth that these new technologies and under penetrated markets enable.

• Establish Market Position in VoIP Business.

One of our key service offerings is VoIP, which allows us to offer Internet-based long distance services at competitive prices to any business, consumer or carrier with broadband or dial-up Internet access. Quality levels, which had once been a significant issue, are fast approaching those associated with traditional voice transmission. We typically market our VoIP services to corporations and consumers through an in-country distribution partner. Additionally, we seek to enter into relationships with in-country carriers to transport voice traffic to and/or from that country. We believe that we

have established our presence in the voice markets due to (i) direct interconnections to PTTs, and other licensed carriers, which facilitate higher quality transmission than the services offered by gray market operators, and (ii) competitive pricing. We believe that carriers seeking to access these gray markets will increasingly want to work with companies that have established relationships with PTTs and other licensed carriers, as opposed to quasi-legal gray market operators who divert long distance traffic and revenue from those carriers. We believe gray market operators generally provide poorer quality and reliability. In several markets, we receive inbound traffic from the PTT and other licensed carriers that tend to produce higher margin than our outbound voice services. We believe this inbound traffic from PTTs and other licensed carriers strengthens our ability to ensure favorable contractual arrangements. We will use capacity on our international voice networks to carry our own retail traffic in addition to selling capacity to other carriers desiring termination to that specific destination. As we progress in the execution of our business plan, we intend to use a greater percentage of our network capacity to carry higher margin retail traffic.

• Support Partners and Services with Advanced Packet Switched, Low Cost, Flexible Network.

We employ an IP network that consists of Company-owned and partner-owned PoPs and usage based or leased transmission facilities. Our network has several key attributes, including: open standard compliance; distributed architecture; centralized management; a wide array of signaling support; and policy based routing. With just one network PoP, our partners have acces to all of the products and services that we offer, as well as to certain back office systems required to manage services being delivered.

We believe that this strategy allows us to control the network intelligence critical to providing transmission quality and high quality customer support. At the same time, we are not burdened by large capital requirements and high fixed network costs in a market that has seen dramatic price reductions. The majority of our network operating costs are variable; that is, directly proportional to usage and revenue.

• Target Enterprise, including Government Market Segment.

We intend to build upon our market position in the international VoIP business to market our managed private networks and other Internet-based services to multinational businesses. By utilizing our own direct sales force and local partner distribution channels, we are able to market our services to customers in the United States and abroad. Our engineering team works closely with both our sales team and customers to provide solutions to our clients. As part of our corporate service offerings, we provide a single point of contact, ensure active end-to-end management and guarantee service levels. As a result of our geographic coverage, we have been approached by several large communication carriers and have discussed the possibility of becoming their subcontractor for services in regions they do not otherwise cover.

We believe that the U.S. Federal Government provides an opportunity for us. By leveraging our relationships and experience in navigating international markets, we have been able to penetrate this sector. In 2003, we were approved by the U.S. Government as a prime contractor to provide services to the Department of Defense (“DoD”) and was awarded our first contract in this sector. Under this contract, we are providing a private network connecting two DoD facilities in the Persian Gulf. Although we are seeking to increase the amount of our government contracts, only 3% of our revenue is currently derived directly from them and arrangements whereby we act as a subcontractor on government contracts. Under one such arrangement, we provide Internet connectivity to 16 U.S. embassies and consulates in Asia and the Middle East, with another scheduled to be installed by the end of 2004. These contracts, however, often give the government the right to terminate at any time. Although we try to include liberal cancellation arrangements with our suppliers, we may make contractual commitments with third party vendors to fulfill portions of such contracts that do not contain similar termination provisions. In the event that the government terminates a contract that we have made third arrangements for we may have significant unrecouped costs.

• Exploit Communication Patterns Among and Between Our Markets.

We look to provide connectivity to, from, in and between our emerging markets. We are seeing demand from our business customers for multi-country connectivity such as a U.S. corporation seeking connectivity to India, China and the Philippines from one provider. We recently began marketing this service. In addition, we are targeting connectivity between markets with significant traffic flows such as the traffic flows between India and multiple countries in the

Middle East. In countries where we do not have facilities, we will work with other international communications providers to utilize their networks to deliver this service. In our VoIP business, we are seeing similar trends. We believe that traffic among emerging markets is less susceptible to price and margin erosion than traffic among developed countries. In countries where we install equipment, it is common that our partners, customers or vendors will provide a facility to locate the equipment.

Marketing

We deliver multi-product communications solutions to targeted market segments requiring quality, reliability, flexibility and scalability. VoIP services are offered on a private label or co-branded basis to PTTs, other licensed carriers, ISPs, cable companies and wireless operators. VoIP is also marketed to corporations, government agencies and consumers through direct sale, in-country partners or third party distribution. Private Network solutions, including international point to point private lines, IPVPN, IP-IPLs, ATM and Frame Relay are offered directly or though in-country partners and third party distribution to PTTs, other licensed carriers, ISPs, government agencies and corporations. Internet Access is marketed through direct and alternate channels to PTTs and other licensed carriers, ISPs, cable companies, wireless operations, corporations and government agencies. Our IP videoconferencing services, InterView, is marketed to small, medium and large corporate customers through PTTs and other licensed carriers, ISPs, in-countrty partners and other distribution channels on a private lable or re-sale basis. InterView is also offered on a direct sale basis to corporations and government agencies.

We market our services via a variety of distribution channels.

• Direct Sales and Regional Management – We have a direct sales force that sells our products and services to corporations and carriers. We also have regional sales management that focus on Latin America, Asia, Africa, the Middle East and the Caribbean. The regional executives manage and grow existing revenue streams from partners and defined strategic accounts; identify and develop new partnerships; develop strategies for market penetration; identify new market opportunities; and coordinate internal support activities.

• Agents – We use independent sales agents to sell our services. Our sales agents are compensated on a commission-based structure. We typically control the product, pricing, branding, technical and secondary level customer support, billing and collections.

• Partnerships – We seek to develop partnership arrangements in each of our markets with companies that are able to distribute and support our services. These partners can be PTTs, newly licensed carriers, ISPs, cable operators or other distribution companies. We seek to devel op partnership arrangements in each of our significant markets. In addition to local distribution and support, ou r partners typically provide or arrange for last mile connectivity required for the delivery of loca l Internet access and private networks.

• Strategic Ventures – We enter into agreements with other companies to market and distribute each other’s products and services to the customer and prospect base of the other. The providing party usually will support and bill its own products. Depending on the strategic venture, we may pay or receive a commission, share revenue and/or profits with each other.

• Jamaican Venture – In December 2004, the Company entered into an agreement to acquire the 100% of the common stock of a Jamaican company in exchange for $150,000. Substantially all of the net assets of the company consist of international and domestic carrier license agreements with the Jamaican government which expire in 2013 and 2018, respectively.

• Joint Ventures – We enter into formal joint venture agreements with certain partners.

We have established three joint ventures to market and provide our services.

Efonica

In Decem ber, 2002, through Telecommunications Overseas Fusion, Ltd. a wholly-owned subsidiary, we entered in to a joint venture agreement with Karamco, Inc., a British Virgin Island company, to market and prov ide VoIP services, including PC to phone. Efonica has worldwide exclusivity with respect to PC t o phone, with the exception of India, which is non-exclusive. In connection with the joint ventu re, we made certain working capital loans which have an outstanding balance of approximately $360,000 to Efonica.

Efonica was incorporated in the Technology, Electronic Commerce and Media Free Zone in Dubai, United Arab Emirates. We own 50.2% of the equity, and Karamco owns 49.8% of the equity. Profits are allocat ed equally between us. The term of the agreement is five years, and following the initial term, the joint venture shall continue in existence for successive one year periods.

India

In March 2000, w e entered into a joint venture agreement with Communications Ventures India Pvt. Ltd. to form an ent ity named Estel Communication Pvt. Ltd. Estel is organized and existing under the laws of Ind ia and has its office in New Delhi, India. We own 49% of the joint venture and have voting rights in another 1.01%, which in turn gives us an indirect 50.01% voting control in the joint venture. Estel is in the business of selling and supporting VoIP, private networks and Internet access in India. The joint venture has been funded primari ly by us.

Pakistan

In July 2002, the Company acquired a 75% equity interest in a joint venture wit h Turner Hill Investments, L.P. (“Turner Hill”), a non-US limited partnership, to provide VoIP servi ces for calls terminating to the dominant telecommunications carrier in Pakistan. Turner Hill subsequently assigned its interest to Braddon Corporate Holdings Limited. During 2003 and 2002, we contributed certain telecommunicatio ns equipment and advances aggregating approximately $500,000 to the joint venture in exchange for it s equity interest in the new joint venture. The joint venture operates out of facilities provided by Braddon and began providing VoIP service in November 2002.

In connection with the joint venture agreement, we entered into a non-exclusive service agr eement with Pakistan Telecommunications Ltd. (“PTCL”), a public limited company incorporated under t he laws of Pakistan, under which PTCL would provide for the termination of incoming international tr affic into Pakistan focusing on VoIP services from the United States and Europe. The agreement prov ides for us to place all necessary switching equipment in Pakistan, the United States and Europe, wh ich we have done through the Pakistan joint venture.

The joint venture entity is required to pay a management fee to Braddon equal to the number of minutes terminating in Pakistan on a monthly basis times a fixed rate per mi nute. For the years ended December 31, 2003 and 2002, the joint venture incurred management fees to Turner Hill and Braddon, its successor for approximately $361,000 and $36,000, respectively.

Network Strategy

Our network strategy incorporates a packet switched platform capable of interfacing with IP protocols and Time Division Multiplexing (TDM) platforms. This is key to providing the flexibility needed to accommodate the many protocols used to transport voice and data today. We continually evaluate, and where appropriate, deploy additional communications technologies such as Multi-Label Protocol Switching (MPLS) and Any Transport over MPLS.

The core of our network design is a packet-based switching system that accommodates VoIP and traditional voice, Internet, data and video services. We believe that this design offers an extensible platform to support envisioned growth. The network design is intended to embrace emerging technologies as they become available. The network supports expansion outside of the United States and, if necessary, can deliver packet technology to every part of the network.

We are currently using a Veraz “Softswitch”, Nuera Orca equipment, and carrier class Cisco and Juniper routers to transport voice, data, video, and Internet traffic. Softswitch is a generic term that refers to a new generation of telecommunications switching equipment that are entirely computerized and are essentially software mounted on robust computer servers. This provides us with routing capabilities to further enhance services and performance available to our clients.

Key attributes of our soft switch include:

• Open standards compliance: Our infrastructure interoperates with a wide range of third-party products, which gives us the ability to grow the network and expand service offerings. We seek system components that incorporate “open standards” in order to maintain flexibility in our system’s evolution. Additionally open standards ensure a cost efficient expansion path as there is no need to replace the entire switch once expansion opportunities have been exhausted as was required in the past.

• Distributed Architecture: Unlike traditional telephony which relies mainly on centralized systems, our Softswitch system has a modular structure with its intelligence spread out across various system components. Due to this distributed environment, we maintain the ability to provide services to at least some locations in the event a system failure prevents us from providing services to other locations.

• Centralized Management: Web-based tools and reporting capabilities enable efficient management, including the troubleshooting and diagnostics of a global distributed network from a single location.

• Wide Array of Signaling Support: An ability to support a large number of signaling systems or protocols, providing an integrated platform for both traditional and advanced products and services, including, but not limited to DS-O, T-1, E-1, DS-3, STM-1/CC3/(C), SS7/ISUP, ISDN, PRI, SIP, H323, MGCP, G.711, G.723 and G.729.

• Policy Based Routing: An ability to create complex, multi-tiered and predetermined sets of routing policies. This is a more powerful and effective way to determine the least costly and most effective paths for voice communications traffic.

Benefits of the Fusion Distributed Network Architecture

Historically, most large international communications networks required investment and implementation of self-contained switching hardware that, in turn, could then be connected with other comparable equipment nodes via leased lines or other forms of networking. Examples of these would include equipment such as large traditional carrier switching equipment. All of the intelligence and functionality has to be replicated in each major location.

We, however, have implemented an environment that we believe is far more flexible, adaptable, and less costly than the legacy systems in use by some of our competition. Our Softswitch environment permits us to centrally control our network and service offerings from one location yet deploy gateways that interface with customers and vendors in remote locations. Each remote gateway is able to deliver our service suite even though the intelligence is centrally located in our New York facility. Instead of needing duplicative and expensive infrastructure in every location, we economize by allowing multiple disparate network equipment to be centrally managed. We believe that we can capitalize on market opportunities that would previously have been unadvisable due to the expense of deployment and associated marketplace risks.

Capacity

In traditional telecommunications systems, capacity is a function of equipment and software. Because of its modular architecture, Softswitch capacity is much less dependent on hardware. We believe that our Softswitch environment will enable us to expand our capacity to handle traffic and our geographic reach with greater ease in the future.

Ease of Modular Service Creation

Traditional telecommunications switching systems are not easily modified to incorporate new features and functionality. Because our Softswitch environment is entirely computer driven, our systems are flexible and designed for the addition of features. We intend to expand our service offerings by integrating additional hardware and software systems. Our distributed architectures and flexible technology platform allows us to roll out new services in a shorter period of time than many traditional telecommunication companies.

Ease of Deployment

As we continue to penetrate emerging markets, we will seek to establish regional PoPs that are then connected to our New York facility. To facilitate this, we have created a standard concept for the deployment of a PoP in a remote region. These regional “PoPs” will enable our VoIP services set to be offered and delivered from remote locations while the intelligence and management of the services are in our New York facility.

This modular approach allows us to respond and deploy our services rapidly.

Dynamics of the Global Communications Market

Voice over Internet Protocol (VoIP)

VoIP has emerged from an obscure technological term into a major communications driver. Until recently, the traditional world of voice communications consisted of millions of circuit connections established between two points by the use of physical wires or wireless systems and a vast number of switching systems throughout the world. These circuits remain connected for the duration of a telephone call. VoIP, however, uses the Internet Protocol to break up communications, including voice, into small “packets.” These packets travel across Internet systems without having a dedicated point-to-point connection, and are thus much more efficient in the use of network transmission facilities. VoIP dramatically reduces the wasted capacity that is inherent within circuit-switched networks. This substantially enhanced efficiency, reduced overall cost, and ease of deployment are driving carriers to implement VoIP. The following data points evidence this:

• According to Gartner Inc., the market for consumer VoIP is projected to increase from $517 million in 2004 to $1.92 billion in 2005 and to $9.5 billion by 2008.

• According to the Radicati Group’s July 2004 report, the number of corporate telephone lines that use VoIP is expected to grow from 4 percent in July 2004 to 44 percent by 2008.

• According to the Radicati Group’s July 2004 report, corporate spending on VoIP is projected to rise from an expected $1 billion in 2004 to $5.5 billion by 2008. By 2008, installation should cost corporations only about $75 to $600 per line, down from the current $375 to $1,000 per line.

According to Telegeography 2004, VoIP providers carried only 150 million minutes of international telephone calls in 1998, less than 0.2% percent of the world’s international traffic. By 2002, cross-border VoIP traffic had grown to just under 19 billion minutes, about 11 percent of the world’s international traffic.

International VoIP carriers have achieved growth by carrying traffic on behalf of other long-distance service providers. Consequently, most end-users are likely unaware that many of their phone calls are traversing the Internet, rather than traditional long-distance networks.

According to Telegeography 2004, a combination of aging regulations and new technology enabled these and other start-up carriers to capture significant market share in only a few years.

International VoIP and PSTN Traffic Summary, 1998 – 2003

1998 1999 2000 2001 2002 2003 (est.) CAGR

VoIP Traffic

      (millions of minutes)
150

1,655

5,954

10,147

18,045

24,519

177%

PSTN Traffic

      (millions of minutes)
93,000

108,000

132,027

146,095

155,165

166,615

12%

VoIP Share of
      International Traffic
0.2%

1.5%

4.3%

6.5%

10.4%

12.8%

From: TeleGeography 2004

Source: PriMetrica, Inc.

Although there have been recent improvements in VoIP technology, there are, however, several drawbacks still inherent in the technology. These drawbacks consist of reduced sound quality attributable to technological issues such as delays in the transmission of packets across Internet systems. In addition to the technological drawbacks, we have, and will continue to experience, certain drawbacks associated with our strategy to expand our business in emerging markets. Specifically, these drawbacks may include the high cost of Internet access in emerging markets, limited consumer knowledge about VoIP, difficulty in maintaining local customer support and in dealing with local companies and governments in some of these emerging markets.

Private Networks and Virtual Private Networks (VPNs)

Private networks generally fall into two categories: leased line networks and virtual private networks (VPN). Leased line networks refer to point-to-point connectivity on satellite, fiber optic, or wireless facilities to interconnect various locations. These private networks are totally separate from the Internet or other networks, although some may permit interconnection with the Internet through stringent security methods such as firewalls. VPNs utilize shared network facilities such as the Internet, frame relay, ATM (Asynchronous Transfer Mode) or MPLS networks to carve out a secure portion of the network, thus making it a VPN. As carriers have become more technically adept, the use of leased lines has begun to decline. VPNs are more cost effective and can achieve similar levels of confidentiality.

According to Interactive Data Corporation (March 2004), carrier-based IP VPN growth is expected to outperform other data networking options, such as frame relay and ATM connectivity.

Revenue from worldwide VPN services was $18 billion last year and, driven by the quest for increased productivity and cost savings, is projected to reach over $30 billion in 2008. Demand for security services is also rising, with revenues growing from $3.1 billion in 2003 to $7.7 billion in 2008, according to Infonetics Research, August 2004.

Internet Access

Internet access services have rapidly moved from entertainment to a required tool for businesses and consumers alike. Although Internet connectivity has technically been available since the advent of the US Defense Advanced Research Projects Agency (DARPA) network “ARPAnet” in the late 1960s, it did not begin to achieve widespread popularity and ubiquity until the mid-1990s. Since then, the Internet has changed the way people conduct business, entertain themselves, and communicate throughout the world. People can connect to the Internet in the following ways: using a modem and dialing into an Internet Service Provider (ISP hub), via a dedicated connection to the ISP such as a cable modem, Digital Subscriber Line (DSL), or leased circuit, or via a wireless connection.

The growth in number of Internet users between 2000 and 2004 and the percentage of global users in each region of the world is illustrated below:

As of September 30, 2004

% of

Region % Growth Global Users

Middle East 227.8% 2.1%

Latin America/Caribbean 209.5% 6.9%

Africa 186.6% 1.6%

Europe 124.0% 28.4%

Asia 125.6% 31.7%

North America 105.5% 27.3%

Oceana 107.2% 1.9%

Source: www.internetworldstats.com

From a growth perspective, the greatest opportunities are represented internationally, especially from previously underserved markets.

• The number of Internet users in Asia increased from 114 million as of December 2000 to 175 million in November 2002 (www.internetstats.com), and had been expected to rise to 188 million by 2004, according to Gartner Group Asia 2002. The actual number of users as of May 31, 2004 was 243.7 million users (www.internetstats.com). It is clear that these forecasts underestimated the actual demand.

• The number of Internet users in Latin America was projected to reach 43.4 million by the end of 2003 and 60.6 million by the end of 2004, according to eMarketer, October 2002. As of May 2004, the number was estimated at 51.18 million (www.internetstats.com). In this instance, it is likely that the forecasts are on target, and perhaps slightly low.

• The number of Internet users in the Middle East and Africa is expected to grow from approximately 13.9 million in November 2002 to approximately 34 million users in 2005 (www.internetstats.com). The estimated number of users as of May 2004 was 29 million (www.internetstats.com). We believe these forecasts appear to be accurate.

Video Conferencing

According to the Telecommunications Industry Association (February 2004), IP applications, revenues are also expected to grow at a rapid rate. IP revenues for audio conferencing, videoconferencing, Web conferencing, follow-me services (follow-me services permit incoming calls to a mobile device or Personal Data Assistant (PDA) to be routed to a service subscriber, giving them the ability to know the identity of the caller and to then decide whether to accept or defer the caller to voicemail), unified messaging and instant messaging totaled $1.5 billion in 2003, more than twice the $696 million of 2002. Revenues will increase to a projected $11.4 billion by 2007, a 66.5 percent compound annual growth rate.

There are a variety of video conferencing types available. These include full conference room video, requiring substantial bandwidth and significant investment in equipment, as well as free Internet-based services. The growth is likely to come from affordable, high quality integrated voice and video services that can be used with modest investment and with a reasonable amount of Internet bandwidth.

Regional Outlook

Deregulation

The deregulation of monopoly telecommunications and Internet environments in emerging markets has allowed carriers such as Fusion to deliver competitive and innovative IP communications services. Monopoly limitations on alternative international long distance carriers have historically constrained competition and provided little incentive or ability for competitors to build facilities in developing countries. Incumbent carriers in the country are suddenly having to compete in their markets by having to provide more Internet services and improved customer service. We believe dereg-

ulation and the resultant competition from new entrants facilitate improved communications infrastructure, additional service offerings, lower prices, and increased demand. However, we also believe that to obtain the most profitable and enduring relationships, it is important to have an understanding of the sensitivities of the local PTTs, which have been the former monopoly carriers in their respective markets, and regulatory authorities in these countries. Accordingly, we seek to develop these relationships and gain expertise in these markets early in the deregulation process.

Emerging Market Dynamics

Growth of Multinational Businesses in Emerging Markets

The continued trend of multinational corporations to locate offices and factories in emerging markets is playing an increasingly important role in the economic development of these regions. Management believes that as the globalization of business increases, the need for high quality and cost effective data and voice IP services will grow. Many American and other developed country IT executives are believed by Management to be adjusting budgets to support international growth and reduce operating expenditures by deploying resources in developing countries in an attempt to improve customer service, upgrade Web-site performance, and enhance network security. At the same time, many countries, notably China, India, Pakistan, Philippines, Singapore, and Vietnam, are encouraging the development of IT and communications intensive industries to spur economic growth. Several emerging markets are focused on building themselves as centers for IT industries, such as software development, call centers and customer relationship management, where the relatively low cost but highly skilled labor force becomes extremely attractive to multinational corporations from the developed world.

Asia

According to BuddeCom, 2003 Information Highways in Asia, although Asia has rebounded from the economic crisis of the late 1990s, the region has had to contend with the impact of a global economic slowdown. Through 2002 into 2003, the region’s telecommunications sector has grown but at a slower rate, but in a somewhat muted fashion. Despite this, the Internet has continued to develop, with spectacular growth in broadband access occurring in some of the developed Asian economies. According to BuddeCom, 2003 Information Highways in Asia, the giant telecommunications market in China has continued to rapidly expand and is expected to reach $US27 billion by 2006, or 20% of the total Asian market. Moreover, Asia had a total of over 870 million (fixed and mobile) telephone subscribers, according to BuddeCom, 2003 Information Highways in Asia.

According to Telecomasia.net, incumbent telecommunications carriers are experiencing the impact of five dynamics:

• Fixed and, to a lesser extent, wireless markets are at saturation point

• New technologies like IP and VoIP are eroding margins

• Competition is increasing in scale and intensity

• The lack of a strategy beyond broadband

• The loss of wireline voice traffic to mobile operators.

Telecom Asia’s survey found likely areas of growth included broadband services. In addition to broadband are IP-based next-generation networks and DSL.

We believe that Asia represents an opportunity for us to work with incumbent as well as emerging competitive carriers to expand products, services, and pursue entrepreneurial opportunities that fit within our capabilities.

Middle East

In terms of communications development, the Middle East is one of the most diverse regions in the world. According to Telecommunications International 2 October 2003, fixed line teledensity ranges from almost 56% in Cyprus to just 2.7 percent in Yemen. The Israeli mobile market has reached the saturation point, with reported penetration of 99 percent. Despite variances among Middle Eastern markets, each is characterized by liberalization, except Iraq, where market regulation is secondary to rebuilding basic infrastructure after years of war and neglect.

Bahrain, Saudi Arabia and Lebanon have all passed new communications laws and have either established new independent regulatory bodies to oversee the development of the industry, or are in the process of doing so. The Syrian government has, to date, shown no inclination to open up the fixed line telecom sector to competition but in early 2003, the Ministry of Communications revealed plans for the creation of a new council to regulate and encourage investment in the telecom industry.

According to Telecommunications International 2 October 2003, the United Arab Emirates (34.2 percent teledensity) is reluctant to discuss liberalization, but is under pressure to introduce competition. The World Trade Organization (WTO) is interested in competition for Etisalat, the incumbent communications provider for the UAE. The private sector is anxious to see the government end the monopoly situation and create a competitive business environment.

Africa

Despite remarkable changes in Africa’s telecommunications market over the past few years, teledensities remain extremely low. According to Research and Markets ( http://www.researchandmarkets.com ) July 2004, with around 12% of the world’s population and less than 3% of the world’s telephone lines, Africa is a continent of substantial opportunity. Many governments are relinquishing their grip on telecommunications operators resulting in advancement in communications through the deployment of innovative technologies, which creates unprecedented growth. This trend is opening new frontiers and brings with it considerable possibilities for development and progress.

Many countries are undergoing communications reform, and foreign investment is being actively encouraged as privatization and liberalization are introduced. More than one-third of all state telephone companies (PTTs) have already privatized and several more are set to be privatized in the near future.

We believe that the convergence of fixed and mobile networks and services will continue to dominate the market with future licensees gaining combination licenses with the ability to operate both wired and wireless systems. The ability to offer wireless services should speed development of badly needed “last mile” services, such as broadband Internet access and VoIP.

According to Global Information, Inc. (2/2004), recent telecommunications sector reforms have had impressive results, especially in rolling out access to basic telecommunications services. However, the lack of telecommunications infrastructure is the most pressing economic issue currently holding back the continent’s development. Africa remains the least Internet connected continent in the world, both from a total bandwidth and Internet penetration perspective.

Africa’s data traffic is experiencing strong growth, according to Telecommunications in Asia 2004, Global Information, Inc., particularly in South Africa. Demand for value-added data services is driven by market forces and rarely as an initiative of service providers.

Another important development is the introduction of new entrants in the fixed-line market. SNO (Second National Operator) licenses have been issued to companies in Ghana, Nigeria, Tanzania, Seychelles, South Africa, Zimbabwe, and other countries are following this lead.

Caribbean

The Caribbean markets have gone through a major transition over the past twenty-four months. The most significant changes have been instigated by the onset of deregulation of the Caribbean telecommunications industry, and the

economic downturn in the U.S. after the September 11, 2001 terrorist attacks. According to Forrester Research, 2004, the Caribbean mainstay industries (tourism, hospitality, manufacturing and offshore finance) saw gross margins fall from the end of third quarter in 2001 through mid-second quarter 2002, with tourism experiencing the greatest decline. As a result, many Caribbean governments began to seek economic diversification and most turned to their technology and telecommunications sectors to make the shift. With the help of foreign regulatory agencies similar to the FCC, a number of Caribbean governments developed economic strategies that included the enacted legislative frameworks to regulate and ensure the security of e-business and e-commerce transactions; and some countries promoted significant tax exemptions to attract international service providers, and to raise additional revenue.

Unlike the initial stages of deregulation in the U.S., deregulations of the telecommunications industry in the Caribbean has proven to be an underlying stimulant for Caribbean economics. Forrester Research, 2004 predicts that telecommunications worldwide will grow from $901 billion in 2001, to $1.57 trillion by 2006. This represents a five-year compound annual growth rate of 11.7%. The Caribbean represents 4% of the growth.

Cable & Wireless (C&W), the incumbent operator in the Caribbean, still commands a significant portion of the telecommunications markets, approximately 95% of the PSTN market, and 48% of the Mobile market. With operations in more than 16 countries in the Caribbean, C&W has worked effectively to raise the barrier of entry into these markets by enforcing the establishment of costly interconnection fees for competitors. Although the opening of the Caribbean markets has allowed a number of telecom providers an opportunity to take advantage of the burgeoning voice traffic market, there is still little competition in the traditional PSTN and IP based voice services market across the Caribbean where C&W operates.

Latin America

Over the past few years, circumstances in Latin America have severely impacted communications growth. Consumer confidence is now returning to Latin America with communications spending on the rise. Not only have consumers and corporations begun signing up for value-added services, operators are once again making solid network investments. One of the areas expected to benefit the most from this renewed customer confidence is broadband, according to www.telecommagazine.com , Americas: Latin America, “Broadband and Wireless lead the way forward,” October 2003.

Broadband in Latin America, for the most part, means DSL, as indicated in an October 2003 Telecommagazine article. Throughout the region, ADSL services - in most cases provided by the incumbent providers - dominate, capturing 85 percent of broadband subscribers. Throughout Latin America, there were 685,000 cable modem subscribers in 2002, a number expected to grow to 805,000 by the end of 2003, and to 1.06 million by the end of 2004. Mexico, the largest cable modem market in Latin America, had only 141,000 cable modem subscribers in 2002, or 0.6 percent of households. By the end of 2003, that number was expected to grow to 218,000 subscribers, or one percent of households. Argentina, another cable modem stronghold, had about 110,000 cable modem subscribers by year-end 2002, compared to 55,000 residential DSL subscribers, according to the Yankee Group.

As a portion of overall communications, revenues from broadband remain very small. Broadband growth is high, but Latin America remains voice-centric and will likely continue to be so for the coming years as consumer based broadband connectivity increases as does the number of prospects for VoIP services. We are aggressively pursuing opportunities in this market.

Competition

The international communications industry is highly competitive and significantly affected by regulatory changes, technology evolution, marketing strategies, and pricing decisions of the larger industry participants. In addition, companies offering Internet, data and communications services are, in some circumstances, consolidating. We believe that service providers compete on the basis of price, customer service, product quality, brand recognition and breadth of services offered. Additionally, carriers may compete on the basis of technology. Recently, we have seen carriers competing on their ability to carry Voice over Internet Protocol (VoIP). As technology evolves and legacy systems become an encumbrance, we expect carriers to compete on the basis of technological agility, their ability to adapt to, and adopt, new technologies.

In the area of VoIP we compete with companies such as Net2Phone, Vonage, 8X8, Deltathree, Dialpad and Mediaring. This business segment is marketing-intensive and does not have high barriers to entry. While we believe our distribution relationships and marketing skills provide us with a competitive advantage, our competitors generally have more resources and more widely recognized brand names.

We compete with several emerging international carriers, many of whom are in or entering the VoIP market, among which are Primus Telecommunications Group, Teleglobe International Holdings Ltd (which completed its merger with IP-telephony pioneer ITXC in May 2004), and IDT Corporation. We also compete with non-U.S. based emerging carriers. For example, in India, we compete with Bharti Tele-Ventures, Reliance Telecom and Data Access, all of which are larger, better capitalized and have broader name recognition than Fusion. Many of these competitors are becoming increasingly focused on emerging markets as they seek to find higher margin opportunities. Many of these carriers are also focused on voice carriage but may become increasingly focused on providing private networks and other IP services.

In each country where we operate, there are numerous competitors, including VoIP service providers, wireline, wireless and cable competitors. We believe that as international telecommunications markets continue to deregulate, competition in these markets will increase, similar to the competitive environment that has developed in the United States following the AT&T divestiture in 1984 and the Telecommunications Act of 1996. Prices for long distance voice calls in the markets in which we compete have been declining and are likely to continue to decrease. In addition, many of our competitors are significantly larger, have substantially greater financial, technical and marketing resources and larger networks.

In the area of Internet conferencing, we compete with other Internet-based video or audio conferencing providers such as WebEx Communications, PlaceWare, Talkway Communications, and InterCall. We can be perceived as competitive with free services such as Yahoo video and Microsoft Netmeeting. Each of these competitors has their own strengths and weaknesses. Some are unable to do more than one-on-one conferencing or require use of free public servers and are therefore subject to varying levels of quality and usefulness. Others are designed solely for the corporate marketplace and require substantial up-front investment in servers and on-going management. We also expect that companies such as Microsoft and IBM will seek to integrate a video conferencing service directly into personal computers.

We compete with business-oriented Internet access providers, including AT&T, MCI, Qwest, and Cable & Wireless. These providers may offer both wholesale and retail Internet connectivity and are considerably larger than us and have greater brand recognition.

We have been unable to identify any direct and comprehensive competitors that deliver the same suite of services to the same markets with the same marketing strategy as our Company. We compete with many different providers in various aspects of our Business Plan, but have found none that directly offer the same breadth of services focused on emerging markets. Some of our competitive advantages include:

• A full suite of services that compliment our VoIP service offerings as opposed to a single offering;

• Our focus on emerging markets in Latin America, Asia, the Middle East, Africa and the Caribbean;

• An international partnership and distribution model which provi des for faster service deployment reduced capital requirements and cost efficient service delivery;

• A strategy of using local partners to enable us to access new markets, enhance distribution and provide local cu stomer support.

Government Regulation

General. In the United States, we are subject to varying degrees of federal, state and local regulation and licensing, including that of the Federal Communications Commission. Internationally we also encounter similar regulations from governments and their telecommunications agencies. At each of these levels, there are significant regulations imposed on the provision of telecommunications services in our business.

We cannot assure you that the applicable U.S. and foreign regulatory agencies will grant required authority or refrain from taking action against us if we are found to have provided services without obtaining the necessary authorizations. If authority is not obtained or if our pricing, and/or terms or conditions of service, are not filed, or are not updated, or otherwise do not fully comply with the rules of these agencies, third parties or regulators could challenge these actions and we could be subject to forfeiture of our license, penalties, fines, fees and costs.

During July 2004, the United States Senate continued to consider how it might apply regulations to VoIP. The VoIP Regulatory Freedom Act of 2004 exempts VoIP service from state taxes and regulations and defines it as a lightly regulated information service for U.S. government regulators. This does not, however, remove the uncertainty of regulatory impact within the United States. For example, the bill reserves the ability for states to require VoIP to provide 911 services, to require VoIP providers to contribute to state universal service programs, and to pay intrastate access charges to other telecom providers.

On April 24, 2004, the FCC rendered a decision on the AT&T Petition for Declaratory Ruling (WC Docket No. 02-361) pending before them. The FCC determined that, where 1+ calls were made from regular telephones, converted into an Internet protocol (IP) format, transported over AT&T Internet backbone, and then converted back from IP format and delivered to the called party through the local exchange carrier (LEC) local business lines (not Feature Group D trunks), the service was a “telecommunications service” for which terminating access charges were due the LEC. In its decision, the Commission stated that, under the current rules, the service provided by AT&T is a “telecommunications service” upon which interstate access charges may be assessed against AT&T. The FCC limited its decision to the specific facts of the AT&T case where the type of service involved ordinary Customer Premise Equipment (CPE) with no enhanced functionality, the calls originated and terminated on the public switched telephone network (PSTN), and the calls underwent no net protocol conversion and provided no enhanced functionality to the end user due to the provider’s use of IP technology. In fact, in the AT&T case the customer was completely unaware of AT&T’s use of IP technology in transporting the call.

Although the FCC determined the services provided by AT&T to be a telecommunications service subject to interstate access charges rather than information services not subject to such charges, they did not make a determination regarding the regulatory status of phone-to-phone VoIP or its exposure to Universal Service Fund (USF), 911, Communications Assistance for Law Enforcement Act (CALEA) or any other public policy issues. The FCC further qualified the decision by stating that they “in no way intend to preclude the Commission from adopting a different approach when it resolves the IP-Enabled Services rulemaking proceeding or the Intercarrier Compensation rule making proceeding.” (Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Notice of Proposed Rulemaking, 16 FCC Rcd 9610 (2001)(Intercarrier Compensation)).

As of August 2004, VoIP services of all types are not regulated by the FCC, and, as such, are not subject to USF charges or other public policy regulation such as 911/E911, CALEA, etc.

Some states have tried to directly regulate VoIP services on an intrastate basis, but these attempts, have, so far, not held up to court challenges. Many states are holding forums to research the issues surrounding VoIP, some are encouraging or even requesting that VoIP providers subject themselves to public service commission jurisdiction and obtain certification as telephone companies, most are hesitant to act until a final determination is made by the FCC, but some have voluntarily done so.

It is uncertain when or how the effects of such regulation would affect us, nor is it understood if other countries will seek to follow suit. If additional regulation does occur, the FCC, any state or any country may impose surcharges, taxes or additional regulations upon providers of VoIP. The imposition of any such additional fees, charges, taxes and regulations on IP service providers could materially increase our costs and may limit or eliminate the competitive pricing we currently enjoy.

Trademarks

We have several trademarks and service marks, all of which are of material importance to us.

The following trademarks and service marks are registered with the United States Patent Trademark Office:

1. Fusion Telecommunications International

2. FTI

3. Diamond / Block Logo

4. Diamond Logo

The following trademarks and service marks are filed with the United States Patent Trademark Office and are currently in registration process:

1. O Efonica (logo)

2. Efonica

3. Fusion

4. Fusion Tel

5. Fusion Telecom

The telecommunications markets have been characterized by substantial litigation regarding patent and other intellectual property rights. Litigation, which could result in substantial cost to and diversion of our efforts, may be necessary to enforce trademarks issued to us or to determine the enforceability, scope and validity of the proprietary rights of others. Adverse determinations in any litigation or interference proceeding could subject us to costs related to changing names and a loss of established brand recognition.

Employees

As of November 30, 2004, we had 58 employees in Fusion Telecommunications International, Inc., Efonica F-Z LLC had 13 employees and Estel Communications Pvt. Ltd. had 60 employees. None of our employees is represented by a labor union. We consider our employee relations to be good.

Properties

We are headquartered in New York, New York and lease offices and space in a number of locations. Below is a list of our leased offices and space as of September 30, 2004.

Location Lease expiration Purpose Approx. sq. ft Annual Rent

420 Lexington Avenue, Suite 518 January 2010 Lease of principal 8,100 $314,496 (1)

New York, New York 10170 executive offices

75 Broad Street March 2010 Lease of network 15,000 $507,600 (2)

New York, New York 10007 facilities

1475 W. Cypress Creek Road, July 2009 Lease of network 9,700 $111,734 (3)

Suite 204 facilities and office

Fort Lauderdale, Florida 33309 space

We also maintain facilities in India, Dubai and Lebanon which are leased by our joint ventures, which we do not believe are material.

(1)
This lease is subject to increase to $330,624 for years 2006 to 2010.

(2) This lease is subject to gradual increase to $672,702 from years 2005 to 2010.

(3) This lease is subject to gradual increase to $130,712 from years 2005 to 2009.

We believe that our leased facilities are adequate to meet our current needs and that additional facilities are available to meet our development and expansion needs in existing and projected target markets.

LEGAL PROCEEDINGS

On May 8, 2002, Donna Marie Furlong, a former employee, filed a complaint against us with the Executive Department, Division of Human Rights, New York Office, State of New York ( Donna Marie Furlong vs. Fusion Telecommunications International, Inc., Case No. IB-E-DS-02-1254784-D) seeking damages in an unspecified amount. This employee claims that she was discharged from her job in violation of Title VII and the New York State Human Rights Law. We are vigorously opposing these claims and have filed a position statement with the Department. We believe the claim to be without merit.

On April 15, 2003, World Access, Inc., a former customer of ours, brought an action against us for recovery of preferential transfers and other claims under the Bankruptcy Code in the United States Bankruptcy Court, Northern District of Illinois Eastern Division ( In Re: World Access, Inc., et al vs. Fusion Telecommunications International, Inc., Adv. Pro. No. 03 A 00851). The suit seeks damages in the amount of $334,877 for our alleged Avoidance of Preferential Transfers, Recovery of Transfers, Setoff, Recovery Setoff, Payment of Improperly Setoff Debt, Turnover of Property, and Damages for Overdue Debt & Turnover of Property. We filed a Proof of Claim with the Court in the amount of $85,475.78 for amounts that were due us at the time this customer filed bankruptcy. We plan to defend this suit vigorously and do not expect the outcome to have an adverse effect on our financial condition.

On May 28, 2003, Jack Grynberg, et al., an investor in one of our private offerings; filed a complaint with the Denver District Court, State of Colorado ( Jack Grynberg, et al v. Fusion Telecommunications International, Inc., et al, 03-CV-3912) seeking damages in the amount of $400,000 for the purchase of an interest in Fusion’s 1999 private placement offering of subordinated convertible notes through Joseph Stevens & Company, Inc., a registered broker dealer. This complaint asserted the following claims for relief against us: Breach of Fiduciary Duty, Civil Theft, Deceptive Trade Practices, Negligent Misrepresentation, Deceit Based on Fraud, Conversion, Exemplary Damages and Prejudgment Interest. On June 25, 2004, we filed with the Court our Motion to dismiss which was granted. The plaintiffs have filed an appeal of the motion which is pending.

In 1999, we guaranteed a real property lease on behalf of our joint venture, C&F Switching, LLC. The joint venture subsequently defaulted on the lease and on July 17, 2003, the landlord, NWT Partners, Ltd., brought an action in the Miami-Dade County Circuit Court, State of Florida. ( NWT Partners, Ltd. v. C&F Switching L.L.C. et al., Case No. 03-16654 CA 01 (6)). We are being sued for back rent, interest, courts costs and attorney fees in the amount in excess of $96,931.48. In addition, the landlord is seeking to accelerate the balance of the lease, which would result in us owing approximately $1,005,000 in additional rent. We believe that this dispute will be resolved amicably, but if we are unable to resolve the action, we can make no assurance that the outcome will not have an adverse effect on our financial condition. We have filed a counterclaim and have asserted several affirmative defenses including, among other things, plaintiff’s failure to mitigate damages. The action is currently in the discovery phase and the plaintiff filed an amended motion to dismiss and/or strike defendants’ second amended counterclaim and affirmative defenses, along with a motion for sanctions on October 28, 2004. No hearing with respect to the motion to dismiss has been set to date.

Due to the regulatory nature of the industry, we are periodically involved in various correspondence and inquiries from state and federal regulatory agencies. Management does not expect the outcome of these inquiries to have a material impact on the operations or the financial condition of the company.

MANAGEMENT

The following tables set forth information concerning our directors, executive officers, and other key members of senior management as of the date of this prospectus. Our directors are elected to serve for one-year terms at our annual meeting of stockholders.

Directors and executive officers:

Name Age Position

Marvin S. Rosen 64 Chief Executive Officer, Chairman of

the Board of Directors

Matthew D. Rosen 32 President and Chief Operating Officer

Joel H. Maloff 54 Executive Vice President & Chief

Technology Officer

Eric D. Ram 54 Executive Vice President

Barbara Hughes 51 Vice President of Finance

Jan Sarro 50 Vice President of Sales and Marketing

Philip D. Turits 71 Treasurer, Secretary and Director

Cesar A. Baez 49 Director

E. Alan Brumberger 64 Director

Julius Erving 54 Director

Evelyn Langlieb Greer 54 Director

Raymond E. Mabus 55 Director

Manuel D. Medina 52 Director

Paul C. O’Brien 65 Director

Kenneth I. Starr 55 Director

Michael J. Del Giudice 61 Director

Fred P. Hochberg 52 Director

Executive Officers and Senior Management

The following are our Executive Officers and Senior Management:

Marvin S. Rosen, co-founded the Company in 1997 and has served as our Chief Executive Officer since April 2000, the Chairman of our Board of Directors since November 2004, the Chairman of our Executive Committee since September 19, 1999, Vice Chairman of the Board of Directors since December 1998 and a member of our Board since March 1998. Since November 1983, Mr. Rosen has been a Shareholder of, and currently serves as “Of Counsel” to, the national law firm of Greenberg Traurig, P.A. where he also served on the Executive Committee until June 2000. Mr. Rosen was Finance Chairman for the Democratic National Committee from September 1995 until January 1997. Currently, he serves on the Board of Directors of the Robert F. Kennedy Memorial, and Terremark Worldwide, Inc. and previously was Budget and Finance Chairman for the Summit of the Americas and Chairman of the Florida Housing Finance Agency.

Matthew D. Rosen has served as our President and Chief Operating Officer since August 2003, Executive Vice President and Chief Operating Officer between February 2002 and August 2003, Executive Vice President and President of Global Operations between November 2000 and January 2002 and as President, US Operations between March 2000 and November 2000. From 1998 to 2000, he held various management positions including President of the Northwest and New England Operations for Expanets, a $1.3 billion integrated network communications service provider. From 1996 to 1998 he was Corporate Director of Operations for Oxford Health Plans, a $4 billion health care company, where he worked on developing and executing turnaround strategies. Prior to his role as Corporate Director of Operations, Mr. Rosen held an executive position in a start-up healthcare technology subsidiary of Oxford where he was an integral part in developing strategy and building its sales, finance and operations departments. Prior to Oxford, Mr. Rosen was an investment banker in Merrill Lynch’s corporate finance department. Mr. Rosen also serves as Chairman of our joint venture, Efonica, and he is the son of our Chief Executive Officer, Marvin Rosen.

Joel H. Maloff, Ph.D., has served as our Executive Vice President and Chief Technology Officer since March 2000. Dr. Maloff first became involved with the Internet in 1986 and has written four books and numerous articles on the Internet, business applications for the Internet, network security, and international Internet development. He has also served as advisor to former Senator Al Gore and Senator John Kyl on Internet-related issues. From September 1998 to September 1999 he served as Chief Operating Officer of Internet Operations Center. Acting as an advisor and “turn-around” expert for the Board of Directors, from May 1996 to May 1997, he served as Chief Technology Officer for VASCO Data Security, and from June 1997 to August 1998, he served as General Manager of CAI Wireless Internet. From November 1990 to December 1993, he served as Vice President-Client Services for Advanced Network & Services, which was acquired by America Online. From March 1989 to November 1990, Dr. Maloff served as the Executive Director of CICNet (the Big Ten universities research network).

Eric D. Ram, has served as our Executive Vice President - International since August 1999. Mr. Ram served as Chairman and Managing Director of The World Group of Companies, a group engaged in the development and management of communications businesses worldwide, which he founded in May 1995. From 1988 through 1995, Mr. Ram was an investor in international business ventures. From June 1986 to December 1988, he served as a Senior Vice President of US WEST Financial Services, Inc., the finance subsidiary of the Regional Bell Operating Company in the United States, which is now a subsidiary of Qwest Communications International Inc. Mr. Ram has engaged in business activities in more than 75 countries worldwide, including both developed and emerging countries in Africa, Asia, Australia, Europe and Latin America. In addition to his business background, Mr. Ram is a lawyer having graduated first in his class and Magna Cum Laude from law school. He also is a Certified Public Accountant.

Barbara Hughes has served as our Vice President of Finance since June of 2003, Vice President of Operations Finance between December of 2000 and June of 2003, and Finance Director from December 1999 until December of 2000. From 1996 to 1999, Ms. Hughes held various financial management positions within the international telecommunications industry including Director of Finance for TresCom International and Primus Telecommunications. Ms. Hughes also held several positions in Finance at Federal Express Corporation from 1980 to 1996, including Regional Finance Manager for Central Region Operations in the U.S. Domestic Operations and later as Finance Director of the Latin American Division.

Jan Sarro has served as the Vice President of Sales and Marketing since March 2002. Prior to joining us, Ms. Sarro was the President of the Americas for Viatel, Inc., a global, facilities-based communications carrier and has over 20 years of experience in developing telecommunications solutions for international businesses and carriers worldwide. At Viatel, Ms. Sarro grew annual carrier revenues from $20 million to $160 million in under two years, and built a $140 million sales organization to market Internet access, corporate networks and international voice services to multinational corporations in the United States and Latin America. Ms. Sarro has also held senior executive marketing and sales management positions at Argo Communications, the international record carriers FTC Communications and TRT Communications, and WorldCom.

Philip D. Turits has served as a director since September 1997 and as our Secretary since October 1997, Treasurer since March 1998, co-founded the Company in September 1997 and served as Vice Chairman from March 1998 to December 1998. From September 1991 to February 1996, Mr. Turits served as Treasurer and Chief Operating Officer for Larry Stuart, Ltd., a consumer products company and prior to 1991, he served as President and Chief Executive Officer of Continental Chemical Company.

BOARD OF DIRECTORS

Cesar A. Baez has served as a director since March 1998. Since January 2004, Mr. Baez has been serving as the head of alternative investments for the public employees retirement fund for the State of New Jersey, a $72 billion pension fund. From September 2001 to November 2003, Mr. Baez was a Partner of Momentum Media Capital. From April 1995 to July 2001, Mr. Baez was a Principal at Hicks, Muse, Tate & Furst Incorporated, an international private investment firm and responsible for much of the firm’s investment activities in Latin America. January 1994 to March 1995, he was President and Chief Executive Officer of Bancomer Securities International, the United States investment banking subsidiary of Grupo Financiero Bancomer, Mexico’s largest financial group. From September 1991 to January 1994, Mr. Baez was in charge of Smith Barney’s Investment Banking Group for Latin America and from February 1990 to August 1991, he was in charge of the Latin American Investment Banking Group of Nomura Securities International. Mr. Baez currently serves on the boards of Pan American Sports Partners Company, Pan American Sports Holdings Ltd., International Outdoor Advertising Holdings Company, Venezuela Cable Service Holdings Ltd., Hicks, Muse, Tate & Furst – LA Argentina Cable Company (Teledigital), and Seed Cayman L.L.C.

E. Alan Brumberger has served as a director since March 1998. He formerly was a partner in Andersen & Co. and its predecessor firms, from 1997 to 2004. From 1995 through 1997, he was a Managing Director of the Taylor Companies and from 1994 through 1995 a Managing Director of Brenner Securities, Inc. From 1983 through 1990, Mr. Brumberger was a Managing Director of Drexel Burnham Lambert and a member of the Underwriting and Commitment Committees. Prior to that, he was a Managing Director of Shearson American Express and a partner at Loeb, Rhoades & Co., a predecessor of Shearson American Express. Mr. Brumberger served for three years as President and Chief Executive Officer of Shearson American Express International Limited, the firm’s international investment banking business in London.

Julius Erving has served as a director since June 2003. Mr. Erving has been President of the Erving Group and Executive Vice President of RDV Sports/Orlando Magic since September 1997. Mr. Erving was employed by the National Broadcasting Company between December 1994 and June 1997, and by the National Basketball Association between 1987 and September 1997. Mr. Erving is a Trustee of the Basketball Hall of Fame and has served on the Board of Directors of Saks Incorporated since 1997.

Evelyn Langlieb Greer has served as a director since January 1999. Ms. Greer is the President of Greer Properties, Inc., a Florida-based real estate development company founded in 1976. She is also a partner in the law firm of Hogan, Greer & Shapiro, P.A. Ms. Greer has been a director of City National Bank of Florida, N.A. since 2000, a member of the Board of Trustees of Barnard College since 1994 and is Vice Chair of the Columbia Law School Board of Visitors. Since 1996 Ms. Greer has served as the elected Mayor of the Village of Pinecrest, Florida.

Raymond E. Mabus has served as a director since January 1999. Mr. Mabus is Chairman of the Board of Directors of Foamex International and also manages his family timber business. From 1998 to 2002, he served as the President of Frontline Global Resources and since 1996 he has served as Of Counsel to the law firm of Baker, Donelson, Bearman and Caldwell. From 1994 to 1996 he was the United States Ambassador to Saudi Arabia and from 1988 to 1992 he was the Governor of Mississippi.

Manuel D. Medina has served as a director since December 1998. Since 1982, Mr. Medina has served as the Chairman of the Board of Directors and Chief Executive Officer of Terremark Worldwide, Inc., a publicly held operator of Internet exchanges and provider of Internet infrastructure and managed services around the world. In addition, Mr. Medina is a managing partner of Communications Investors Group. Before founding Terramark, Mr. Medina worked with PricewaterhouseCoopers LLP.

Paul C. O’Brien has served as a director since August 1998. Since January 1995 Mr. O’Brien has served as the President of The O’Brien Group, Inc., a consulting and investment firm. From February 1988 until December 1994, he was the President and Chairman of New England Telephone (a subsidiary of NYNEX), a telecommunications company. Mr. O’Brien also serves on the Board of Directors for Cambridge NeuroScience, Inc., Merlot Communications, Renaissance Worldwide, Inc., Mangosoft, Inc., Essential.com, eYak.com, Spike Technologies, and Mind Grow (formerly Interactive Education).

Kenneth I. Starr has served as a director since March 1998. Since its founding in 1989, Mr. Starr has served as the Chairman and Chief Executive Officer of Starr & Company, a New York City-based accounting and business management firm. From April, 2000 to May, 2003, Mr. Starr served as a member of the board of directors of Terremark Worldwide, Inc.

Michael J. Del Giudice has served as a director since November 2004. He is a Senior Managing Director of Millennium Credit Markets LLC and Senior Managing Director of MCM Securities LLC, both of which he co-founded in 1996. Michael J. Del Giudice also serves as Chairman and Chief Executive Officer of Rockland Capital Energy Investments LLC, founded in April 2003. Mr. Del Giudice is a Member of the Board of Directors of Consolidated Edison Company of New York, Inc., and is currently Chairman of the Audit Committee and a Member of its Planning and Executive Compensation Committees. He is also a Member of the Board of Directors of Barnes & Noble, Inc., and a Member of the Board of Trustees of the New York Racing Association. He also serves as Chairman of the Governor’s Committee on Scholastic Achievement. Mr. Del Giudice was a General Partner and Managing Director at Lazard Frères & Co. LLC from 1985 to 1995. From 1983 to 1985, Mr. Del Giudice was Chief of Staff to New York Governor Mario M. Cuomo. He served from 1979 to 1981 as Deputy Chief of Staff to Governor Hugh L. Carey and from 1975 to 1979 as Chief of Staff to the Speaker of the Assembly.

Fred P. Hochberg has served as a director since November 2004. In 2004, he became Dean of the Robert J. Milano Graduate School of Management and Urban Policy of New School University and chief administrator of the graduate division. From 2001-2002, he was Senior Advisor to Mario Cuomo during his campaign for Governor of New York and has been a speaker on National Public Radio. From May 1998 to January 2001, Mr. Hochberg served as Deputy then Acting Administrator of the Small Business Administration, an agency elevated to Cabinet rank by President Clinton. Additionally, Mr. Hochberg served on the President Clinton’s Management Council. From 1994 to 1998, he was founder and President of Heyday Company, a private investment company managing real estate, stock market investment and venture capital projects. From 1975 to 1993, Mr. Hochberg served as president and chief operating officer of the Lillian Vernon Corporation, a publicly traded direct marketing corporation. Mr. Hochberg has served on numerous business and civic boards including the Democratic National Committee, the Young Presidents’ Organization, and as co-chair of the Human Rights Campaign. Mr. Hochberg is currently a trustee of New School University, The Citizens Budget Commission, FINCA, Lillian Vernon International House at New York University and the Wolfsonian Museum in Miami Beach, Florida.

ADVISORY BOARD

We have the benefit of an advisory board which provides us advice and general assistance concerning the business of the company. The advisory board may be compensated for the business they generate for the company and may be eligible to participate in the company’s stock option plan. Our advisory board members include:

John H. Sununu Mr. Sununu serves as Chairman. He is currently the President of JHS Associates, Ltd. and was formerly a partner in Trinity International Partners, a private financial firm. From 1989 through 1992, Governor Sununu served President Bush as Chief of Staff and as Counselor to the President. Prior to that, Governor Sununu served three consecutive terms as Governor of New Hampshire. Governor Sununu also serves on the Board of Directors of Kinark Corporation.

Patrick A. Bello Mr. Bello is the co-founder, President and CEO of Belldon Development, LLC, an oceanfront real estate development company. Prior to founding Belldon, Mr. Bello was co-founder, President and CEO of Topline Group, LLP, a professional services company. From February, 1998 to September 1999, Mr. Bello served as President and CEO of Fusion Telecommunications International, Inc. Mr. Bello has also provided consulting services to other telecommunications companies in both the United States and the Caribbean. He co-founded a telecommunications company that was sold to GE Capital Communications Services and then served as President and COO of the combined entity. Mr. Bello has also started companies in the systems integration field, one of which was sold to a NYSE listed company.

Alan M. Braverman Mr. Braverman is an executive advisor and merchant banker. He has been an Institutional Investor and Wall Street Journal ranked analyst and Managing Director in the Technology, Media and Telecommunications sectors for several investment banks, as well a Managing Director for US Trust where he was responsible for private equity investments in the communications industry. Previously, he served as President at NBC Internet, majority owned and later acquired by General Electric. Prior to that, Mr. Braverman was also a senior manager at US West (Qwest) where he founded and ran the company’s first Internet business and launched its Russian cellular telephone company.

Jack Rosen Mr. Rosen is the chief executive of several commercial and residential real estate firms. His business interests include investments in healthcare, cosmetics and telecommunications. Mr. Rosen is Chairman of the American Jewish Congress. He is very active in government and political affairs. Mr. Rosen has also served on numerous presidential commissions and delegations and has personal relationships with the leaders of numerous countries throughout the world. Jack Rosen is not related to Matthew Rosen or Marvin Rosen.

Joseph R. Wright, Jr. is President and Chief Executive Officer of PanAmSat, Inc., one of the largest providers of satellite/fiber communications services around the globe. Prior to becoming Chief Executive Officer in 2001, he was Chairman of GRC Intl., Inc., a public company that provided advanced IT technologies to government and commercial customers, and was sold to AT&T in 2000. He was also Co-Chairman of Baker & Taylor Holdings, Inc., an international book/video/software distribution company. From 1989-1994, he was Executive Vice President and Vice Chairman of W. R. Grace Company, a global chemicals and material company. In the 1980’s, he served in the U.S. Government under President Reagan as Deputy Secretary of Commerce, and then as Deputy Director and Director of the Office of Management and Budget in the Executive Office of the President and a member of the Cabinet. Prior to his time in Washington, he was President of two Citibank subsidiaries and was a partner of Booz, Allen and Hamilton. Mr. Wright currently serves on the Board of Advisors/Directors of AT&T Government Solutions, Titan Corporation, Proxim, Barington Capital, Terremark Worldwide, and Verso Technologies. He is a member of the Federal Communication Commission’s Network Reliability and Interoperability Council as well as the Media Security and Reliability Council, and was on former President Bush’s Export Council, and the current President Bush’s Commission on the U.S. Postal Service Reform. He is a member of the Council on Foreign Relations, Council for Excellence in Government, Chief Executives Organization, Committee for a Responsible Federal Budget and the New York Economic Club.

BOARD COMMITTEES

Audit Committee. Our audit committee’s main function will be to oversee our accounting and financial reporting processes, internal systems of control, independent auditor relationships and the audits of our financial statements. This committee’s responsibilities include, among other things:

• annually reviewing and reassessing the adequacy of the committee’s formal charter;

• reviewing our annual audited financial statements with our management and our independent auditors and the adequacy of our internal accounting controls;

• reviewing analyses prepared by our management and independent auditors concerning significant financial reporting issues and judgments made in connection with the preparation of our financial statements;

• reviewing the independence of the independent auditors;

• reviewing our auditing and accounting principles and practices with the independent auditors and reviewing major changes to our auditing and accounting principles and practices as suggested by the independent auditor or our management;

• selecting and recommending the appointment of the independent auditor to the board of directors, which firm is ultimately accountable to the audit committee and the board of directors; and

• approving professional services provided by the independent auditors, including the range of audit and nonaudit fees.

The members of our audit committee are Paul C. O’Brien, Chairman; Evelyn Langlieb Greer, Raymond E. Mabus and Kenneth I. Starr, each of whom is a non-employee member of our board of directors. Kenneth I. Starr will be our audit committee financial expert as currently defined under SEC Rules. Our board has determined that each of the directors serving on our audit committee is independent within the meaning of the Rules of the SEC and the listing standards of AMEX. We intend to comply with future audit committee requirements as they become applicable to us.

Compensation and Nominating Committee. Our compensation and nominating committee’s main function will be (i) to review and recommend to our board compensation and equity plans, policies and programs and approve executive officer compensation, and (ii) to review and recommend to our board the nominees for election as directors of the company and to review related Board development issues including succession planning and evalualtion. The members of our compensation and nominating committee are Cesar A. Baez, E. Alan Brumberger and Manuel D. Medina, each of whom is a non-employee member of our board of directors. Our board has determined that each of the directors serving on our compensation and nominating committee is independent within the existing standards of AMEX.

Strategic and Investment Banking Committee. The members of our strategic and investment banking committee are E. Alan Brumberger, Chairman; Cesar A. Baez, Manuel D. Medina, Marvin S. Rosen, Kenneth I. Starr and Philip D. Turits. Our strategic and investment banking committee evaluates and recommends investment strategies with investment banks and brokerage houses and assists in the evaluation of possible acquisitions and mergers.

Director Compensation

We have granted to each of our directors options to purchase 21,429 shares of our class A common stock, under our 1998 stock option plan. These options will have an exercise price per share of no less than the higher of the aggregate offering price of one share and warrant or market price of stock of a share of our common stock on the date of grant. These options will vest in four equal installments over a three-year period commencing on the date of grant. We also reimburse our directors for out-of-pocket expenses associated with their attendance at board of directors’ meetings.

Code of Ethics

We have adopted a Code of Ethics to apply to our directors, officers and employees. This code is intended to promote ethical conduct and compliance with laws and regulations, to provide guidance with respect to the handling of ethical issues, to implement mechanisms to report unethical conduct, to foster a culture of honesty and accountability, to deter wrongdoing and to ensure fair and accurate financial reporting.

Limitations on Liability and Indemnification Matters

We are a Delaware corporation and are governed by the Delaware General Corporation Law. Delaware law authorizes Delaware corporations to indemnify any person who was or is a party to any proceeding other than an action by, or in the right of, the corporation, by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation. The indemnity authorized by Delaware law also applies to any person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other entity. Indemnification applies against liability incurred in connection with an indemnifiable proceeding, including any appeal, if the person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation. To be eligible for indemnity with respect to any criminal action or proceeding, the person must have had no reasonable cause to believe his or her conduct was unlawful.

In the case of an action by or on behalf of a corporation, indemnification may not be made if the person seeking indemnification is found liable, unless the court in which the action was brought determines such person is fairly and reasonably entitled to indemnification.

The indemnification provisions of Delaware law require indemnification of a director, officer, employee or agent who has been successful in defending any action, suit or proceeding to which he or she was a party by reason of the corporation. The indemnity covers expenses actually and reasonably incurred in defending the action.

The indemnification authorized under Delaware law is not exclusive and is in addition to any other rights granted to officers and directors under the certificate of incorporation or bylaws of the corporation or any agreement between officers and directors and the corporation.

Our certificate of incorporation provides for the elimination, to the fullest extent permissible under Delaware law, of the liability of our directors to us for monetary damages. This limitation of liability does not affect the availability of equitable remedies such as injunctive relief. Our bylaws also provide that we shall indemnify our directors and officers against certain liabilities that may arise by reason of their status or service as a director or as an officer, other than liabilities arising from certain specified misconduct. We are required to advance all expenses incurred as a result of any proceeding against our directors for which they could be indemnified, including in circumstances in which indemnification is otherwise discretionary under Delaware law.

Currently, we are not aware of any pending litigation or proceeding involving a director, officer, employee or other agent of ours in which indemnification would be required or permitted. We are not aware of any threatened litigation or proceeding which may result in a claim for such indemnification.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of ours based on the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy and is, therefore, unenforceable.

Summary Compensation Table

Long-Term

Annual Compensation Compensation Awards

All Other

Bonus Securities Underlying Compen-

Name and Principal Position Year Salary ($) ($) Option/SAR’s sation ($)

Marvin S. Rosen, Chief Executive Officer 2003 0 0 7,143 0

2002 0 0 0 0

2001 0 0 0 0

Matthew D. Rosen, President and 2003 170,000 0 0 0

      Chief Operating Officer 2002 170,000 0 85,715 0

2001 170,000 0 0 0

Joel H. Maloff, Executive Vice President 2003 175,000 0 0 0

      & Chief Technology Officer 2002 175,000 0 0 0

2001 175,000 0 0 0

Eric D. Ram, Executive Vice President 2003 175,000 0 0 0

2002 175,000 0 0 0

2001 175,000 0 0 0

Jan Sarro, Vice President of Sales 2003 135,000 0 0 0

      and Marketing 2002 135,000 0 35,715 0

Mr. Marvin Rosen has been reimbursed for certain expenses, including approximately $2,000 per month for a portion of the monthly rent for his apartment in Fort Lauderdale, Florida, which is used by certain of our executives in lieu of such executives having to incur hotel expenses.

We have entered into an employment agreement with Mr. Matthew Rosen, our President and Chief Operating Officer. This agreement is effective on November 11, 2004 and expires on January 31, 2007, provided that the term shall extend for an additional one year unless terminated by either side on 90 days notice. The agreement provides for an annual salary of not less than $250,000, with a minimum annual bonus equal to 25% of his annual salary. In the event that we achieve a positive EBITDA for two successive quarters, he will be paid a one-time bonus equal to 50% of his annual salary then in effect. In addition, he will be entitled to a bonus of $25,000 upon the successful completion of an initial public offering. In the event that the employment is terminated without cause, including by change of control, the agreement provides that Matthew will receive unpaid base salary accrued through the effective date of the termination plus any pro-rata bonus and a lump sum of 150% of his base salary and 150% of his highest annual bonus for the three years preceding his termination. The agreement also provides for a one year non-compete provision.

Option Grants in 2003

We did not grant any options to acquire common stock to our named executive officers during fiscal 2003. However, in connection with a loan made by Fusera, LLC, we granted certain warrants to all of the members. As two of the members, we granted Marvin S. Rosen and Philip D. Turits each 7,143 warrants to purchase our class A common stock at a price equal to $2.97 per share which expire on July 1, 2005. The per share value of these warrants was $0.11 on the date of grant using the Black Scholes option pricing model. Input variables used in the model included no expected dividend yield, an average risk free interest rate of 1.77% and an estimated life of 2 years. Because the company was non-public on the date of grant, no assumption as to the volatility of the stock price was made. No other warrants were granted to any executive officer.

Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values

The following table sets forth the information with respect to the named executive officers set forth in the Summary Compensation Table concerning the exercise of options during fiscal year 2003, the number of securities underlying company-granted options as of December 31, 2003 and the year-end value of all unexercised in-the-money options held by such individuals.

Numbers of Securities Underlying

Shares

Value

Unexercised Options/SARs

Value of Unexercised In The Money

Acquired on

Realized

At Fiscal Year End

Options/SARs at Fiscal Year End ($)

Name

Exercise (#)

($)

Exercisable/Unexercisable

Exercisable/Unexercisable

Marvin S. Rosen 0 0
7,143/0
0/0

Matthew D. Rosen 0 0
50,358/73,929
0/0

Eric D. Ram 0 0
96,429/0
0/0

Joel H. Maloff 0 0
48,215/16,072
0/0

Jan Sarro 0 0
8,929/26,786
0/0

Stock Option Plan

Our Board of Directors adopted the 1998 Stock Option Plan in May 1998, re-approved the option plan in November 1999, and in February 2000, our stockholders approved the option plan. Currently 2,680,857 shares of our class A common stock have been reserved for issuance under the option plan. As of the date of this prospectus, options to purchase an aggregate of 3,518,204 shares have been granted (88,857 of these options have been exercised and 1,627,328 have been cancelled prior to the date of this Prospectus) under the option plan. Accordingly, an aggregate of 1,802,019 options are currently outstanding.

The purposes of the option plan are: i) to enable us to attract and retain qualified and competent employees and to enable such persons to participate in our long-term success and growth by giving them an equity interest in our company; ii) to enable us to use grants of stock options in lieu of all or part of cash fees for directors who are not officers or employees, thereby aligning the directors’ interests with that of the stockholders; and iii) to provide consultants and advisors with options, thereby increasing their proprietary interest in us. Employees and directors are eligible to be granted awards under the option plan. Consultants and advisors to Fusion are eligible to be granted awards under the option plan if their services are of a continuing nature or otherwise contribute to our long-term success and growth.

The option plan is administered by our compensation and nominating committee of the board of directors. The committee may adopt, alter, or repeal any administrative rules, guidelines, and practices for carrying out the purposes of the option plan, and its determination, interpretation, and construction of any provision of the option plan are final and conclusive. The committee has the right to determine, among other things, the persons to whom awards are granted, the terms and conditions of any awards granted, the number of shares of common stock covered by the awards, and the exercise prices and other terms thereof.

The exercise price, term, and exercise period of each stock option is fixed by the committee at the time of grant. No incentive stock option shall (i) have an exercise price that is less than 100% of the fair market value of the common stock on the date of the grant, (ii) be exercisable more than 10 years after the date such incentive stock option is granted, or (iii) be granted more than 10 years after the option plan is adopted by the Board.

Most options held by employees vest over four years. Options held by consultants and non-employee directors can vest immediately in some cases. In certain cases, we have agreed to extend the duration of options granted to non-employee directors. In April 2002, the board of directors reduced the exercise price for all options to current employees with exercise prices above $8.75 per share to $8.75 per share and the vesting period from five years to four years.

In July 2004, the Company’s stock option committee approved the issuance of 446,057 options to employees who had been previously granted stock options. Each employee would receive new options equal to 50% of their existing options priced at $3.15 per share and 50% at $4.38 per share, both with a four year vesting period and furthermore would receive credit for the vesting time on previously issued options, and the original options will be cancelled if not exer-

cised within six months and one day of the issuance of the new options. In addition, during July 2004, the Company’s stock option committee approved the issuance of 667,686 options to employees, consultants and Board members at a price of $4.38 per share.

We increased the amount of shares issuable under the option plan to an amount equal to 13% of the shares outstanding immediately prior to this offering. We have agreed with the representative of the underwriters that we will not increase the number of shares subject to the Option Plan or adopt any other stock award plan for two years after the date of this prospectus. The options presently held by each option holder who were issued new options will be cancelled or expire 6 months and one (1) day from July 14, 2004. The vesting schedule varies by individual depending on the number of years employed with us.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Officer and Director Loans to Company

Over the last five years, several of our senior officers and directors have made loans to us and our joint ventures to fund their operations. These loans have taken the form of demand notes, term notes and convertible notes. The interest rate on these notes has ranged from the prime rate to 15%. All current balances below are as of November 30, 2004.

Since April 1999, Marvin Rosen, our Chairman of the Board, has loaned us a total of $2,618,045. Of the aggregate amount loaned to us, $565,349 has been repaid, $901,000 was converted into common stock at a conversion price of $2.28 per share in December 2000, September 2002 and February 2003, $100,000 was converted into shares of series A preferred stock at a conversion price of $10 per share, which was subsequently converted into 28,572 shares of common stock at a conversion price of $3.50 per share in September 2001, and $300,000 was converted into shares of series C preferred stock at a conversion price of $90 per share in December 2003. Currently, Mr. Rosen has total notes outstanding of $751,696 with interest calculated at 4.75% on all but one convertible subordinated note, which is for $125,000. That convertible note for $125,000 bears interest at an annual rate of 9.25% (was 7.25% prior to April 2004). As of September 30, 2004, the demand, promissory, and convertible notes have accrued unpaid interest in the amount of $319,232. Our indebtedness to Mr. Rosen will be repaid out of the proceeds of this offering. In April 2003, Mr. Rosen pledged 34,286 shares of his common stock as collateral for the performance of a settlement agreement between us and Compania De Telecommunications El Salvador S.A., D.E.C.V. We currently owe Compania De Telecommunications approximately $50,000 under the terms of the settlement agreement, which we expect to pay in full by February 2005.

Since April 1999, Philip Turits, our Treasurer, has loaned us a total of $4,181,449. Of the aggregate amount loaned to us, $780,349 has been repaid, $2,499,563 has been converted into common stock at a conversion price of $2.28 per share at various times between September 2002 and January 2003, $165,000 has been converted into series A preferred stock at a conversion price of $10 per share and subsequently converted into common stock at $8.75 per share in July and September 2001, and $300,000 was converted into shares of series C preferred stock at a conversion price of $90 per share in December 2003. Currently, Mr. Turits has total notes outstanding of $436,538. The weighted average interest rate of these demand notes is currently an interest rate of 4.75%, except for one $125,000 convertible note, which has an interest rate of 9.25% (was 7.25% prior to April 2004). As of September 30, 2004, these demand, promissory, and convertible notes had accrued unpaid interest of $127,837. Our indebtedness to Mr. Turits will be repaid out of the proceeds of this offering.

On January 25, 2001, a trust controlled by Evelyn Langlieb Greer, loaned us $1,000,000. This loan was due on July 15, 2001 and bears interest at the rate of 13% per annum. In addition, the Trust received 85,715 warrants to purchase our common stock in connection with this and other loans. In November 2004, all principal and interest owing to the Trust was repaid. In addition, Ms. Greer personally loaned our Pakistan joint venture $250,000 which bears interest at the rate of 15% per annum. In January 2004, $148,000 of this note was converted into 1,644 shares of series C convertible Preferred stock at a conversion price of $90 per share. This loan is due on demand. As of November 30, 2004, this loan had accrued unpaid interest in the amount of $62,237. Our indebtedness to Ms. Greer will be repaid out of the proceeds of this offering.

On May 22, 2001, World Capital Corporation (“WCC”), of which Mr. Eric Ram, our Executive Vice President, International, is a managing director and principal shareholder loaned us $400,000 for use in meeting our funding obligations in Estel. The loan was due on February 16, 2002 and accrues interest at 12% per annum. In December 2003, World Capital was paid $100,000 towards repayment of this loan and converted the remaining principal into 1,111 shares of the series C preferred stock at a conversion price of $90 per share.

In July 2002, Patrick Bello loaned our Pakistan joint venture $25,000. This loan, which was payable on demand, was converted into 277 shares of series C preferred stock at $90 per share. As security for repayment of the loans to the Pakistan joint venture, we granted the lenders a second priority lien on all of our equipment that was then owned. We also granted the lenders a lien on our receivables subordinate to other existing liens on our receivables.

From August through December, 2002, and again in April, 2003, Lisa Ornburg Turits, wife of Philip Turits, loaned us an aggregate of $265,000. Of these loans, $175,000 was secured by a portion of our Letter of Credit associated with the leasehold of our premises located at 75 Broad Street and the remainder, are demand loans. Of these notes, $53,897 has been repaid, and $9,313 was converted to a new note, transferred to Philip Turits and converted into 103 shares of series C preferred stock at $90 per share. In addition, Michael Turits, son of Philip Turits, loaned the company $80,000 in April of 2001. The loan was due on demand and bears interest at the rate of 12% per annum. In December 2001, Michael Turits converted $40,000 into 4,000 shares of series A Preferred stock at a conversion price of $10 per share in April 2001 and converted into 4,572 shares of common stock at $8.75 per share. In February 2003, $10,000 of that loan was repaid. In aggregate, the notes of Michael Turits had accrued interest of $18,410, and Lisa Turits had accrued interest of $2,396 as of November 30, 2004. The principal and interest balance of these loans that aggregated $252,596 as of November 30, 2004, will be repaid out of the proceeds of this offering.

Other Transactions

We have an informal verbal agreement with Mr. John H. Sununu, the Chairman of our Advisory Board, pursuant to which Mr. Sununu will be compensated for any international business relationships, which Mr. Sununu assists us in developing. The amount, form and terms of any such compensation will depend on the business relationship developed and will be negotiated at the time any such relationship is developed.

In January and February 2003, Mr. Sununu loaned us $25,000 and Patrick Bello, a member of our Advisory Board, loaned us $50,000 to fund working capital for our Efonica joint venture. This investment was expected to be paid back to these investors over 24 months from distributions from Efonica. In addition, these lenders were to receive a portion of our profits in Efonica. In February 2004, Mr. Sununu converted his entire loan to series C convertible preferred stock at a conversion price of $90 per share. In January 2004, Mr. Bello converted $25,000 of his loan to series C convertible preferred stock at $90 per share and in September 2004 converted the remaining $25,000 into a new note due the earlier of the closing of the offering or September 1, 2005, which bears interest at 4.5% and eliminated any right to participate in any profits of Efonica.

During the fourth quarter of 2002, Evelyn Greer loaned us $400,000, Patrick Bello loaned us $100,000 and Philip Turits loaned us $100,000 in connection with the development of an opportunity to provide VoIP services in Cambodia. These funds were intended to be used for license deposit fees and working capital for the Cambodian venture. These funds were held in an escrow account and have been repaid except for $10,000 from Patrick Bello which was converted to 111 shares of series C preferred stock at $90 per share.

In May 2003, we were awarded a subcontractor role to provide IP services for embassies and consulates of the U.S. Department of State and are providing service to 16 U.S. embassies and consulates in Asia and the Middle East with another one scheduled to be installed. Terremark Worldwide, Inc., is serving as the primary contractor. Our Chief Executive Officer, Marvin Rosen is a director of Terremark. Our Chairman, Joel Schleicher and Kenneth Starr, one of our directors, formerly served on Terremark’s board. Manuel Medina, Terremark’s Chairman and Chief Executive Officer, is one of our directors.

In July 2003, Marvin Rosen, Philip Turits and John Sununu loaned us an aggregate of $100,000 to purchase certain equipment and resolve a dispute with an equipment vendor. In exchange for this loan, they were issued a promis-

sory note which bears interest at the rate of 8% per annum with monthly payments for 21 months followed by a balloon payment due in June of 2005. Messrs. Rosen, Turits and Sununu were part of a group which lent us an aggregate of $300,000. The group has a security interest in the equipment.

In August 2003, in connection with a loan made by Fusera, LLC, we granted certain warrants to all of the members. As two of the members, we granted Marvin S. Rosen and Philip D. Turits each 7,413 warrants to purchase our class A common stock at a price equal to $2.97 per share which expire on July 1, 2005. The per share value of these warrants was $0.11 on the date of grant.

During July 2002, an entity controlled by Jose Vitienes Colubi, who was a member of our board, loaned our Pakistan joint venture $20,000. This loan was due on demand and provided for interest at the rate of 10% per annum. This loan, including interest, was subsequently converted into 9,242 shares of our common stock at a conversion rate of $2.28 per share.

In December 2004, Philip Turits sold 28,571 shares of common stock to Dennis Mehiel at $2.48 per share. Mr. Mehiel is a lender to us. In December 2004, he also sold 28,571 shares to a non-affiliated party at $2.48 per share. In December 2004, Marvin Rosen sold 28,571 shares of common stock to Dennis Mehiel at $2.48 per share. In December 2004, Michael Del Giudice, a Director of ours purchased an aggregate of 35,754 shares from two non-affiliated parties for $2.48 per share.

Policy Regarding Transactions Between the Company and Affiliates

Although we believe the foregoing transactions between the Company and affiliates were fair and in our best interests we did not have any formal policy in place. Prior to closing of the offering, our Board of Directors will adopt a policy providing that any future transactions with affiliates, including without limitation, our officers, Directors, and principal stockholders, will be on terms no less favorable to us than we could have obtained from unaffiliated third parties. Any such transactions will be approved by a majority of our Board of Directors, including a majority of the independent and disinterested members, or, if required by law, a majority of our disinterested stockholders.

PRINCIPAL STOCKHOLDERS

The following table presents information regarding the beneficial ownership of both classes of our common stock, treated as one, as of November 30, 2004 and as adjusted to reflect the sale of the new common stock in this offering:

• each person who beneficially owns more than 5% of both classes of our common stock;

• each of our directors and named executive officers; and

• all current executive officers and directors as a group.

Beneficial ownership is determined under the rules of the SEC. These rules deem common stock subject to options currently exercisable, or exercisable within sixty (60) days, to be outstanding for purposes of computing the percentage ownership of the person holding the options or of a group of which the person is a member, but these rules do not deem the stock to be outstanding for purposes of computing the percentage ownership of any other person or group. To our knowledge, the persons named in the table have sole voting and sole investment control with regard to all shares beneficially owned.

Number of Shares

Beneficially Percentage of outstanding shares to be owned

Name** Owned Before the offering After the offering

Cesar A. Baez(1) 29,908 * *

E. Alan Brumberger(2) 237,524 1.1% 1.0%

Evelyn L. Greer(3) 203,086 * *

Joel H. Maloff(4) 71,143 * *

Manuel D. Medina(5) 469,303 2.2% 1.9%

Paul C. O’Brien(6) 65,715 * *

Eric D. Ram(7) 191,658 * *

Marvin S. Rosen(8) 2,251,188 10.4% 9.0%

Matthew D. Rosen(9) 138,000 * *

Kenneth I. Starr(10) 194,858 * *

Philip D. Turits(11) 1,940,388 9.0% 7.8%

Sandy Beach Investments(12) 1,430,299 6.6% 5.7%

Executive Officers & Directors as a
group (12 persons) 5,792,711 26.8% 23.2%

* less than 1%

** Unless otherwise indicated (i) all addresses are c/o Fusion Telecommunications International, Inc. 420 Lexington Avenue, Suite 518 New York, NY 10170, and (ii) all persons own class A common stock.

(1) Does not include 21,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days.

(2) Includes (i) 10,715 shares of common stock held by trusts for which his wife serves as trustee; and (ii) 8,572 shares of common stock issuable upon conversion of 300 shares of series C preferred stock. Does not include 21,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days.

(3) Includes (i) 70,400 of common stock held by a trust for which she serves as trustee; (ii) 46,972 shares of common stock held by same trust issuable upon conversion of 1,644 shares of series C preferred stock; and (iii) presently exercisable warrants to purchase 85,715 shares of stock. Does not include 21,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days.

(4) Includes 64,286 shares of common stock issuable upon exercise of presently exerciseable options, which expire in January 2005. Does not include 71,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days.

(5) Represents 469,303 shares of common stock owned by Communications Investors Group, a partnership controlled by Mr. Medina. Does not include 21,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days.

(6) Includes 21,429 shares of common stock issuable upon exercise of presently exerciseable options. Does not include 21,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days.

(7) Includes (i) 96,429 shares of common stock issuable upon exercise of presently exerciseable options, which expire in January 2005; (ii) 95,229 shares of common stock issuable upon conversion of 3,333 shares of series C preferred stock held by World Capital Corp of which Eric Ram serves as managing director and principal shareholder. Does not include 96,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days. Does not include 178,572 options which Marvin Rosen granted Mr. Ram and does not include 42,857 options Philip Turits has granted Mr. Ram, both transactions were in reliance upon an exemption from registration afforded by section 4(i) of the Securities Act of 1933, as amended.

(8) Includes (i) 6,701 shares of common stock issuable upon conversion of 9 1 / 4 % Convertible Notes (interest rate was 7 1 / 4 % prior to April 2004), which are convertible at the option of the holder at $18.66 per share; (ii) 95,229 shares of common stock issuable upon conversion of 3,333 shares of series C preferred stock; and (iii) 7,143 shares of common stock issuable upon exercise of a presently exercisable warrant. Mr. Rosen has granted certain individuals options to purchase an aggregate of 392,857 shares of the common stock.

(9) Includes 81,429 shares of common stock issuable upon exercise of presently exerciseable underlying immediately exercisable options. Does not include 385,714 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days, which expire in January 2005. Does not include a 37,143 stock option, which Philip Turits granted to Matthew Rosen.

(10) Includes (i) 186,286 shares of common stock held by his wife; and (ii) 8,572 shares of common stock issuable upon conversion of 300 shares of series C preferred stock held by his wife. Does not include 21,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days.

(11) Includes (i) 257,143 shares of common stock held by Sagaponack Group, L.P., of which Mr. Turits serves as general partner; (ii) 6,701 shares of common stock underlying 9 1 / 4 % Convertible Notes (interest rate was 7 1 / 4 % prior to April 2004), which are convertible at the option of the holder assuming such at $18.66 per share; (iii) 10,715 shares of common stock held by a trust for which he serves as trustee; (iv) 95,229 shares of common stock issuable upon conversion of 3,333 shares of series C preferred stock; and (v) 7,143 shares of common stock issuable upon exercise of presently exercisable warrants and (vi) 4,286 shares of common stock held by his wife. Mr. Turits has granted certain individuals options to purchase an aggregate of 157,143 shares of his common stock. Does not include 21,429 shares of common stock issuable upon the exercise of options that are not exercisable in the next 60 days.

(12) The beneficial owners of Sandy Beach Investments are Don A. Stubbs, Baldwin L. Rigby, Peter N. Turnquest and Iris P. Sherman.

DESCRIPTION OF SECURITIES

Our authorized capital stock is 136,000,000 shares, consisting of 105,000,000 shares of common stock, $.01 par value; 21,000,000 shares of class A common stock, $.01 par value and; 10,000,000 shares of preferred stock, $.01 par value, of which 110,000 have been designated as series C preferred stock. The previously designated and issued series A preferred stock and series B preferred stock have been retired and the shares returned to the status of authorized and unissued preferred stock. Upon the closing of the offering, all shares of series C preferred stock currently outstanding will be converted into 3,141,838 shares of our common stock at the conversion price equal to the lesser of (i) 75% of the initial public offering price of the common stock, or (ii) $3.15 per share. Also, upon the closing of the offering, $2,508,333 in convertible notes (which were issued in a transaction that occurred during November 2004 whereby the Company received net cash proceeds of $1,330,000 and refinanced $1,108,333 of existing notes payable and accrued interest) will automatically convert into 651,515 shares of common stock based upon a conversion price of $3.85 per share.

Prior to the effective date of this offering, we effectuated a 3.5 for 1 reverse stock split and conversion of our outstanding common stock into class A common stock. As a result of this capital transaction, all of our outstanding common stock prior to this offering was reclassified as class A common stock.

The following summary of the terms and provisions of our capital stock does not purport to be complete. Reference should be made to our Amended and Restated Certificate of Incorporation, Bylaws and to applicable law, for the complete description of the terms and provisions of our securities.

Common stock

Subject to the rights of holders of preferred stock, if any, holders of shares of our common stock are entitled to share equally on a per share basis in such dividends as may be declared by the Board of Directors out of funds legally available. There are presently no plans to pay dividends with respect to the shares of common stock. Upon liquidation, dissolution or winding up, after payment of creditors and the holders of any senior securities, including preferred stock, if any, our assets will be divided pro rata on a per share basis among the holders of the shares of common stock. The common stock is not subject to any liability for further assessments. There are no conversion or redemption privileges or any sinking fund provisions with respect to the common stock and the common stock is not subject to call. The holders of common stock do not have any pre-emptive or other rights.

Holders of shares of common stock are entitled to cast one vote for each share held at all stockholders’ meetings, for all purposes, including the election of directors. The common stock does not have cumulative voting rights.

Class A common stock. Prior to the date of this prospectus, we converted our outstanding common stock into class A common stock. We are authorized to issue up to 21,000,000 shares of class A common stock, $.01 par value per share. The holders of the class A common stock have identical rights and privileges as our regular common stock, except that they will not be able to transfer shares of class A common stock until the first anniversary of the date of this prospectus. After the effective date of this prospectus, the class A common stock may be converted at the option of the holder if the holder executes and delivers a lock up agreement preventing the public sale of the common stock until the first anniversary of the date of this prospectus without the consent of the representative of the underwriters. The class A common stock automatically will convert into the common stock on the first anniversary of the date of this prospectus.

Preferred Stock

Our Board of Directors is authorized to issue up to 10,000,000 shares of preferred stock, par value $.01 per share, in one or more series and to fix, by resolution, conditional, full, limited or no voting powers, and the designations, preferences, the number of shares, dividend rates, conversion or exchange rights, redemption provisions or other special rights of the shares constituting any class or series as the board of directors may deem advisable without any further vote or action by the stockholders. Any shares of preferred stock issued by us could have priority over our common stock and class A common stock with respect to dividends or liquidation rights and could have voting and other rights of stockholders. Any issuance of our preferred stock, depending upon the rights, preferences and designations of these shares, may delay, deter or prevent a change in control or could result in the dilution of the voting power of any of our author-

ized but unissued shares of preferred stock and we have agreed not to issue any shares of preferred stock for one year after the offering without our underwriter’s prior written consent. In addition, certain “anti-takeover” provisions of Delaware law, among other things, may restrict the ability of our stockholders to effect a merger or business combination or to obtain control of us.

The Company has the following series of preferred stock currently outstanding:

Series C preferred stock. We have 109,962 shares of series C preferred stock outstanding with a stated value of $90.00 per share. The rights, designations, preferences, privileges, qualifications of our series C preferred stock are described in our certificate of designation. The document has been filed as an exhibit to the registration statement of which this prospectus is a part. The mandatory conversion feature of the certificate of designation provides that in the event we complete an initial public offering of our common stock, our series C preferred will immediately convert into shares of our common stock. Accordingly, upon the closing of the offering, all shares of series C preferred stock currently outstanding will be converted into shares of our common stock at a conversion price equal to the lesser of (i) 75% of the initial public offering price of the common stock, or (ii) $3.15 per share. Holders of the series C preferred stock will also receive a purchase warrant for each share of common stock that they receive upon conversion and the terms of these purchase warrants are identical to the terms of the purchase warrants offered by this registration statement.

9 ¹ / _⁴ % Convertible Notes

On April 9, 1999, we issued $300,000 of our 7 ¹ / _⁴ % Convertible Notes (the “Notes”) to Marvin Rosen, Philip Turits, and Patrick Bello, a former senior executive of Fusion. (See “CERTAIN TRANSACTIONS”.) The proceeds from the Notes were used by the Company to fund its operations. The principal of the Notes shall be converted into shares of our common stock, at the closing of this offering if the offering price equals or exceeds 125% of the conversion price, which is $18.66 per share. There is also an optional conversion clause that the noteholders shall have the right, at their option, at any time up to and including the maturity date, to convert the outstanding principal at $18.66 per share. These notes had a $250,000 remaining balance in April 2004 at which point the interest rate was modified to 9 ¹ / _⁴ %.

Warrants

As part of various debt and other agreements, we have issued warrants to purchase our common stock. As of September 30, 2004, we have issued a total of 286,567 warrants with per share warrant prices of between $0.04 to $8.75. The exercise period for these warrants range between twenty months and 106 months. The weighted average exercise price of these warrants at September 30, 2004 was $3.61.

Purchase Warrant

Each purchase warrant will entitle you to purchase one share of our common stock for $____ (100% of the offering price of one share of our common stock) at any time during the four-year period beginning on the first anniversary of the date of this prospectus. The purchase warrant exercise price will increase to $___ (133% of the offering price of one share of our common stock) on the eighteen month anniversary of the date of this prospectus, provided that the registration statement covering the shares, of common stock underlying the purchase warrants has been effective for at least sixty (60) days prior to the exercise price reset date.

Unless we extend the terms of the purchase warrants in our sole discretion, the purchase warrants will expire at 5:00 p.m., New York time, five years from the date of this prospectus.

We may redeem any outstanding purchase warrants you hold, once they become exercisable, at a price of $.01 per purchase warrant on not less than 30 days’ prior written notice to you if the last sale price of our common stock has been at least 200% of the then-current exercise price of the purchase warrants (initially $____) for the 20 consecutive trading days ending on the third day prior to the date on which we provide you with such notice. The purchase warrants will be exercisable until the redemption date.

The purchase warrants will be issued in registered form under a warrant agreement between us and Continental Stock Transfer & Trust Company, as warrant agent. Please refer to the warrant agreement (which has been filed as an exhibit to the registration statement of which this prospectus is a part) for a complete description of the terms and conditions of the purchase warrants, as this description is qualified in its entirety by our reference to such warrant agreement.

The exercise price and number of shares of our common stock or other securities issuable on exercise of the purchase warrants are subject to adjustment to protect against dilution if we issue a stock dividend, or we conduct a stock split, recapitalization, reorganization, merger or consolidation or other similar event. We cannot assure you that the market price of our common stock will exceed the exercise price of the purchase warrants at any time during the period in which they are exercisable.

You cannot exercise any of your purchase warrants unless at the time of exercise we have filed with the SEC a prospectus covering the shares of our common stock issuable upon exercise of the purchase warrants you wish to exercise and such shares have been registered or qualified to be exempt under the securities laws of your state of residence. Although we have undertaken and intend to have all shares of our common stock qualified for sale in the states where our securities are being offered and to maintain a current prospectus relating to our common stock until the expiration or redemption of the purchase warrants, subject to the terms of the warrant agreement, we cannot assure you that we will be able to do so.

The purchase warrants do not give you any dividend, voting, preemptive or any other rights our stockholders may have.

Upon conversion of the Class C preferred stock, we will issue an additional 3,141,838 purchase warrants. These warrants and the underlying common stock will be registered for resale by the holders thereof.

American Stock Exchange Listing

We have applied to list our common stock and purchase warrants on the American Stock Exchange under the trading symbols “FSN” and “FSNW”, respectively.

Transfer Agent, Warrant Agent & Registrar

Continental Stock Transfer & Trust Company will act as our transfer agent, our warrant agent and as registrar for our common stock and purchase warrants.

Delaware Anti-Takeover Law

The following discussion concerns certain provisions of Delaware law that may delay, deter or prevent a tender offer or takeover attempt that you might consider to be in your best interest, including offers or attempts that might result in a premium being paid to you over the market price of our securities.

Delaware Anti-Takeover Law. We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

— prior to the business combination the corporation’s board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; or

— upon the consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the stockholder owned at least 85% of the outstanding voting stock of the corporation at the time the transaction commenced, excluding for the purpose of determining the number of shares outstanding those shares owned by the corporation’s officers and directors and by employee stock plans in which employee

participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

— at or subsequent to the time the business combination is approved by the corporation’s board of directors and authorized at an annual or special meeting of its stockholders, and not by written consent, by the affirmative vote of at least 66 ² / _³ % of its outstanding voting stock, which is not owned by the interested stockholder.

A business combination includes a merger, asset sale or other transaction resulting in a financial benefit to the stockholder. An interested stockholder is a person who, together with affiliates and associates, owns (or within three years did own) 15% or more of the corporation’s vesting stock.

SHARES ELIGIBLE FOR FUTURE SALE

Shares Eligible and lock-ups of existing securityholders

After the offering, 24,598,915 shares of both classes of our common stock will be outstanding, including 17,480,562 shares of our class A common stock. All of the 3,325,000 shares of our common stock sold in the offering will be freely tradable, except for shares purchased by holders subject to lock-up agreements or by any of our existing “affiliates,” as that term is defined in Rule 144 under the Securities Act, which generally includes officers, directors or 10% stockholders. The class A common stock may not be converted into common stock until one year after the offering unless the holder executes and delivers, after the effective date of this prospectus, a one year lock up agreement from the effective date of the prospectus. The remaining 3,793,353 shares of of our common stock outstanding after the offering and the 17,480,562 shares of class A common stock outstanding will be restricted as a result of its terms or lock-up agreements from transfer for 12 months after the date of this prospectus. Our underwriter in its sole discretion, however, may waive or permit us to waive the lock-up at any time for common stockholders. Sales of a substantial number of shares of our common stock could cause the price of our securities to fall. The representative of the underwriters has advised us that in deciding whether to consent to any sale within the applicable lock-up period, it will consider whether the sale would have an adverse effect on the market for our common stock. The representative of the underwriter has advised us that it does not have any present intention or understanding to release any of the shares subject to the lock-up agreements prior to the expiration of the shares subject to lock-up agreements prior to the expiration of the lock-ups periods.

Rule 144

In general, under Rule 144 as currently in effect, a person who has owned restricted shares of common stock beneficially for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of the then average weekly trading volume or 1% of the total number of outstanding shares of the same class. Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. A person who has not been one of our affiliates for at least the three months immediately preceding the sale and who has beneficially owned shares of common stock for at least two years is entitled to sell the shares under Rule 144 without regard to any of the limitations described above.

Effect Of Sales Of Shares

Before the offering, there has been no market for our common stock, and no precise prediction can be made about any effect that market sales of our common stock or the availability for sale of our common stock will have on the market price of the common stock. Nevertheless, sales of substantial amounts of our common stock in the public market could adversely affect the market price for our securities and could impair our future ability to raise additional capital through the sale of our securities.

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the underwriters named below, for which Kirlin Securities, Inc. is acting as the representative, are committed to severally take and pay for the respective number of our securities set forth opposite their names, if any are taken, other than the securities covered by the over-allotment option described below unless and until this option is exercised.

Number Number

Underwriters of Shares of Warrants

Kirlin Securities, Inc.

Total

Our underwriters have qualified their several obligations under the underwriting agreement to the approval of legal matters by our counsel and various other conditions, and subject to these conditions, our underwriters are obligated to severally purchase all of the shares of our common stock and purchase warrants offered by this prospectus (other than the shares of our common stock and purchase warrants covered by the over-allotment option described below).

The underwriters, through the representative, have advised us that they propose to offer our securities to the public at the initial public offering prices set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $_____ per share of our common stock and $______ per purchase warrant. The underwriters may allow, and such dealers may re-allow, a concession not in excess of $_____ per share of common stock and $_____ per purchase warrant to certain other dealers. After the offering, our underwriters may change the offering price and other selling terms without our consent.

The following table shows the public offering price, underwriting discount to be paid by us to the underwriters and the proceeds, before expenses, to us. This information assumes either no exercise or full exercise by the underwriters of their over-allotment option.

Without

Per Share Per Warrant option With Option

Public offering price $ $ $ $

Discount $ $ $ $

Non-accountable Expense

Allowance (1) $ $ $ $

Proceeds before expenses (2)

(1) The non-accountable expense allowance is not payable with respect to the securities sold upon exercise of the underwriters’ over-allotment option.

(2) The offering expenses are estimated at $365,000.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act. We also have agreed to pay to the underwriters an expense allowance on a non-accountable basis equal to 3% of the gross proceeds derived from the sale of the securities offered by this prospectus, $100,000 of which has been paid to date. We also have agreed to pay all expenses in connection with qualifying our securities offered hereby for sale under the laws of such states as our underwriters, through their representatives, may designate and registering the offering with the National Association of Securities Dealers, Inc., or NASD, including fees and expenses of counsel retained for these purposes by our underwriter in connection with this registration.

We have granted to the underwriters an option, exercisable within 45 business days from the date of this prospectus, to purchase at the offering price, less underwriting discounts and the non-accountable expense allowance, up to an aggregate of 498,750 additional shares of our common stock and/or 498,750 additional purchase warrants for the sole purpose of covering over allotments, if any.

We have engaged the representative of the underwriters on a non-exclusive basis as our agent for the solicitation of the exercise of the purchase warrants. To the extent consistent with NASD guidelines and SEC rules and regulations,

we have agreed to pay the representative of the underwriters for bona fide services rendered a commission equal to 5% of the exercise price for each purchase warrant exercised after one year from the date of this prospectus if the exercise was solicited by the representative. In addition to soliciting, either orally or in writing, the exercise of the purchase warrants, these services also may include disseminating information, either orally or in writing, to our warrantholders about us or the market for our securities, and assisting in the processing of the exercise of the purchase warrants. We will not pay the representative any fee connection with the exercise of the purchase warrants if the purchase warrants are exercised within one year from the date of this prospectus, if the market price of the underlying shares of our common stock is lower than the exercise price, the purchase warrants are held in a discretionary account, the purchase warrants are exercised in an unsolicited transaction, the warrantholder has not confirmed in writing that the representative solicited such exercise or the arrangement to pay the commission is not disclosed in the prospectus provided to warrantholders at the time of exercise. In addition, unless granted an exemption by the SEC from Regulation M under the Exchange Act, while soliciting the exercise of the purchase warrants, the representative will be prohibited from engaging in any market-making activities or solicited brokerage activities with regard to our securities unless the representative has waived its right to receive a fee for the exercise of the purchase warrants.

In connection with the offering, we have agreed to sell to the representative for an aggregate of $100, a purchase option, consisting of the right to purchase up to an aggregate of 332,500 shares of our common stock and 332,500 purchase warrants. The representative purchase option is exercisable initially at a price of $7.20 per share and $.06 per warrant (120% of the per share offering price to investors) for a period of four years commencing one year from the date of this prospectus. The representative purchase option may not be transferred, sold assigned or hypothecated during the one-year period following the date of this prospectus except to officers or partners of the representative, underwriters and the selected dealers and their officers or partners. The representative purchase option grants to the holders thereof certain “piggyback” and demand rights for periods of seven and five years, respectively, from the date of this prospectus with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the underwriter purchase option.

Pursuant to the underwriting agreement, all of our officers and directors, and all holders of our capital stock immediately prior to this offering either by the terms of the class A common stock or by agreement may not to sell any shares of our common stock for either 12 or 18 months from the date of this prospectus without the consent of the representative of the underwriters. In addition, the underwriting agreement provides that, for a period of five years from the date of this prospectus, the representative will have the right to send a representative to observe each meeting of our board of directors.

If, within five years of the date of this prospectus, we complete a merger, acquisition, joint venture or other transaction with a party that the representative introduces to us, the representative will receive a finder’s fee equal to 5% of the consideration.

Prior to the offering, there has been no public market for any of our securities. Accordingly, the offering prices of our securities and the terms of the purchase warrants have been determined by negotiation between us and the underwriters and do not bear any relation to established valuation criteria. Factors considered in determining such prices and terms, in addition to prevailing market conditions, included an assessment of the prospects for the industry in which we will compete, our management and our capital structure.

In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.

• Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

• Over-allotment involves sales by the underwriters of our securities in excess of the number of securities the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of our securities over-allotted by the underwriters is not greater than the number of our securities they may purchase in the over-allotment option. In a naked short position, the number of our securities involved is greater than the

number of securities in the over-allotment option. Our underwriters may close out any covered short position by either exercising through their representative the over-allotment option and/or purchasing our securities in the open market.

• Syndicate covering transactions involve purchases of our securities in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to close out the short position, our underwriters will consider, among other things, the price of securities available for purchase in the open market as compared to the price at which it may purchase securities through the over-allotment option. If our underwriters sell more securities than could be covered by the over-allotment option, a naked short position, the position only can be closed out by buying our securities in the open market. A naked short position is more likely to be created if our underwriters are concerned that there could be downward pressure on the price of our securities in the open market after pricing that could adversely affect investors who purchase in the offering.

• Penalty bids permit our underwriters to reclaim a selling concession from a selling group member when the securities originally sold by the selling group member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As a result, the price of our securities may be higher than the price that might otherwise exist in the open market.

On October 22, 2003, the representative loaned the Company $200,000. The loan did not bear interest and was repaid on December 11, 2003.

LEGAL MATTERS

Gersten, Savage, Kaplowitz, Wolf & Marcus LLP, New York, New York, will opine as to the validity of the common stock and purchase warrants offered by this prospectus and to certain legal matters for us. Certain members of Gersten, Savage, Kaplowitz, Wolf & Marcus LLP own an aggregate of 35,714 shares of our common stock. They did not receive such shares for legal services rendered. Graubard Miller, New York, New York, has served as counsel to the several underwriters in connection with this offering.

EXPERTS

Our consolidated financial statements as of December 31, 2002 and 2003, and for each of the three years in the period ended December 31, 2003, have been audited by Rothstein, Kass & Company, P.C., an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, are so included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 relating to the securities being offered through this prospectus. As permitted by the rules and regulations of the SEC, this prospectus does not contain all the information described in the registration statement. For further information about us and our securities, you should read our registration statement, including the exhibits and schedules. In addition, we will be subject to the requirements of the Securities Exchange Act of 1934, as amended, following the offering and thus will file annual, quarterly and special reports, proxy statements and other information with the SEC. These SEC filings and the registration statement are available to you over the Internet at the SEC’s web site at http://www.sec.gov . You may also read and copy any document we file with the SEC at the SEC’s public reference room in 450 Fifth Street, N.W., Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. Statements contained in this prospectus as to the contents of any agreement or other document are not necessarily complete and, in each instance, you should review the agreement or document which has been filed as an exhibit to the registration statement.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Contents

Consolidated Financial Statements—September 30, 2004

      Consolidated Balance Sheet
F-1

      Consolidated Statements of Operations
F-2

      Consolidated Statement of Changes in Stockholders’ Deficit
F-3

      Consolidated Statements of Cash Flows
F-4

      Notes to Consolidated Financial Statements
F-6

Consolidated Financial Statements—December 31, 2003 and 2002

      Independent Auditors’ Report
F-24

      Consolidated Balance Sheets
F-25

      Consolidated Statements of Operations
F-26

      Consolidated Statement of Changes in Stockholders’ Deficit
F-27

      Consolidated Statements of Cash Flows
F-28

      Notes to Consolidated Financial Statements
F-30

[This page intentionally left blank]

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Balance Sheet

September 30, 2004

(unaudited)

ASSETS

Current assets

      Cash and cash equivalents $ 4,619,248

      Accounts receivable, net of allowance for doubtful accounts of
            approximately $600,100 3,525,098

      Restricted cash 273,700

      Prepaid expenses and other current assets 430,427

            Total current assets 8,848,473

Property and equipment, net 4,929,090

Other assets

      Security deposits 843,996

      Restricted cash 235,276

      Other 189,836

Total other assets 1,269,108

$15,046,671

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities

      Long-term debt, related parties, current portion $ 2,752,467

      Long-term debt, current portion 153,358

      Short-term borrowing obligations 531,387

      Capital lease obligations, current portion 1,114,244

      Accounts payable and accrued expenses 9,255,808

      Liabilities of discontinued operations 1,653,651

            Total current liabilities 15,460,915

Long-term liabilities

      Capital lease obligations, net of current portion 257,136

      Preferred stock, Series C, subject to mandatory redemption
            (liquidation preference in the aggregate of approximately $9,897,000) 9,861,431

            Total long-term liabilities 10,118,567

Minority interests 80,853

Commitments and contingencies

Stockholders’ deficit

      Common stock, $.01 par value, authorized 105,000,000 shares,
            17,480,562 shares issued and outstanding 174,806

      Capital in excess of par value 64,899,255

      Accumulated other comprehensive income 100,938

      Accumulated deficit (75,788,663)

            Total stockholders’ deficit (10,613,664)

$15,046,671

See accompanying notes to consolidated financial statements.

F-1

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations

Nine months ended September 30,

2004 2003

(unaudited) (unaudited)

Revenues $40,499,353 $24,840,556

Operating expenses:

      Cost of revenues, exclusive of depreciation and amortization
            shown separately below 34,517,162 21,432,409

      Depreciation and amortization 1,484,418 1,616,607

      Loss on impairment 280,683

      Selling, general and administrative expenses 7,474,425 6,800,712

Operating loss (2,976,652) (5,289,855)

Other income (expense)

      Interest expense, net (1,433,849) (671,364)

      Forgiveness of debt 2,174,530 1,779,033

      Other 49,899

      Minority interests (40,743) 76,950

749,837 1,184,619

Net loss (2,226,815) (4,105,236)

      Preferred stock dividends (385,918) (570,685)

Net loss applicable to common stockholders $(2,612,733) $(4,675,921)

Basic and diluted net loss applicable to per
      common stockholders per common share:

      Net loss $ (0.16) $ (0.35)

Weighted average shares outstanding

Basic and diluted 16,444,858 13,209,897

See accompanying notes to consolidated financial statements.

F-2

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Deficit

Nine months ended September 30, 2004 (unaudited)

Accumulated

Redeemable Compre- Other

Preferred Preferred Preferred Capital in Stock hensive Compre-

Stock Stock Stock Common Excess of Dividend Income hensive Accumulated

Series C Series A Series B Stock Par Value Distributable (Loss) Income Deficit Total

Balances,

      January 1, 2004 $3,466,538 $ 4,072 $ 735 $153,412 $62,597,546 $ 553,238 $ 92,925 $(73,175,930) $(9,774,002)

Proceeds from sales of
      common stock,
      net of investment
      expenses 4,305 1,272,765 1,277,070

Proceeds from sales of
      Series C preferred
      stock, net of investment
      expenses 4,630,803

Conversion of long-term
      debt to Series C
      preferred stock 583,360

Conversion of long-term
      debt to common stock 197 101,873 102,070

Conversion of Series
      A & B preferred stock
      to common stock (4,072) (735) 13,735 (8,928)

Stock dividend declared 385,918 (385,918)

Stock dividend issued 3,157 935,999 (939,156)

Foreign currency
      translation adjustment $ 8,013 8,013 8,013

Accretion of interest and
      dividends on Series C
      preferred stock 1,180,730

Net loss (2,226,815) (2,226,815) (2,226,815)

Total comprehensive loss $(2,218,802)

Balances, September 30,
      2004 $9,861,431 $ — $ — $174,806 $64,899,255 $ — $100,938 $(75,788,663) $(10,613,664)

See accompanying notes to consolidated financial statements.

F-3

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Nine months ended September 30,

2004 2003

(unaudited) (unaudited)

Cash flows from operating activities

      Net loss $(2,226,815) $(4,105,236)

      Adjustments to reconcile net loss to net cash

            used in operating activities:

            Loss on impairment 280,683

            Gain from sale of property and equipment (19,230) (6,000)

            Depreciation and amortization 1,484,418 1,616,608

            Bad debt expense 204,989 84,929

            Gain on forgiveness of debt (2,174,529) (1,779,033)

            Minority interest 40,743 (76,950)

            Interest and dividends accreted on Series C preferred stock 1,180,730

            Increase (decrease) in cash attributable to

                  changes in operating assets and liabilities:

                  Accounts receivable (1,714,440) (327,847)

                  Prepaid expenses and other current assets (99,756) (267,216)

                  Other assets 9,689 25,353

                  Accounts payable and accrued expenses (546,671) 963,023

                  Liabilities of discontinued operations (24,953) (134,542)

Net cash used in operating activities (3,885,825) (3,726,228)

Cash flows from investing activities

      Purchase of property and equipment (578,888) (55,242)

      Repayments of (payments for) security deposits 303,988 (248,294)

      Repayments of restricted cash 452,560 266,367

Net cash provided by (used in) investing activities 177,660 (37,169)

Cash flows from financing activities

      Proceeds from sale of common stock, net 1,277,070 3,773,928

      Proceeds from sale of Series C preferred stock, net 4,630,803

      Proceeds from (repayments of) short-term borrowings (570) 14,730

      Proceeds from long-term debt 1,049,641

      Payments of long-term debt and capital lease obligations (738,185) (634,576)

      Repayments of escrow advances (73,060) (1,130,500)

      Contributions from (to) minority stockholders of joint ventures (9,297) 29,455

Net cash provided by financing activities 5,086,761 3,102,678

Net increase (decrease) in cash and cash equivalents 1,378,596 (660,719)

Cash and cash equivalents, beginning of period 3,240,652 768,898

Cash and cash equivalents, end of period $ 4,619,248 $ 108,179

See accompanying notes to consolidated financial statements.

F-4

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

Nine months ended September 30,

2004 2003

(unaudited) (unaudited)

Supplemental disclosure of cash flow information:

      Cash paid during the period for interest $102,438 $129,930

Supplemental disclosure of noncash investing and financing activities:

      Acquisition of capital lease $760,417 $373,200

      Conversion of accounts payable to common stock $102,070 $ —

      Conversion of long-term debt to common stock $ — $271,333

      Conversion of capital lease obligations to common stock $ — $ 32,500

      Conversion of Series A and B preferred stock to common stock $ 13,735 $ —

      Conversion of long-term debt to Series C preferred stock $583,360 $135,313

      Stock dividends issued $935,999 $721,383

      Stock dividends declared $385,918 $724,568

      Note issued in settlement agreement $150,000 $ —

See accompanying notes to consolidated financial statements.

F-5

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Nature of operations

Fusion Telecommunications International, Inc. and Subsidiaries (collectively the “Company”) is a Delaware corporation, incorporated in September 1997. The Company is an international communications carrier delivering Voice over Internet Protocol (“VoIP”), Private Networks, Internet Access, IP Video Conferencing and other advanced services to, from and within emerging markets in Asia, the Middle East, Africa, the Caribbean, and Latin America. With its lead product, VoIP, the Company provides a full suite of communications solutions to corporations, Postal Telephones and Telegraphs, Internet Service Providers, government entities, consumers and cable operators.

2. Summary of significant accounting policies

Principles of Consolidation

The consolidated financial statements include the accounts of Fusion Telecommunications International, Inc. and its wholly owned, majority owned, and voting controlled subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of a sales arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed and determinable and collectibility is reasonably assured. The Company records provisions against revenue for billing adjustments, which are based upon estimates derived from factors that include, but are not limited to, historical results, analysis of credits issued, current economic trends and changes in demand. The provisions for revenue adjustments are recorded as a reduction of revenue when incurred or ratably over a contract period, as applicable.

The Company derives revenue principally from international voice, including VoIP, private networks and Internet services. Variable revenue derived from international voice services is recognized upon completion of a call and is based upon the number of minutes of traffic carried. Revenue from monthly recurring service from long distance, private networks and Internet services are fixed and recurring in nature and are contracted over a specific period of time. Advanced billings for monthly fees are reflected as deferred revenues and are recognized as revenue at the time the service is provided. VoIP services enables customers, typically international corporations or cable operators, to place voice calls anywhere in the world using their personal computer. The majority of our VoIP services to consumers are prepaid which is initially recorded as deferred revenue. Revenues from VoIP services are recognized based upon the usage of minutes by the consumer.

Cash and Cash Equivalents

The Company considers all highly-liquid debt instruments purchased with maturities of three months or less to be cash equivalents.

Accounts Receivable

The Company values its accounts receivable net of an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. Specific customer accounts are written off as uncollectible if the probability of a future loss has been established and payments are not expected to be received.

Fair Value of Financial Instruments

The fair value of the Company’s assets and liabilities which qualify as financial instruments under Statement of Financial Accounting Standards (“SFAS”) No. 107, “Disclosures About Fair Value of Financial Instruments,” approximate the carrying amounts presented in the accompanying consolidated balances sheets.

F-6

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2. Summary of significant accounting policies (continued)

Impairment of Long-Lived Assets and Impairment Charges

The Company complies with Statement SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. The Company continually evaluates whether events and circumstances have occurred that indicates the remaining estimated useful life of long-lived assets, such as property, and equipment may warrant revision, or the remaining balance may not be recoverable.

During the first nine months of 2003, the Company recorded an impairment totaling approximately $281,000. The impairment is related to the adjustment of equipment being used by the Company’s joint venture in India (see Note 4) to its fair value based on estimated future cash flows from these assets in accordance with SFAS No. 144.

Property and Equipment

Property and equipment are stated at cost and are depreciated or amortized on the straight-line method over the estimated useful lives of the assets as follows:

Estimated

Asset
Useful Lives

Network equipment 5-7 Years

Furniture and fixtures 3-7 Years

Computer equipment and software 3-5 Years

Leasehold improvements Lease terms

Maintenance and repairs are charged to operations, while betterments and improvements are capitalized.

Advertising

Advertising costs are charged to operations as incurred and were approximately $39,000, and $46,000 during the nine months ended September 30, 2004 and 2003, respectively.

Income Taxes

The Company complies with SFAS No. 109, “Accounting for Income Taxes,” which requires an asset and liability approach to financial reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.

Comprehensive Income

The Company complies with SFAS No. 130, “Reporting Comprehensive Income”. SFAS No. 130 establishes rules for the reporting and display of comprehensive income and its components. SFAS No. 130 requires the Company’s change in the foreign currency translation adjustment to be included in other comprehensive income.

F-7

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2. Summary of significant accounting policies (continued)

Earnings Per Share

SFAS No. 128, “Earnings Per Share” requires dual presentation of basic and diluted income per share for all periods presented. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company.

Unexercised stock options to purchase 1,696,706 and 805,457 shares of the Company’s common stock as of September 30, 2004 and 2003, respectively, were not included in the computation of diluted earnings per share because the exercise of the stock options would be anti-dilutive to earnings per share.

Unexercised warrants to purchase 286,567, and 250,071 shares of the Company’s common stock as of September 30, 2004 and 2003, respectively, were not included in the computation of diluted earnings per share because the exercise of the warrants would be anti-dilutive to earnings per share.

Non-converted debt to purchase 8,929 and 39,286 shares of the Company’s common stock as of September 30, 2004 and 2003, respectively were not included in the computation of diluted earnings per share because the conversion of the debt would be anti-dilutive to earnings per share. Had the debt been converted interest expense would have been reduced by approximately $15,000 and $22,000 during the nine months ended September 30, 2004 and 2003, respectively.

Stock-Based Compensation

The Company follows SFAS No. 123, “Accounting for Stock-Based Compensation”. The provisions of SFAS No. 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”) but disclose the pro forma effect on net income (loss) had the fair value of the options been expensed. The Company has elected to continue to apply APB 25 in accounting for its stock option incentive plans.

The Company provides the disclosure only requirements of SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123”. If compensation expense for the Company’s stock-based compensation plan had been determined based on the fair value at the grant dates as calculated in accordance with SFAS No. 123, the Company’s net loss attributable to common stockholders and net loss per common share would approximate the pro forma amounts below:

Nine Months Ended

September 30, 2004 September 30, 2003

Net loss applicable to common stockholders, as reported $(2,612,733) $(4,675,921)

Deduct: total stock-based compensation expense under fair value method
for awards, net of related tax effect (559,344) (74,933)

Net loss applicable to common stockholders,
      pro forma $(3,172,077) $(4,750,854)

Earnings per share:

      Basic and diluted net loss applicable to common

            stockholders, as reported $ (0.16) $ (0.35)

      Basic and diluted net loss applicable to common
            stockholders, pro forma $ (0.19) $ (0.36)

F-8

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2. Summary of significant accounting policies (continued)

Earnings Per Share (continued)

The Company calculated the fair value of each common stock option grant on the date of grant using the black scholes option pricing model method with the following assumptions: dividend yield of 0%; weighted average option term of four years; average risk free interest rate of 4.35% and 4.43% during the nine months ended September 30, 2004 and 2003, respectively. The weighted average fair value of common stock options granted was $0.00 and $0.00 during the nine months ended September 30, 2004 and 2003, respectively.

Recently Issued Accounting Pronouncements

In November 2004, FASB Statement No. 151, “Inventory Costs, an Amendment of ARB No. 43,” Chapter 4 (“SFAS No. 151”), was issued. The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 will become effective beginning in fiscal 2006. The adoption of this Statement did not have a significant impact on the Company’s financial condition or results of operations.

In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to existing financial instruments the beginning of the first fiscal period after June 15, 2003. At September 30, 2004, the Company’s Series C Preferred Stock qualifies under the provisions of SFAS 150 (see Note 13), and has accordingly been classified as a liability. In the event the Company completes a successful qualified public offering for its stock, the Series C Preferred Stock will be converted into shares of the Company’s common stock and will be reclassified from a liability to equity.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not have any such derivative instruments as of September 30, 2004.

In January 2003, the FASB issued Financial Interpretation Number (“FIN”) No. 46, “Consolidation of Variable Interest Entities” and in December 2003, issued FIN 46R, which superseded FIN 46 (collectively “FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was required to be applied to preexisting entities of the Company as of the beginning of the first quarter after June 15, 2003. FIN 46 was required to be applied to all new entities with which the Company became involved beginning February 1, 2003. Provisions of FIN 46R are applicable to all entities subject to the Interpretation no later than the end of the first quarter after March 15, 2004. The adoption of FIN 46 did not have a material impact on the Company’s consolidated financial statements.

F-9

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2. Summary of significant accounting policies (continued)

Use of Estimates

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

3. Liquidity

At September 30, 2004, the Company has a working capital deficit of approximately $6,612,000 and a stockholders’ deficit of approximately $10,614,000. The Company has continued to sustain losses from operations and for the nine months ended September 30, 2004 and 2003 has incurred a net loss of approximately $2,227,000 and $4,105,000, respectively. In addition, the Company has not generated positive cash flow from operations for the nine months ended September 30, 2004 and 2003. During the nine months ended September 30, 2004, the Company has raised approximately $4,631,000 of additional proceeds, net of offering costs, through the issuance of Series C Preferred Stock (see Note 15) and intends to raise additional future capital through equity financing. The Company also converted approximately $583,000 of long-term debt into shares of the Company’s Series C Preferred Stock. In addition, during the nine months ended September 30, 2004, the Company has been able to increase its revenues and renegotiate and pay down certain obligations, which have resulted in reduced losses and reduced outstanding debt. While management believes that its current cash resources should be adequate to fund its operations for the foreseeable future, the Company’s long-term liquidity is dependent on its ability to attain future profitable operations. The Company cannot make any guarantees if and when it will be able to attain future profitability.

4. Joint ventures, acquisitions and divestitures

In March, 2000, the Company entered into a joint venture agreement with Communications Ventures India Pvt. Ltd. to form an entity named Estel Communication Pvt. Ltd. (“Estel”). Estel is organized and exists under the laws of India and has its office in New Delhi, India. The Company directly owns 49% of the joint venture and has voting rights in another 1.01%, which in turn gives the Company a 50.01% voting control in the joint venture. Estel was established to engage in the business of selling and supporting internet service protocol operations. Basically, Estel is in business as an Internet service provider in India. The joint venture has been funded primarily by the Company which has also provided certain equipment for the establishment of the required technology platforms.

In July 2002, the Company acquired a 75% equity interest in a joint venture with Turner Hill Investments, L.P. (“Turner Hill”) to provide VoIP services for calls terminating in Pakistan. During 2003 and 2002, the Company contributed certain telecommunications equipment and advances to the joint venture in exchange for its equity interest in the new joint venture. This joint venture operates out of facilities provided by Turner Hill and began providing VoIP service in November 2002. In connection with this joint venture agreement, the Company entered into a service agreement with a Pakistan telecommunications company to provide termination services for calls terminating in Pakistan (see Note 12 for additional details).

In December 2002, the Company acquired a 50.2% equity interest in a joint venture with Karamco, Inc. (“Karamco”) to provide various VoIP services throughout the emerging markets. As of December 31, 2003 and September 30, 2004, no capital has been contributed to the joint venture by either partner, but rather working capital loans have been provided for operating purposes. Operations of the joint venture began during 2003.

All joint ventures identified above have been accounted for under the consolidation method of accounting as the Company maintained either a majority equity ownership or a controlling voting interest in the aforementioned joint ventures.

F-10

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

5. Discontinued operations

During 2001, management of the Company decided to cease the operations of its domestic retail telecommunication services business lines. In connection with this decision, the Company opted out of a capital lease under which it was leasing switching equipment located in Miami, Florida and returned all of the switching equipment covered under the lease to the lessor. The Company also abandoned an office located in Miami, which was being used to house the switching equipment. The office was being leased under a non-cancelable operating lease agreement.

As of September 30, 2004, liabilities of discontinued operations included approximately $670,000 from the cancellation of the operating lease obligation and approximately $984,000 of trade payables reclassified from accounts payable and accrued expenses.

6. Property and equipment

At September 30, 2004, property and equipment is comprised of the following:

Network equipment, including $1,530,905 under capital leases $ 9,654,673

Furniture and fixtures 112,016

Computer equipment and software 698,279

Leasehold improvements 2,708,648

13,173,616

Less accumulated depreciation and amortization, including $615,261
under capital leases (8,244,526)

$ 4,929,090

7. Restricted cash

As of September 30, 2004, the Company had approximately $509,000 of cash restricted from withdrawal and held by banks as certificates of deposit securing letters of credit (equal to the amount of the certificates of deposit). A significant portion of this restricted cash is required as security deposits for certain of the Company’s non-cancelable operating leases for office facilities.

8. Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following at September 30, 2004:

Trade accounts payable $5,463,848

Accrued expenses 1,709,786

Interest payable 868,639

Deferred revenue 1,044,928

Other 168,607

$9,255,808

The deferred revenue balance at September 30, 2004 includes approximately $500,000 related to a debt settlement agreement with a domestic carrier. The provisions of the agreement noted $555,000 due to the carrier would be resolved with a service agreement whereby the carrier will receive a reduced rate for every minute of traffic that is passed through the Company’s network for a period of 24 months beginning in December 2003. During the nine months ended September 30, 2004, approximately $85,000 of deferred revenue was recognized in connection with this service agreement.

F-11

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

9. Long-term debt and capital lease obligations

At September 30, 2004 components of long-term debt and capital lease obligations of the Company is comprised of the following:

Convertible notes payable (a) $ 250,000

Demand notes payable (b) 898,931

Demand notes payable (c) 235,147

Promissory notes payable (d) 1,150,000

Promissory notes payable (e) 25,000

Promissory notes payable (f) 102,000

Promissory notes payable (g) 244,747

Capital lease obligations (h) 1,371,380

Total long-term debt and capital lease obligations 4,277,205

Less current portion 4,020,069

$ 257,136

(a) Three stockholders of the Company each entered into convertible subordinated note agreements aggregating $300,000, which mature in five years (or April 9, 2004), at an interest rate of 7.25% per annum (modified to 9.25% in April 2004). Interest shall be paid semi-annually on January 31 and July 31. At the sole discretion of the Company, the principal of the note shall automatically be converted into shares of common stock of the Company, at the closing of a qualified initial public offering (“IPO”), if the IPO price equals or exceeds 125% of the conversion price, which is $18.66 per share. There is also an optional conversion clause that the note holders shall have the right, at their option, at any time up to and including the maturity date, to convert the outstanding principal. In February 2004, one stockholder converted $33,750 of its notes into 375 shares of Preferred C Stock at $90 per share. The remaining $16,250 note balance was paid in April 2004. Consequently, the September 30, 2004 balance includes two convertible subordinated note agreements aggregating $250,000, both of which are covered under forbearance agreements (see below for further details).

(b) Two officers of the Company each entered into various loan agreements with the Company in exchange for demand notes payable. The outstanding balance of these notes were $898,931 as of September 30, 2004. The notes bear interest at rates ranging from 4%–4.75% per annum and are due on demand.

(c) Between March 2001 and September 2002, the Company issued promissory notes to three stockholders. The balance outstanding at September 30, 2004 was $81,790. The notes bear interest at rates ranging from 4.75% to 12% per annum and are due on demand. In addition, during February 2004, the Company entered into a settlement agreement for $600,000. In the same month the Company paid $450,000 and agreed to make 12 monthly payments for the remaining $150,000.

(d) In January 2001, the Company issued a promissory note in the amount of $1,000,000, with monthly payments of interest only at 13% per annum, with principal to be paid in full December 2001. This promissory note is secured by certain of the Company’s accounts receivables. At September 30, 2004, this note was in default and, accordingly, has been classified as currently due. Subsequent to September 30, 2004, this note was refinanced. See note 20 for further discussion.

Between September 2002 and April 2003, the Company entered into various promissory note payable agreements for which $150,000 is outstanding as of September 30, 2004. Interest at 8% per annum was to be paid in full through May 2003. At September 30, 2004, these notes were in default and, accordingly, have been classified as currently due.

F-12

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

9. Long-term debt and capital lease obligations (continued)

(e) Between December 2002 and February 2003, the Company entered into loan agreements with various stockholders, for the purpose of generating funds to initiate a joint venture project in the United Arab Emirate ( See Note 4 ). During January and February 2004, all but one stockholder converted the outstanding notes to 277 shares of Preferred C stock at $90 per share. The remaining stockholder converted his $25,000 note into a new promissory note, which bears interest at 4.5% per annum. Principal and interest are payable in one lump sum on the earlier of 15 days from the completion of an IPO or September 1, 2005.

(f) In July 2002, the Company entered into loan agreements with various stockholders, aggregating $500,000 for the purpose of generating funds to initiate the Pakistan service project with Pakistan Telecommunications Company Limited (“Pakistan”) (See Note 12). The loans were to be repaid by the Company with funds it receives from PTCL in equal monthly installments, immediately upon available funds or February 2003, and continuing through August 2003, bearing interest at 15% per annum. In 2003, a portion of these loan agreements, aggregating $250,000, was converted into shares of the Company’s Series C Preferred and common stock. During January 2004, $148,000 of the loans were converted to 1,644 shares of Series C Preferred stock at $90 per share.

(g) In September 2003, the Company issued promissory notes payable aggregating $300,000 to various stockholders for the purpose of resolving the Company’s capital lease debt service contract with the lessor of the equipment. The notes were to accrue interest at 8% per annum and be paid in equal monthly installments of approximately $500 to $2,000 per month with the outstanding principal due in June 2005. The Company also issued warrants to these investors to purchase the aggregate of 85,714 shares of the Company’s common stock at a purchase price of $2.98 per share. The warrants are to expire July 1, 2005. At the date of grant, these warrants had a nominal value assigned to them that was immaterial to the consolidated financial statements. As of September 30, 2004, the outstanding balance of the various note payables aggregated $244,476.

(h) During the nine months ended September 30, 2004, approximately $193,000 of capital lease obligations had been forgiven and recorded to forgiveness of debt (See Note 16).

At September 30, 2004, approximately $720,000 of the capital lease obligations were in default and accordingly have been classified as currently due.

The following summarizes additional debt activity during the nine months ended September 30, 2004:

Between October and November 2003, the Company issued two convertible notes payables, aggregating $140,000, to two stockholders for the purposes of an Asian venture. The notes were to accrue interest at prime rate, were payable monthly on the first of every month, and were due on January 15, 2004 and October 31, 2004, respectively. In the event, the Asian venture materialized, the principal of the notes, at the option of the stockholders, could have been converted into shares of common stock of the Company. The conversion price per share would be in proportion to the overall initial capitalization. During the nine months ended September 30, 2004, the Asian venture had not materialized. Consequently one of the notes was repaid in full and the other was converted to 1,111 shares of Preferred C Stock.

In December 2000, the Company entered into a promissory note payable agreement of $200,000 with a stockholder, calling for monthly payments of approximately $4,500, including interest at 12% per annum, through January 2006. On September 1, 2002, the Company added an additional agreement for the option to convert $65,000 of the note into 28,571 shares of the Company’s common stock at $2.28 per share. In February 2004, the remainder of this note, including interest was repaid.

In September 2003, the Company entered into a promissory note payable agreement with the same stockholder of $100,000 including interest at 11% per annum. This note called for 3 months of interest only payments and 3 months of principal and interest payments with the note being due by March 2004. The promissory note was repaid in full during March 2004.

F-13

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

9. Long-term debt and capital lease obligations (continued)

During the nine months ended September 30, 2004, the Company entered into an equipment financing agreement in connection with the purchase of the Company’s new soft switch. The balance at September 30, 2004 was approximately $435,000 and is payable every 90 days over the next 18 months. The Company has imputed an interest rate of 10% related to this agreement.

In May 2001, the Company issued a promissory note payable agreement for the sum of $400,000, including interest at 12% per annum, and due in full February 2002. In connection with the private placement offering for Series C Preferred Stock (see Note 14), the Company provided the stockholder with the option to convert the promissory note into 3,334 shares of the Company’s Series C preferred stock at an exchange price of $90 per share. As of September 30, 2004, the stockholder was paid a portion of the remaining balance and exercised his option to convert the remaining promissory note payable balance into the Company’s Series C preferred stock.

Future aggregate principal payments on long-term debt and capital leases in the years subsequent to September 30, 2004 are as follows:

2005				$ 4,284,532
2006				262,797

Total minimum payments				4,547,329
Less amount representing interest				(270,124)

Present value of minumum payments				4,277,205
Less current portion				(4,020,069)

				$ 257,136

In December 2003, two officers of the Company signed forbearance agreements, providing the officers would not call due approximately $1,829,000 of long-term debt and accrued interest until such time the Company completed a successful IPO, or December 19, 2004, whichever occurs first. During December 2004 the date of their forbearance agreements were extended from December 19, 2004 to March 31, 2005.

10. Short-term borrowing obligations

Short-term borrowing obligations of the Company represent a revolving line of credit agreement between an Indian bank and the Company’s Estel joint venture. The line of credit provides for borrowings up to $600,000 at an interest rate at the bank’s prime rate (approximately 2% at September 30, 2004) and was initially due in August 2004, but was extended to August 2005. The line of credit is collateralized by substantially all of the assets of the Estel joint venture. As of September 30, 2004, drawings on the line of credit amounted to approximately $531,000.

11. Income taxes

Due to the operating losses incurred, the Company has no current income tax provision for the nine months ended September 30, 2004 and 2003. The provision for income taxes consists of the following:

2004 2003

Deferred

Federal $(773,000) $(1,394,000)

State (30,000) (32,000)

(803,000) (1,426,000)

Change in valuation allowance 803,000 1,426,000

$ — $ —

F-14

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

11. Income taxes (continued)

The following reconciles the Federal statutory tax rate to the effective income tax rate for the nine months ended September 30, 2004 and 2003:

2004 2003

% %

Federal statutory rate 34.0 34.0

State, net of federal tax 1.3 0.7

Other 0.8

Change in valuation allowance (36.1) (34.7)

Effective income tax rate — —

The components of the Company’s deferred tax assets and liability consist of approximately the following at September 30, 2004:

Deferred tax assets

      Net operating losses $ 24,173,000

      Allowance for doubtful accounts 240,000

      Accrued liabilities and other 662,000

25,075,000

Deferred tax liability

      Property and equipment (308,000)

Deferred tax asset, net 24,767,000

      Less valuation allowance (24,767,000)

$ —

The Company has available at September 30, 2004, approximately $71,097,000, of unused net operating loss carryforwards that may be applied against future taxable income, which expire in various years from 2013 to 2024. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards and credits may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. The amount of such limitation, if any, has not been determined.

Management of the Company had decided to fully reserve for its net deferred tax assets, as it is more likely than not that the Company will not be able to utilize these deferred tax assets against future taxable income, coupled with certain limitations on the utilization of the net operating losses due to various changes in ownership over the past several years.

12. Commitments and contingencies

The Company has various non-cancelable operating lease agreements for office facilities. A summary of the lease commitments under non-cancelable leases at September 30, 2004 is approximately as follows:

Year ending September 30,

            2005 $1,028,000

            2006 1,053,000

            2007 1,075,000

            2008 1,099,000

            2009 1,101,000

            Thereafter 391,000

$5,747,000

F-15

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

12. Commitments and contingencies (continued)

Rent expense for all operating leases was approximately $881,000 and $988,000 during the nine months ended September 30, 2004 and 2003, respectively.

In May 2002, the Company entered into a Service Agreement (the “Agreement”) with Pakistan Telecommunications Company, Ltd (“PTCL”), under which PTCL would provide for the termination of incoming international traffic into Pakistan focusing on VoIP services from the United States and Europe. The Agreement provides for an initial term of one year, with additional one year extensions terms. The Company has exercised its option to extend the agreement, which is in effect through May 2005. The Agreement provides for the Company to place all necessary switching equipment in Pakistan, the United States and Europe (which it has done so through the Pakistan joint venture formed with Turner Hill–See Note 4). Under the terms of the Agreement PTCL will provide the Company with voice termination services within Pakistan, for which the Company will pay PTCL a maximum service charge of $0.19 per minute for all calls terminating in Pakistan using the Company’s VolP platform. The Agreement also requires the Company to guarantee a minimum of three million minutes a month to terminate to Pakistan.

The Company is required to keep on deposit with PTCL, a one month rolling advance equal to the number of minutes terminated during the preceding month, times the prevailing termination rate charged by PTCL to the Company. For the nine months ended September 30, 2004 and 2003, the Company has incurred approximately $6,660,000 and $6,820,000, respectively of termination charges under this agreement.

In connection with the joint venture agreement with Turner Hill ( See Note 4 ), the joint venture entity is required to pay a management fee to Turner Hill equal to the number of minutes terminating in Pakistan on a monthly basis times a fixed rate per minute. During the nine months ended September 30, 2004 and 2003, the joint venture incurred management fees to Turner Hill for approximately $239,000 and $263,000, respectively.

Legal Matters

The Company is a defendant in an employment claim that management believes has no merit. The claim is filed in the State of New York before an administrative agency. The administrative department is currently reviewing the case and management believes it will be dismissed. Regardless, management believes that this claim will not have a material effect on the Company’s business or results of operations.

In April 2003, a former customer of the Company brought an action against the Company for recovery of preferential transfers and other claims under the Bankruptcy Code. The suit, brought in the United States Bankruptcy Court for the Northern District of Illinois Eastern Division, seeks damages in the amount of approximately $335,000. The Company and management plan to defend this suit vigorously and do not expect the outcome to have an adverse effect on the Company’s financial condition.

In May 2003, a shareholder of the Company brought an action in the District Court in and for the City and County of Denver and the State of Colorado. The action is seeking damages in the amount of $400,000. The Company and management plan to defend this suit vigorously and do not expect the outcome to have an adverse effect on the Company’s financial condition. This action was dismissed in August 2004. The plaintiff has filed an appeal for the motion, which is pending.

In 1999, the Company guaranteed a real property lease on behalf of a joint venture. The joint venture subsequently defaulted on the lease and in July 2003 the landlord brought an action in the Circuit Court, Miami, Florida. The Company is also being sued for back rent and costs of approximately $1.1 million. The Company believes that this dispute will be resolved amicably, but if the Company and management are unable to amicably resolve the action, the Company can make no assurance that the outcome will not have an adverse effect on the Company’s financial condition.

F-16

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

12. Commitments and contingencies (continued)

Legal Matters (continued)

The Company is involved in other claims and legal actions arising in the normal course of business. Management does not expect that the outcome of these cases will have a material effect on the Company’s financial position or results of operations. Due to the regulatory nature of the industry, the Company is periodically involved in various correspondence and inquiries from state and federal regulatory agencies. Management does not expect the outcome of these inquiries to have a material impact on the operations or the financial condition of the Company.

13. Preferred stock

The Company has authorized 10,000,000 shares of its stock for the issuance of Preferred Stock. The Company has designated 1,100,000, 1,500,000 and 110,000 shares of $10 Series A Convertible Redeemable Preferred Stock (“Series A Preferred Stock”), $10 Series B Convertible Redeemable Preferred Stock (“Series B Preferred Stock”) and $90 Series C Convertible Redeemable Preferred Stock (“Series C Preferred Stock”), respectively (collectively “Preferred Stock”).

During May 2004, each outstanding share of Series A and Series B Preferred Stock was converted to common stock at a conversion rate of $3.50 per share, consequently as of September 30, 2004, there were no outstanding shares of Series A and B Preferred Stock.

Dividends

The holders of Series A Preferred Stock were entitled to receive cumulative dividends of 12% per share per annum, which were payable annually in arrears beginning on August 31, 2002 and were payable (at the Company’s option) in cash or shares of the Company’s common stock at a rate equal to the conversion rate in effect at the date of declaration of the dividend. The holders of Series B Preferred Stock were entitled to a cumulative dividend of 11.5% per share per annum, which was payable annually in arrears beginning on March 31, 2003 and was payable (at the Company’s option) in cash or shares of the Company’s common stock at a rate equal to the conversion rate in effect at the date of declaration of the dividend. The holders of Series C Preferred Stock are entitled to receive cumulative dividends of 8% per share per annum which are payable annually beginning on December 18, 2004 and are payable in cash, unless the Company completes a successful IPO before December 18, 2004. As of December 22, 2004, approximately $673,000 of dividends of Series C preferred stock which was due on December 18, 2004 remains unpaid.

No dividends can be paid on any outstanding shares of common stock, or Series A and B Preferred Stock, unless all then accrued, but unpaid dividends have been paid with respect to all outstanding shares of Series C Preferred Stock.

In December 2003, the Company’s Board of Directors (the “Board”) declared a stock dividend payable on the outstanding shares of Series A and B Preferred Stock (due on August 31, 2003 and March 31, 2004, respectively). The Board elected to issue shares of the Company’s common stock in lieu of cash at a conversion rate equal to $2.98 per share times the aggregate dividends due to the holders of both Series A and B Preferred Stock at date of record (August 15, 2003 and March 15, 2004, respectively). At December 31, 2003, the Company recorded a stock dividend distributable of approximately $553,000 for the issuance of 185,962 shares of common stock to the holders of the Company’s Series A and Series B Preferred Stock. These shares were issued during the six months ended June 30, 2004, along with an additional 6,708 shares of common stock for unredeemed dividends on Series B Preferred Stock totaling approximately $20,000.

In connection with the conversion of the Series A and Series B Preferred Stock into common stock, accrued dividends from September 1, 2003 and April 1, 2004 to the date of the respective conversions were issued in the form of common stock. These common stock dividends aggregated 123,012 additional shares of common stock and were issued during September 2004.

F-17

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

13. Preferred stock (continued)

Liquidation

Following the Series C Preferred Stock liquidation payment, the remaining assets and funds of the Company legally available for distribution, if any, shall be distributed ratably among the holders of common stock and Series C Preferred Stock in proportion to the number of shares of common stock held on as as-if converted basis.

Redemption

The Company had the right to redeem the outstanding shares of Series A and B Preferred Stock at any time (with 30 days prior notice) for a redemption price of $10 per share plus accrued, but unpaid dividends. As discussed previously, this right was exercised during the first nine months of September 2004. The Company has the right to redeem the outstanding shares of Series C Preferred Stock, commencing on the first anniversary of the first issuance of Series C Preferred Stock, at a price per share equal to 115% of the stated value, plus pro rata accrued and unpaid dividends due through the date of redemption.

After the second anniversary of the first issuance of the Company’s Series C Preferred Stock (December 18, 2005) and so long as all classes of the Company’s stock are not publicly traded and a liquidation has not occurred, each holder of Series C Preferred Stock may, at its option, require the Company to redeem its shares at a price equal to 112% of the stated value of the stock, plus pro rata accrued and unpaid dividends due. In accordance with SFAS 150, the Series C Preferred Stock has been classified as a liability and the initial carrying amount of this stock has been recorded at is fair value at the date of issuance. The carrying amount is being increased by periodic accretions, using the interest method, so that the carrying amount will equal the mandatory redemption amount at the mandatory redemption date. Accretion during the nine months ended September 30, 2004 was approximately $1,181,000 which is included in interest expense for the nine months ended September 30, 2004 in the accompanying statement of operations. At September 30, 2004, the redemption value of the Series C Preferred Stock was approximately $11,077,000.

Conversion

Each share of Series A and B Preferred Stock was convertible, at the option of the stockholder, at any time after the issuance date of such share into a number of shares of common stock as determined by the conversion rate in effect at the time of conversion, plus all accrued and unpaid dividends payable (at the Company’s option) in either cash or common stock. (See conversion table below).

Series A Series B

Conversion Conversion Conversion Conversion

Price Date Price Date

$2.50 Up to 8/30/02 $2.50 Up to 3/30/03

$3.50 Up to 8/30/03 $3.50 Up to 3/30/04

$5.00 Up to 8/30/04 $5.00 Up to 3/30/05

$6.00 Up to 8/30/05 $6.00 Up to 3/30/06

$7.00 After 8/31/05 $7.00 After 3/31/07

F-18

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

13. Preferred stock (continued)

Conversion (continued)

Each share of Series C Preferred Stock is convertible, at the option of the stockholder, at any time after the issuance date of such shares into a number of shares of common stock, based upon a conversion price of $3.15 per common share.

As it relates to the Series C preferred stock, in accordance with paragraph 23 of EITF 00-27, the Company should wait until the contingent event to occur and compute the resulting number of shares that would be received upon conversion based upon the adjusted conversion price. At that point in time the beneficial conversion amount, if any, would be recognized in the period in which the triggering event occurs.

Voting

No holders of Preferred Stock have voting rights, except as provided by law.

14. Stock options and warrants

Under the Company’s 1998 stock option plan (as amended), the Company has reserved 1,714,286 shares of common stock for issuance to employees at exercise prices determined by the Board. In November 2004, the Board approved an increase in the number options available for grant under the Company’s 1998 stock option plan to 2,680,857. Options under the plan vest in annual increments over a four year period, expire ten years from the date of grant and are issued at exercise prices no less than 100% of the fair market value at the time of grant. As reported in Note 2, the Company has elected to adopt the disclosure–only provisions of SFAS No. 123 and will account for stock-based employee compensation plans in accordance with APB 25. As a result, no compensation cost for its stock option plan has been recognized in the periods presented.

In July 2004, the Company’s Stock Option Committee approved a recommendation to issue 446,057 options to its employees who had been previously granted stock options. Each employee would receive new options equal to 50% of their existing options priced at $3.15 per share and 50% at $4.38 per share, both with a four year vesting period and furthermore would receive credit for the vesting time on previously issued options, and the original options will be cancelled if not exercised within six months and one day of the issuance of the new options. In addition, during July 2004, the Stock Option Committee also approved the issuance of 667,686 options to employees, consultants and Board members at a price of $4.38 per share.

F-19

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

14. Stock options and warrants (continued)

A summary of the Company’s stock option plan as of September 30, 2004 and 2003 and changes during the nine months then ended on those dates is as follows:

Weighted

Number Average

of Per Share Option

Shares Option Price Price

Shares under options at January 1, 2003 1,009,771 $2.35 – $14.00 $ 8.96

      Granted in 2003 16,972 8.75 – 8.85 8.75

      Expired in 2003 (221,286) 2.35 – 8.75 5.65

Shares under options at September 30, 2003 805,457 2.35 – 14.00
7.18

Shares under options at January 1, 2004 656,207 2.35 – 11.66 8.72

      Granted in 1st quarter of 2004 11,071 8.75 – 8.75 8.75

      Granted in 2nd quarter of 2004 7,071 8.75 – 8.75 8.75

      Granted in 3rd quarter of 2004 1,151,056 3.15 – 8.75 4.12

      Expired in 2004 (128,699) 2.35 – 11.66 9.62

Shares under options at September 30, 2004 1,696,706 $2.35 – $ 8.75
$ 5.53

Options exercisable at September 30, 2004 440,246 $2.35 – $ 8.75
$ 8.43

Options exercisable at September 30, 2003 676,366 $2.35 – $11.66
$ 6.57

The following table summarizes information about stock options outstanding at September 30, 2004:

Options Outstanding Options Exercisable

Number Weighted-Average Number

Outstanding Remaining Weighted-Average Exercisable Weighted-Average

Exercise Prices at 9/30/04 Contractual Life Exercise Price at 9/30/04 Exercise Price

$ 2.35 21,429 3.9 years $ 2.35 21,429 $ 2.35

3.15 220,886 9.8 years 3.15

4.38 935,912 9.8 years 4.38

8.75 518,479 7.5 years 8.75 418,817 8.75

1,696,706 440,246

The Company, as part of various debt and other agreements, have issued warrants to purchase the Company’s common stock. The following summarizes the information relating to warrants issued and the activity during the first nine months of 2004 and 2003:

All warrants are fully exercisable upon issuance.

Weighted

Number Average

of Per Share Warrant

Shares Warrant Price Price

Shares under warrants at January 1, 2003 159,214 $0.04 – $8.75 $3.57

Issued in 2003 90,857 2.98 – 2.98 2.98

Shares under warrants at September 30, 2003 250,071 0.04 – 8.75
3.35

Shares under warrants at January 1, 2004 252,752 0.04 – 8.75
3.92

Issued in 2004 33,815 2.28 – 8.75
5.53

Shares under warrants at September 30, 2004 286,567 $0.04 – $8.75
$3.61

F-20

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

15. Equity transactions

In June 2003, the Company commenced a private placement for the purpose of raising working capital for the Company’s operations. The private placement provided for the issuance of a maximum of 5,714,286 shares of the Company’s $0.01 par value common stock at $2.98 per share. The private placement was valid through September 15, 2003, but was extended for an additional 90 days. The total number of shares of common stock issued in this private placement in 2003 was 1,342,844 shares for which proceeds of approximately $3,763,000 were received, net of expenses of approximately $247,000. During the nine months ended September 30, 2004, an additional 430,252 shares were issued in this private placement for which proceeds of approximately $1,277,000 were received, net of expenses of approximately $3,000.

In November 2003, the Company commenced a private placement for the purpose of raising working capital for the Company’s operations. The private placement provided for the issuance of a maximum of 110,000 shares of the Company’s Series C Preferred Stock at $90 per share. The private placement was valid through December 15, 2003, but was extended for an additional 107 days. The total number of shares of Series C Preferred Stock issued in this private placement during 2003 was 33,542 shares for which proceeds of approximately $2,526,000 were received, net of expenses of approximately $492,000. During the first quarter of 2004, an additional 59,492 shares of Series C Preferred Stock were issued in this private placement. The proceeds were approximately $4,629,000, net of expenses of approximately $723,000.

During March 2004, certain note holders elected to convert approximately $585,000 of their notes into shares of the Company’s Series C Preferred Stock at a conversion rate of $90 a share. The conversion resulted in the issuance of 6,504 additional shares of Series C Preferred Stock.

In May 2004, the shareholders of all the outstanding series A and B Preferred Stock, elected to convert all their shares into shares of the Company’s common stock at a conversion rate of $3.50 per share. This resulted in the issuance of 1,373,546 shares of common stock.

In October 2004, the Company issued 19,048 shares of common stock at $5.25 per share in lieu of cash to the Saif Telecom (Pvt) Ltd for management fees related to the Pakistan JV.

16. Forgiveness of debt

During the nine months ended September 30, 2004, the Company recorded approximately $2,175,000 related to forgiveness of debt. As of December 31, 2003, the Company had an outstanding capital lease obligation aggregating approximately $238,000. In January 2004, the Company entered into an agreement whereas the Company agreed to pay the sum of $45,000 resulting in a $193,000 forgiveness of debt. In addition, during the nine months ended September 2004, the Company recorded approximately $1,982,000 of additional forgiveness of debt primarily related to settled accounts payable disputes.

17. Profit sharing plan

The Company has a defined contribution profit sharing plan, which covers all employees who meet certain eligibility requirements. Contributions to the plan are made at the discretion of the Board. No contributions to the profit sharing plan were made during the nine months ended September 30, 2004 and 2003.

18. Related Party Transactions

At September 30, 2004 and 2003, the Company had an aggregate of approximately $2.8 million and $5.3 million of long-term debt due to stockholders of the Company. The repayment, conversion terms, and interest rates are outlined in Footnote 9. In addition, the Company had approximately $643,000 and $560,000 of accrued interest on this related debt as of September 30, 2004 and 2003, respectively. Interest expense related to this debt was approximately $196,000 and $313,000 for the nine months ended September 30, 2004 and 2003, respectively.

F-21

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

19. Concentrations

Major Customers

During the nine months ended September 30, 2004, three customers of the Company accounted for revenues exceeding 32% in total and at least 5% individually of the Company’s total revenues during this period. During the nine months ended September 30, 2003, eight customers of the Company accounted for revenues exceeding 58% in total and at least 5% individually of the Company’s total revenues during this period. Revenues earned from these customers were approximately $12,719,000 and $14,354,000 during the nine months ended September 30, 2004 and 2003, respectively. At September 30, 2004 the amounts owed to the Company by these customers were approximately $2,131,000.

Geographic Concentrations

The Company’s operations are significantly influenced by economic factors and risks inherent in conducting business in foreign countries, including government regulations, currency restrictions and other factors that may significantly affect management’s estimates and the Company’s performance.

During the nine months ended September 30, 2004 and 2003, the Company generated revenue from customers in the following countries.

2004 2003

India $ 1,513,000 $ 1,141,000

United States 37,278,000 15,771,000

Other 1,708,000 34,000

$40,499,000 $16,946,000

At September 30, 2004, the Company had foreign long lived assets as follows:

2004

India $1,183,780

Pakistan 144,726

United Arab Emirates 106,397

$1,434,903

Revenues by geographic area are based upon the location of the Company’s customers. The foreign long lived assets by geographic area represent those assets physically used in the operations in each geographic area.

20. Subsequent events

On November 1, 2004, the Board of Directors, upon approval of the stockholders, authorized the increase of the amount of eligible stock under the Company’s employee stock option plan from 1,714,286 to 2,680,857. This was approved by the shareholders on December 10, 2004.

On November 1, 2004, the Board of Directors, upon approval of the stockholders, authorized a 3.5 to 1 reverse stock-split applicable to all outstanding shares of the Company’s common stock. This was approved by the shareholders on December 10, 2004. All transactions and disclosures in the consolidated financial statements, related to the Company’s common stock have been restated to reflect the effect of the reverse stock-split.

F-22

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

20. Subsequent events (continued)

On November 1, 2004, the Board of Directors, upon approval of the stockholders, increased the authorized number of shares to 136,000,000 which includes 105,000,000 shares of common stock, 10,000,00 shares of preferred stock and 21,000,000 shares of Class A common stock. This increase was approved by the stockholders on December 10, 2004. On December 10, 2004, the stockholders approved the amendment to the Company’s Certificate of Incorporation to automatically convert each share of the Company’s outstanding common stock (except for shares of common stock issuable upon conversion of Series C preferred stock) into one share of Class A common stock. The Class A common stock may not be converted into common stock until one year after the successful completion of an initial public offering unless the holder agrees to exercise a one year lock up agreement.

In November 2004, the Company received net cash proceeds of $1,330,000 ($1,400,000 for a convertible note net of a $70,000 advisory fee) and refinanced $1,108,333 of existing notes payable and accrued interest in exchange for a convertible promissory note. These two notes aggregate $2,508,333 bear interest at 6.5% per annum and are due in November 2006. The notes would automatically convert into common shares at a conversion price of $3.85 per share upon successful registration from an initial public offering. The common stock is subject to a one year lock up provision.

In December 2004, the Company entered into an agreement to acquire 51% of the common stock of a Jamaican telecommunications company in exchange for $150,000. The approximate amounts of net assets acquired are as follows:

Current assets
$ 49,000

Restricted assets
85,000

Fixed assets
156,000

Intangible assets
89,000

Current liabilities
(85,000)

Minority interest
(144,000)

Net assets
$150,000

The intangible assets represent contractual assets consisting of international and domestic carrier license agreements with the Jamaican government which expire in 2013 and 2018, respectively. The intangible assets will be amortized over a weighted average life of 12 years.

F-23

INDEPENDENT AUDITORS’ REPORT

Board of Directors and Stockholders of
Fusion Telecommunications International, Inc.

We have audited the accompanying consolidated balance sheets of Fusion Telecommunications International, Inc. and Subsidiaries (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the three years ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.

/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
April 23, 2004, except for paragraph 3
of Note 12 which is as of August 24, 2004, Note 21
as to which the date is November 10, 2004 and except for paragraph 2 of Note 13 as to which the date is December 22, 2004

F-24

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets

December 31,

2003 2002

ASSETS

Current assets

Cash and cash equivalents $ 3,240,652 $   768,898

      Accounts receivable, net of allowance for doubtful accounts of
            approximately $688,000 and $517,000, in 2003 and 2002, respectively 2,015,647 1,356,374

      Restricted cash 611,261 199,611

      Prepaid expenses and other current assets 330,671 421,677

                  Total current assets 6,198,231 2,746,560

Property and equipment, net 5,054,973 7,429,433

Other assets

       Security deposits 1,230,909 959,357

      Restricted cash 350,275 1,051,182

      Other 199,525 101,000

                  Total other assets 1,780,709 2,111,539

       $ 13,033,913 $ 12,287,532

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities

       Long-term debt, related parties, current portion $ 3,423,452 $ 4,468,371

      Long-term debt, current portion 1,028,000

      Short-term borrowing obligations 531,957 489,030

      Capital lease obligations, related party, current portion 110,000

      Capital lease obligations, current portion 1,011,280 2,615,554

      Accounts payable and accrued expenses 12,428,492 15,256,072

      Liabilities of discontinued operations 1,686,617 2,088,618

                  Total current liabilities 19,081,798 26,055,645

Long-term liabilities

       Long-term debt, related parties, net of current portion 18,750 375,000

      Long-term debt, net of current portion 555,000

      Capital lease obligations, net of current portion 191,422

      Preferred stock, Series C, subject to mandatory redemption
            (liquidation preference in the aggregate of approximately $3,959,000) 3,466,538

                  Total long-term liabilities 3,676,710 930,000

Minority interests 49,407 102,868

Commitments and contingencies

Stockholders’ deficit

       Preferred stock, Series A, $.01 par value, authorized 1,100,000 shares,
            407,225 shares issued and outstanding 4,072 4,072

      Preferred stock, Series B, $.01 par value, authorized 1,500,000 shares,
            73,500 shares issued and outstanding (liquidation preference, in the
            aggregate, of approximately $1,167,000 and $1,163,000 in 2003 and
            2002, respectively) 735 735

      Common stock, $.01 par value, authorized 105,000,000 shares,
            issued and outstanding 15,341,193 shares and 11,686,309 shares
            in 2003 and 2002, respectively 153,412 116,863

      Capital in excess of par value 62,597,546 52,732,476

      Stock dividend distributable 553,238

      Accumulated other comprehensive income 92,925 66,426

      Accumulated deficit (73,175,930) (67,721,553)

      Total stockholders’ deficit (9,774,002) (14,800,981)

       $ 13,033,913 $ 12,287,532

See accompanying notes to consolidated financial statements.

F-25

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Statements of Operations

Years Ended December 31,

2003 2002 2001

Revenues $33,725,275 $ 28,422,149 $ 29,614,565

Operating expenses:

      Cost of revenues, exclusive of depreciation
            and amortization shown separately below 29,246,014 25,443,863 24,591,188

      Depreciation and amortization 2,128,610 2,546,869 2,069,361

      Loss on impairment 735,354 467,765 2,825,149

      Selling, general and administrative expenses 9,156,810 9,977,994 11,758,451

Operating loss (7,541,513) (10,014,342) (11,629,584)

Other income (expense)

      Interest expense, net (919,590) (1,175,714) (595,116)

      Forgiveness of debt 3,918,295 1,812,092

      Minority interests 157,617 19,440 112,472

3,156,322 655,818 (482,644)

Loss from continuing operations (4,385,191) (9,358,524) (12,112,228)

Discontinued operations:

      Income (loss) from discontinued operations 208,620 (7,029,511)

Net loss $ (4,176,571) $ (9,358,524) $(19,141,739)

Losses applicable to common stockholders:

      Loss from continuing operations $ (4,385,191) $ (9,358,524) $(12,112,228)

      Preferred stock dividends (635,254) (642,552)

Net loss applicable to common stockholders from
      continuing operations (5,020,445) (10,001,076) (12,112,228)

      Income (loss) from discontinued operations 208,620 (7,029,511)

Net loss applicable to common stockholders $ (4,811,825) $(10,001,076) $(19,141,739)

Basic and diluted net loss per common share:

      Loss from continuing operations $ (0.37) $   (1.01) $   (1.30)

      Income (loss) from discontinued operations 0.02 (0.76)

Net loss applicable to common stockholders $ (0.35) $   (1.01) $   (2.06)

Weighted average shares outstanding

Basic and diluted 13,616,803 9,885,901 9,305,857

See accompanying notes to consolidated financial statements.

F-26

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Deficit

Years Ended December 31, 2003, 2002, and 2001

Accumulated

Redeemable Compre- Other

Preferred Preferred Preferred Capital in Stock hensive Compre-

Stock Stock Stock Common Excess of Dividend Income hensive Accumulated

Series C Series A Series B Stock Par Value Distributable (Loss) Income Deficit Total

Balances, January 1, 2001
$ —
$ —

$ —
$ 93,097 $38,462,863
$ —
$ — $(39,221,290) $ (665,330)

Proceeds from sale of

common stock

810,000 810,000

Proceeds from sale of

Series A preferred

stock, net of investment

expenses
4,432

4,238,952 4,243,384

Common stock issued for

the acquisition of

C&F Switching

2,500,000 2,500,000

Conversion of common

stock to Series A

preferred stock
133

(129) (4)

Conversion of long-term

debt to Series A

preferred stock
630

629,370 630,000

Proceeds from the exercise

of stock options

42,680 42,680

Foreign currency

translation adjustment .

$ 43,346 43,346 43,346

Net loss

(19,141,739) (19,141,739) (19,141,739)

Total comprehensive loss

$(19,098,393)

Balances, December 31, 2001

5,195

92,968 46,683,861 43,346 (58,363,029) (11,537,659)

Proceeds from sale of

common stock

7,188 1,628,779 1,635,967

Proceeds from sale of

Series B preferred

stock, net of investment

expenses

835
704,662 705,497

Conversion of Series A & B

preferred stock to

common stock
(1,123)

(100)
1,405 (182)

Conversion of long-term

debt to common stock .

15,302 3,715,356 3,730,658

Foreign currency

translation adjustment .

$ 23,080 23,080 23,080

Net loss

(9,358,524) (9,358,524) (9,358,524)

Total comprehensive loss

$ (9,335,444)

Balances, December 31, 2002

4,072

735
116,863 52,732,476 66,426 (67,721,553) (14,800,981)

Proceeds from sale of

common stock, net of

investment expenses

26,964 6,819,923 6,846,887

Proceeds from sale of

Series C preferred

stock, net of investment

expenses 2,526,299

Conversion of long-term

debt to common stock .

6,232 2,273,932 2,280,164

Conversion of long-term

debt to Series C

preferred stock 930,239

Common stock issued for

the assumption of letter

of credit

168 49,832 50,000

Conversion of advances to

Series C preferred stock 10,000

Stock dividends declared

1,277,806
(1,277,806)

Stock dividends issued

3,185 721,383
(724,568)

Foreign currency

translation adjustment .

$26,499 26,499 26,499

Net loss

(4,176,571) (4,176,571) (4,176,571)

Total comprehensive loss

$ (4,150,072)

Balances, December 31, 2003
$3,466,538
$4,072

$ 735
$153,412 $62,597,546
$ 553,238
$92,925 $(73,175,930) $(9,774,002)

See accompanying notes to consolidated financial statements.

F-27

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31,

2003 2002 2001

Cash flows from operating activities

      Net loss $(4,176,571) $(9,358,524) $(19,141,739)

      Adjustments to reconcile net loss to net cash

            used in operating activities:

            Loss on impairment 735,354 467,765 2,825,149

            Loss (gain) from sale of assets 125,836 (98,627)

            Depreciation and amortization 2,128,610 2,546,869 2,493,429

            Bad debt expense 183,735 231,088 1,526,927

            Gain on forgiveness of debt (3,918,295) (1,812,092)

            Minority interest (157,617) (19,440) (112,472)

            Increase (decrease) in cash attributable to

                  changes in operating assets and liabilities:

                  Accounts receivable (843,008) 98,403 182,986

                  Prepaid expenses and other current assets 91,006 (121,479) (1,543)

                  Other assets (98,525) 1,198,439 279,276

                  Accounts payable and accrued expenses 1,248,607 2,864,007 2,490,207

                  Liabilities of discontinued operations (375,502) (318,640) (103,419)

Net cash used in operating activities (5,056,370) (4,322,231) (9,561,199)

Cash flows from investing activities

      Purchase of property and equipment (645,340) (533,610) (501,882)

      Proceeds from sale of property and equipment 15,000 215,570

      Repayments of (payments for) security deposits (271,552) (116,223) 14,250

      Repayments of (payments for) restricted cash 289,257 (466,793) (784,000)

Net cash used in investing activities (612,635) (901,056) (1,271,632)

Cash flows from financing activities

      Proceeds from sale of common stock, net 6,846,887 1,635,967 810,000

      Proceeds from sale of Series A preferred stock, net 4,243,384

      Proceeds from sale of Series B preferred stock, net 705,497

      Proceeds from sale of Series C preferred stock, net 2,526,299

      Proceeds from exercise of stock options 42,680

      Proceeds from (repayments of) escrow advances (1,130,500) 1,380,500

      Proceeds from short-term borrowings 42,927 6,805 421,969

      Proceeds from long-term debt 2,091,696 3,854,749 6,724,470

      Payments of long-term debt and capital lease obligations (2,340,706) (1,713,641) (1,736,129)

      Proceeds from contributions from minority

            stockholders of joint ventures 104,156 122,308 112,472

Net cash provided by financing activities 8,140,759 5,992,185 10,618,846

Net increase (decrease) in cash and cash equivalents 2,471,754 768,898 (213,985)

Cash and cash equivalents, beginning of year 768,898 213,985

Cash and cash equivalents, end of year $ 3,240,652 $ 768,898 $ —

See accompanying notes to consolidated financial statements.

F-28

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows (continued)

Years ended December 31,

2003 2002 2001

Supplemental disclosure of cash flow information:

      Cash paid during the years for interest $ 187,600 $ 250,932 $ 462,888

Supplemental disclosure of noncash investing and
      financing activities:

      Acquistion of capital leases $ 373,200 $ 193,963 $ 1,070,952

      Credits received from sale of property and equipment $ 15,000 $ — $ —

      Common stock issued for the acquisition of
            C&F Switching $ — $ — $ 2,500,000

      Conversion of long-term debt to common stock $ 2,280,164 $ 3,730,658 $ —

      Common stock issued for the assumption of a
            letter of credit $ 50,000 $ — $ —

      Conversion of long-term debt to Series A preferred stock $ — $ — $ 630,000

      Conversion of long-term debt to Series C preferred stock $ 930,239 $ — $ —

      Conversion of escrow advances to Series C preferred stock $ 10,000 $ — $ —

      Stock dividends issued $ 724,568 $ — $ —

      Stock dividends declared $ 1,277,806 $ — $ —

      Conversion of long-term debt to deferred revenue $ 555,000 $ — $ —

F-29

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Nature of operations

2. Summary of significant accounting policies

Principles of Consolidation

Revenue Recognition

The Company derives revenue principally from international voice, including VoIP, private networks and Internet services. Variable revenue derived from international voice services is recognized upon completion of a call and is based upon the number of minutes of traffic carried. Revenue from monthly recurring service from long distance, private networks and Internet services are fixed and recurring in nature and are contracted over a specific period of time. Advanced billings for monthly fees are reflected as deferred revenues and are recognized as revenue at the time the service is provided. VoIP serices enables customers, typically international corporations or cable operators, to place voice calls anywhere in the world using their personal computer. The majority of our VoIP services to consumers are prepaid which is initially recorded as deferred revenue. Revenues from VoIP services are recognized based upon the usage of minutes by the consumer.

Cash and Cash Equivalents

The Company considers all highly-liquid debt instruments purchased with maturities of three months or less to be cash equivalents.

Accounts Receivable

F-30

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2. Summary of significant accounting policies (continued)

Fair Value of Financial Instruments

Impairment of Long-Lived Assets and Impairment Charges

The Company complies with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. The Company continually evaluates whether events and circumstances have occurred that indicates the remaining estimated useful life of long-lived assets, such as property and equipment may warrant revision, or the remaining balance may not be recoverable.

Impairment of Long-Lived Assets and Impairment Charges (continued)

During 2003, the Company recorded two impairments totaling approximately $735,000. The first impairment of $375,000 related to management’s decision to sell (to a third-party) certain switching equipment, which will be replaced by upgraded equipment. The Company continued to utilize the switching equipment in 2003, and in 2004, the Company entered into an agreement to sell the equipment under a sales-type capital lease. In accordance with the provisions of SFAS No. 144, the Company evaluated the present value of the future cash flows to be generated from this lease and determined that the present value of the future cash flows were less than the carrying value of the equipment, thus there was an impairment on the switching equipment. The remaining impairment of approximately $360,000 was related to the adjustment of equipment being used by the Company’s joint venture in India (see Note 4) to their fair value based on estimated future cash flows from these assets in accordance with SFAS No. 144.

During 2002, the Company recorded an impairment on equipment for approximately $468,000. This impairment was due to the termination and abandonment of a voice network to a route in the Caribbean, which during 2002, was deactivated and no longer generating revenues for the Company. The impairment was equal to the net book value of the equipment at the date this Caribbean voice network was deactivated.

During 2001, the Company recorded three impairments totaling approximately $2,825,000, primarily relating to goodwill acquired through various joint ventures (see Note 4). These joint ventures could not sustain profitable operations and based upon the fair value of estimated future cash flows, the Company determined that the goodwill relating to these joint ventures had no value.

Property and Equipment

Property and equipment are stated at cost and are depreciated or amortized on the straight-line method over the estimated useful lives of the assets as follows:

Estimated

Asset Useful Lives

Network equipment 5-7 Years

Furniture and fixtures 3-7 Years

Computer equipment and software 3-5 Years

Leasehold improvements Lease terms

Maintenance and repairs are charged to operations, while betterments and improvements are capitalized.

F-31

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2. Summary of significant accounting policies (continued)

Advertising

Advertising costs are charged to operations as incurred and were approximately $32,000, $19,000 and $5,000, for 2003, 2002 and 2001, respectively.

Income Taxes

Comprehensive Income

Earnings Per Share

SFAS No. 128, “Earnings Per Share,” requires dual presentation of basic and diluted income per share for all periods presented. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company.

Unexercised stock options to purchase 656,207, 1,009,771 and 937,314 shares of the Company’s common stock as of December 31, 2003, 2002 and 2001, respectively, were not included in the computation of diluted earnings per share because the exercise of the stock options would be anti-dilutive to earnings per share.

Unexercised warrants to purchase 252,751, 159,214, and 59,214 shares of the Company’s common stock as of December 31, 2003, 2002 and 2001, respectively, were not included in the computation of diluted earnings per share because the exercise of the warrants would be anti-dilutive to earnings per share.

Non-converted debt to purchase 47,215, 39,286 and 39,286 shares of the Company’s common stock as of December 31, 2003, 2002 and 2001, respectively were not included in the computation of diluted earnings per share because the conversion of the debt would be anti-dilutive to earnings per share. Had the debt been converted interest expense would have been reduced by approximately $30,000 in each of the years ended December 31, 2003, 2002 and 2001.

Stock-Based Compensation

F-32

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2. Summary of significant accounting policies (continued)

Stock-Based Compensation (continued)

2003 2002 2001

Net loss applicable to common stockholders,
      as reported
$(4,811,825)

$(10,001,076)

$(19,141,739)

Deduct: total stock-based compensation expense
      under fair value method for awards, net of related
      tax effect (99,911) (345,221) (521,069)

Net loss applicable to common stockholders,
      pro forma $(4,911,736) $(10,346,297) $(19,662,808)

Earnings per share:

      Basic and diluted net loss applicable to common
            stockholders, as reported $ (0.35) $ (1.01) $ (2.06)

      Basic and diluted net loss applicable to common
            stockholders, pro forma $ (0.36) $ (1.05) $ (2.11)

The Company calculated the fair value of each common stock option grant on the date of grant using the black scholes option pricing model method with the following assumptions: dividend yield of 0%; weighted average option term of four years; average risk free interest rate of 4.43%, 5.61%, and 5.81%, in 2003, 2002, and 2001, respectively. The weighted-average fair value of common stock options granted was $0.00, $0.00 and $1.24 in 2003, 2002 and 2001, respectively.

Recently Issued Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and must be applied to existing financial instruments the beginning of the first fiscal period after June 15, 2003. At December 31, 2003, the Company’s Series C Preferred Stock qualifies under the provisions of SFAS No. 150 (see Note 13), and has accordingly been classified as a liability. In the event the Company completes a successful qualified public offering for its stock, the Series C Preferred Stock will be converted into shares of the Company’s common stock and will be reclassified from a liability to equity.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not have any such derivative instruments as of December 31, 2003.

F-33

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2. Summary of significant accounting policies (continued)

Recently Issued Accounting Pronouncements (continued)

In January 2003, the FASB issued Financial Interpretation Number (“FIN”) No. 46, “Consolidation of Variable Interest Entities” and in December 2003, issued FIN 46R, which superseded FIN 46 (collectively “FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was required to be applied to preexisting entities of the Company as of the beginning of the first quarter after June 15, 2003. FIN 46 was required to be applied to all new entities with which the Company became involved beginning February 1, 2003. Provisions of FIN 46R are applicable to all entities subject to the Interpretation no later than the end of the first quarter after March 15, 2004. The adoption of FIN 46 did not have a material impact on the Company’s consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, (Reporting Gains and Losses from Extinguishment of Debt), No. 44 (Accounting for Intangible Assets of Motor Carriers), No. 64, (Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements), Amendment of FASB Statement No. 13 (Accounting for Leases) and Technical Corrections.” This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement.

In July 2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 applies to costs associated with an exit activity (including restructuring). Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating plant facilities or personnel. Under SFAS No. 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. SFAS No. 146 will require a company to disclose information about its exit and disposal activities, the related costs, and changes in those costs in the notes to the interim and annual financial statements that include the period in which an exit activity is initiated and in any subsequent period until the activity is completed. SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS No. 146, a company may not restate its previously issued financial statements and the new Statement grandfathers the accounting for liabilities that a company had previously recorded under EITF Issue 94-3.

Use of Estimates

3. Liquidity

At December 31, 2003, the Company has a working capital deficit of approximately $12,884,000 and a stockholders’ deficit of approximately $9,774,000. The Company has continued to sustain losses from operations and for the years ended December 31, 2003, 2002 and 2001 has incurred a net loss of approximately $4,177,000, $9,359,000 and $19,142,000, respectively. In addition, the Company has not generated positive cash flow from operations for the years ended December 31, 2003, 2002 and 2001. Subsequent to December 31, 2003, the Company has raised approximately $4,629,000 of additional proceeds, net of offering costs, through the issuance of Series C Preferred Stock (see Note 21) and intends to raise additional future capital through equity financing. The Company also converted approximately $585,000 of long-term debt into shares of the Company’s Series C Preferred Stock. In addition, subsequent to December 31, 2003, the Company has been able to increase its revenues and renegotiate and pay down certain obligations, which

F-34

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

3. Liquidity (continued)

have resulted in reduced losses and reduced outstanding debt. While management believes that its current cash resources should be adequate to fund its operations for the year ending December 31, 2004, the Company’s long-term liquidity is dependent on its ability to attain future profitable operations. The Company cannot make any guarantees if and when it will be able to attain future profitability.

4. Joint ventures, acquisitions and divestitures

In April 1999, the Company entered into a joint venture agreement with Terremark World Wide Corporation to form an entity named IP.Com to engage in the international long distance telecommunications business, initially to and from Asia. The Company owned 50% of the joint venture and was the controlling party. This joint venture was terminated in 2000 due to recurring losses.

In June 1999, the Company entered into a joint venture agreement with Clarion Global Network, Inc. (“Clarion”) to form an entity named C&F Switching to combine their efforts in building gateway telecommunications switches in New York City, Miami, Florida and Los Angeles, California. The Company owned 50% of the joint venture and was the controlling party. The Company and Clarion contributed $1,000 each to the capital account. In February 2001, the Company purchased Clarion’s half of the joint venture for $2,500,000. Payment was made to Clarion by the Company issuing 142,857 shares of common stock of the Company at a price of $17.50 per share. The Company accounted for the transaction under the purchase method of accounting, whereby the Company allocated the purchase price of $2,500,000 to goodwill and property and equipment. At December 31, 2001, the Company recorded an impairment for the full amount of the goodwill (see Note 2).

In March 2000, the Company entered into a joint venture agreement with Communications Ventures India Pvt. Ltd. to form an entity named Estel Communication Pvt. Ltd. (“Estel”). Estel is organized and exists under the laws of India and has its office in New Delhi, India. The Company directly owns 49% of the joint venture and has voting rights in another 1.01%, which in turn gives the Company a 50.01% voting control in the joint venture. Estel was established to engage in the business of selling and supporting internet service protocol operations. Basically, Estel is in business as an Internet service provider in India. The joint venture has been funded primarily by the Company, which has also provided certain equipment for the establishment of the required technology platforms.

In May 2000, the Company acquired 100% of the outstanding stock of Integrated Telemanagement Solutions, Inc. (“ITS”), which was a Georgia corporation. The transaction was recorded under the purchase method of accounting. ITS was a consulting and management service company that specialized in the global hospitality market. In November 2001, the Company sold its interest in ITS. The operations of ITS are reflected in loss from discontinued operations for the year ended December 31, 2001. In addition, the Company accrued for 50% of the Atlanta location five year lease which the Company was still obligated under, which was settled in October 2003.

F-35

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

4. Joint ventures, acquisitions and divestitures (continued)

In December 2002, the Company acquired a 50.2% equity interest in a joint venture with Karamco, Inc. (“Karamco”) to provide various VoIP services throughout the emerging markets. As of December 31, 2003 no capital has been contributed to the joint venture by either partner, but rather working capital loans have been provided for operating purposes. Operations of the joint venture began during 2003.

5. Discontinued operations

The principal costs of the discontinuation of the retail services includes the remaining unpaid operating lease obligations on the Miami office space, which aggregated approximately $811,000 (this amount includes a draw down application on a letter of credit securing the lease of approximately $111,000). The costs also include the write-off of the remaining net book value of leasehold improvements made to the Miami location of approximately $291,000. In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has not included the results of operations of its retail telecommunication services in the results from continuing operations. The results of operations for these services have been reflected in discontinued operations for the year ended December 31, 2001.

The loss from discontinued operations, representing retail telecommunication services, as well as the operations of ITS (See Note 4) for the year ended December 31, 2001, consists of approximately the following:

During the year ended December 31, 2003, certain trade payables, associated with the discontinuation of the Company’s retail services, were determined to be not payable to a vendor, which resulted in a gain on trade payable reductions of approximately $209,000.

As of December 31, 2002, liabilities of discontinued operations included the approximate $831,000 from the cancellation of the operating lease obligations and approximately $1,258,000 of trade payables reclassified from accounts payable and accrued expenses.

F-36

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

6. Property and equipment

At December 31, 2003 and 2002, property and equipment is comprised of the following:

2003 2002

Network equipment, including $982,852 and $3,966,805
under capital leases in 2003 and 2002, respectively $ 8,539,925 $ 8,873,921

Furniture and fixtures 101,991 82,273

Computer equipment and software 579,815 1,157,913

Leasehold improvements 2,637,200 2,586,290

11,858,931 12,700,397

Less accumulated depreciation and amortization, including $721,158

and $1,478,338 under capital leases in 2003 and 2002, respectively 6,803,958 5,270,964

$5,054,973 $7,429,433

7. Restricted cash

As of December 31, 2003 and 2002, the Company had approximately $962,000 and $1,251,000, respectively, of cash restricted from withdrawal and held by banks as certificates of deposit securing letters of credit (equal to the amount of the certificates of deposit). A significant portion of this restricted cash is required as security deposits for certain of the Company’s non-cancelable operating leases for office facilities.

8. Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following at December 31, 2003 and 2002:

2003 2002

Trade accounts payable $ 6,643,313 $ 9,791,968

Accrued expenses 3,155,552 2,585,440

Interest payable 795,662 836,028

Deferred revenue 1,135,896 308,007

Amounts due to investors 250,000 1,380,500

Other 448,069 354,129

$12,428,492 $15,256,072

F-37

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

9. Long-term debt and capital lease obligations

At December 31, 2003 and 2002 components of long-term debt and capital lease obligations of the Company is comprised of the following:

2003 2002

Convertible notes payable (a) $ 300,000 $ 300,000

Demand notes payable (b) 898,931 1,830,749

Convertible notes payable (c) 299,079 832,622

Promissory notes payable (d) 1,515,000

Demand notes payable (e) 110,688 180,000

Promissory notes payable (f) 1,150,000 1,218,000

Promissory notes payable (g) 150,000 50,000

Promissory notes payable (h) 250,000 500,000

Promissory notes payable (i) 283,504

Capital lease obligations (j) 1,202,702 2,725,554

Total long-term debt and capital lease obligations 4,644,904 9,151,925

Less current portion 4,434,732 8,221,925

$ 210,172 $ 930,000

(a) Three stockholders of the Company each entered into convertible subordinated note agreements aggregating $300,000, which mature in five years (or April 9, 2004), at an interest rate of 7.25% per annum (modified to 9.25% in April 2004). Interest shall be paid semi-annually on January 31 and July 31. At the sole discretion of the Company, the principal of the note shall be automatically converted into shares of common stock of the Company, at the closing of a qualified initial public offering (“IPO”) if the IPO price equals or exceeds 125% of the conversion price, which is $18.66 per share. There is also an optional conversion clause that the note holders shall have the right, at their option, at any time up to and including the maturity date, to convert the outstanding principal. In 2004, $50,000 of these notes were settled, with the payment of the remaining $250,000 of the notes being deferred under forbearance agreements (see below for further detail).

(b) Two officers of the Company each entered into various loan agreements with the Company in exchange for demand notes payable aggregating $898,931 and $1,830,749 in 2003 and 2002, respectively. In 2003, a portion of these demand notes, aggregating $761,313, were converted into 6,677 shares and 70,467 shares, respectively of the Company’s Series C Preferred stock and common stock at conversion rates of $90 and $2.28, respectively, which approximated the fair market value of the stock at the conversion date. The notes bear interest at rates ranging from 4%–4.75% per annum and are due on demand.

(c) In connection with the development of an Asian venture opportunity to provide VoIP services, the Company raised $1,675,000 from certain existing shareholders, officers and directors during the months of October, November and December 2002. During August and November 2003, the Company issued two convertible notes payable, aggregating $140,000, related to a portion of these funds (the remaining portion of $1,535,000 was either held in escrow at December 31, 2003, repaid to investors, or converted to Series C Convertible Preferred Stock). The notes accrue interest at the prime rate, are payable monthly on the first of every month, and were and are due on January 15, 2004 and October 31, 2004, respectively. In the event this Asian venture materialized, the principal of the notes, at the option of the stockholders, are convertible into shares of common stock of the Company. The conversion price per share would be in proportion to the overall initial capitalization. As of December 31, 2003, the Asian venture had not materialized and these convertible notes remain outstanding.

F-38

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

9. Long-term debt and capital lease obligations (continued)

In December 2000, the Company issued a promissory note in the principal amount of $200,000, to a stockholder, calling for monthly payments of approximately $4,500, including interest at 12% per annum, through January 2006. On September 1, 2002, the Company added an additional agreement providing for the option to convert a portion of the promissory note into 28,571 shares of the Company’s common stock at $2.28 per share. In September 2003, the Company revised the promissory note agreement for an additional principal amount of $100,000 with monthly payments of approximately $2,500, including interest at 12% per annum. At December 31, 2003 and 2002, the outstanding promissory note payable balance aggregated $159,079 and $82,622, respectively.

In May 2001, the Company issued a promissory note in the principal amount of $400,000 to a stockholder. The promissory note was due in full February 2002, with interest at 12% per annum. In connection with the private placement offering of Series C Preferred Stock (see Note 15), the Company provided the stockholder with the option to convert the promissory note into 3,334 shares of the Company’s Series C Preferred Stock at an exchange price of $90 per share. As of December 31, 2003, the stockholder was paid $100,000 of the remaining balance and exercised his option to convert the remaining promissory note payable balance of $300,000 into the Company’s Series C Preferred Stock.

In October 2002, the Company issued a promissory note in the principal amount of $350,000, with interest at 8% per annum with principal and interest due June 30, 2003. In December 2003, the Company entered into an agreement for the purpose of disposing the October 2002 note, which had not been paid at maturity. The agreement called for a payoff of $150,000 with monthly payments of approximately $20,000, including interest of 4.75% through December 2004. There was also an option to the stockholder to convert the remaining portion of $200,000 of the note into 67,227 shares of the Company’s common stock at an exchange price of $2.98 per share. At December 31, 2003, the stockholder exercised his option to convert the remaining portion of the note, which resulted in a zero outstanding note payable balance.

(d) On September 20, 2001, the Company issued a promissory note to a telecommunications company for the sum of $1,750,000, with monthly payments of approximately $55,000, including interest of 9% per annum, through September 2004. In December 2003, the Company entered into a new promissory note and settlement agreement, whereas both parties would satisfy and resolve all claims they may have against each other. The Company made available to the note holder, 246,667 shares of the Company’s common stock at a price of $5.25 per share in lieu of a portion of the outstanding note payable. The remaining indebtedness of $555,000 shall be resolved with a service agreement, where the note holder will receive a reduced rate for every minute of traffic that is passed through the Company’s network for a period of 24 months through December 2005. At December 31, 2003, the $555,000, related to the service agreement, is no longer classified as debt, but reclassified to deferred revenue. As of December 31, 2003 and 2002, the outstanding promissory note payable balance aggregated nil and $1,515,000, respectively.

(e) Between March 2001 and September 2002, the Company issued promissory notes to three stockholders, aggregating $110,688 and $180,000 in 2003 and 2002, respectively. The notes bear interest at rates ranging from 8% to 12% per annum and are due on demand.

(f) In January 2001, the Company issued a promissory note in the amount of $1,000,000, with monthly payments of interest only at 13% per annum, with principal to be paid in full December 2001. This promissory note is secured by certain of the Company’s accounts receivables. At December 31, 2003, this note was in default and, accordingly, has been classified as currently due.

Between September 2002 and April 2003, the Company issued various promissory notes aggregating $150,000 and $218,000 in 2003 and 2002, respectively. Interest at 8% per annum is to be paid in full through May 2003. At December 31, 2003, these notes were in default and, accordingly, have been classified as currently due.

F-39

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

9. Long-term debt and capital lease obligations (continued)

(g) Between December 2002 and February 2003, the Company entered into loan agreements with various stockholders, for the purpose of generating funds to initiate a joint venture project in the United Arab Emirates (see Note 4), aggregating $100,000 and $50,000 in 2003 and 2002, respectively. The Company, a 50.2% equity interest holder in the joint venture, agreed as consideration, to give these stockholders 2% of the 50% profit distributions that the Company receives from the joint venture for a period of three years. The loans are to be repaid by the Company with funds it receives from the joint venture in twenty-four equal monthly installments, starting on the earlier of the first business day following the first month the joint venture generates a profit or July 1, 2003. As of December 31, 2003 and 2002, these loans have not been paid and remain outstanding. During January and February 2004, all but one stockholder converted the outstanding notes to 277 shares of Preferred C stock at $90 per share. During September 2004, the remaining stockholder converted his $25,000 note into a new promissory note, which bears interest at 4.5% per annum. Principal and interest are payable in one lump sum on the earlier of 15 days from the completion of an IPO or September 1, 2005.

(h) In July 2002, the Company entered into loan agreements with various stockholders, aggregating $500,000 for the purpose of generating funds to initiate the Pakistan service project with Pakistan Telecommunications Company Limited (“PTCL”) (See Note 12). The loans were to be repaid by the Company with funds it receives from PTCL in equal monthly installments, immediately upon available funds or February 2003, and continuing through August 2003, bearing interest at 15% per annum. In 2003, a portion of these loan agreements, aggregating $250,000, was converted into shares of the Company’s Series C Preferred Stock and common stock. As of December 31, 2003 and 2002, these loan agreements have outstanding balances of $250,000 and $500,000, respectively.

(i) In September 2003, the Company issued promissory notes aggregating $300,000 to various stockholders for the purpose of resolving the Company’s capital lease debt service contract with the lessor of the equipment under lease. The notes were to accrue interest at 8% per annum and be paid in equal monthly installments of approximately $500 to $2,000 per month with the outstanding principal due on October 31, 2004. The Company also issued warrants to these investors to purchase the aggregate of 85,714 shares of the Company’s common stock at a purchase price of $2.98 per share. The warrants are to expire July 1, 2005. At the date of grant, these warrants had a nominal value assigned to them that was immaterial to the consolidated financial statements. As of December 31, 2003 the outstanding balance of the various notes payable aggregated $283,504.

(j) As of December 31, 2003 and 2002, approximately $1,247,000 and $1,260,000, respectively of capital lease obligations had been forgiven and recorded to forgiveness of debt (see Note 16).

In June 2002, the Company issued warrants to one of the capital lease note holders to purchase 14,286 shares of the Company’s common stock at a purchase price of $0.04 per share. At the date of grant, these warrants had a nominal value (as calculated using the Black-Scholes option pricing model) assigned to them that was immaterial to the consolidated financial statements.

At December 31, 2003 and 2002, approximately $900,000 and $2,700,000 of the capital lease obligations were in default and accordingly have been classified as currently due.

F-40

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

9. Long-term debt and capital lease obligations (continued)

Future aggregate principal payments on long-term debt and capital leases in the years subsequent to December 31, 2003 are as follows:

Year ending December 31,

            2004 $4,667,315

            2005 129,220

            2006 81,000

Total minimum payments 4,877,535

Less amount representing interest 232,631

Present value of minumum payments 4,644,904

Less current portion 4,434,732

$ 210,172

10. Short-term borrowing obligations

Short-term borrowing obligations of the Company represent a revolving line of credit agreement between an Indian bank and the Company’s Estel joint venture. The line of credit provides for borrowings up to $600,000 at an interest rate at the bank’s prime rate (approximately 2% at December 31, 2003 and 2002, respectively) and was initially due in August 2003, but was extended to August 2005. The line of credit is collateralized by substantially all of the assets of the Estel joint venture. As of December 31, 2003 and 2002 drawings on the line of credit amounted to approximately $532,000 and $489,000, respectively.

11. Income taxes

Due to the operating losses incurred, the Company has no current income tax provision for the years ended December 31, 2003, 2002 and 2001. The provision for income taxes consists of the following:

2003 2002 2001

Deferred

      Federal $(1,728,000) $(3,174,000) $(6,485,000)

      State (19,000) 20,000 (97,000)

(1,747,000) (3,154,000) (6,582,000)

Change in valuation allowance 1,747,000 3,154,000 6,582,000

$   — $   — $   —

F-41

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

11. Income taxes (continued)

The following reconciles the Federal statutory tax rate to the effective income tax rate:

2003 2002 2001

% % %

Federal statutory rate 34.0 34.0 34.0

State, net of federal tax 0.3 (0.2) 0.3

Other 7.5 (0.1) 0.1

Change in valuation allowance (41.8) (33.7) (34.4)

Effective income tax rate — — —

The components of the Company’s deferred tax assets and liability consist of approximately the following at December 31, 2003 and 2002, respectively:

2003 2002

Deferred tax assets

      Net operating losses $ 23,569,000 $ 21,950,000

      Allowance for doubtful accounts 257,000 207,000

      Accrued liabilities and other 677,000 951,000

24,503,000 23,108,000

Deferred tax liability

      Property and equipment (539,000) (891,000)

Deferred tax asset, net 23,964,000 22,217,000

      Less valuation allowance (23,964,000) (22,217,000)

$ — $ —

The Company has available at December 31, 2003 and 2002, approximately $69,320,000 and $64,559,000, respectively, of unused net operating loss carryforwards that may be applied against future taxable income, which expire in various years from 2012 to 2023. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards and credits may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. The amount of such limitation, if any, has not been determined.

F-42

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

12. Commitments and contingencies

The Company has various non-cancelable operating lease agreements for office facilities. A summary of the lease commitments under non-cancelable leases at December 31, 2003 is approximately as follows:

Year ending December 31,

            2004 $1,030,000

            2005 1,049,000

            2006 1,072,000

            2007 1,095,000

            2008 1,119,000

            Thereafter 1,230,000

$6,595,000

Rent expense for all operating leases was approximately $1,238,000, $1,033,000 and $1,189,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

In May 2002, the Company entered into a Service Agreement (the “Agreement”) with Pakistan Telecommunications Company, Ltd (“PTCL”), under which PTCL would provide for the termination of incoming international traffic into Pakistan focusing on VoIP services from the United States and Europe. The Agreement provides for an initial term of one year, with additional one year extensions terms. The Company has exercised it’s option to extend the agreement, which is in effect through May 2005. The Agreement provides for the Company to place all necessary switching equipment in Pakistan, the United States and Europe (which it has done so through the Pakistan joint venture formed with Turner Hill–see Note 4). Under the terms of the Agreement PTCL will provide the Company with voice termination services within Pakistan, for which the Company will pay PTCL a maximum service charge of $0.19 per minute for all calls terminating in Pakistan using the Company’s VolP platform. The Agreement also requires the Company to guarantee a minimum of three million minutes a month to terminate to Pakistan. The Company is required to keep on deposit with PTCL, a one month rolling advance equal to the number of minutes terminated during the preceding month, times the prevailing termination rate charged by PTCL to the Company. For the years ended December 31, 2003 and 2002 the Company has incurred approximately $9,327,000 and $783,000, respectively of termination charges under this agreement.

In connection with the joint venture agreement with Turner Hill (See Note 4), the joint venture entity is required to pay a management fee to Turner Hill equal to the number of minutes terminating in Pakistan on a monthly basis times a fixed rate per minute. For the years ended December 31, 2003 and 2002, the joint venture incurred management fees to Turner Hill for approximately $361,000 and $36,000, respectively.

Legal Matters

F-43

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

12. Commitments and contingencies (continued)

Legal Matters (continued)

In 1999, the Company guaranteed a real property lease on behalf of a joint venture. The joint venture subsequently defaulted on the lease and in July 2003 the landlord brought an action in the Circuit Court, Miami, Florida. The Company is also being sued for back rent and costs of approximately $1.1 million. The Company believes that this dispute will be resolved amicably, but if the Company and management are unable to amicably resolve the action, the Company believes it can sustain the impact of the judgement.

13. Preferred stock

Dividends

The holders of Series A Preferred Stock are entitled to receive cumulative dividends of 12% per share per annum, which are payable annually in arrears beginning on August 31, 2002 and are payable (at the Company’s option) in cash or shares of the Company’s common stock at a rate equal to the conversion rate in effect at the date of declaration of the dividend. The holders of Series B Preferred Stock are entitled to a cumulative dividend of 11.5% per share per annum, which are payable annually in arrears beginning on March 31, 2003 and are payable (at the Company’s option) in cash or shares of the Company’s common stock at a rate equal to the conversion rate in effect at the date of declaration of the dividend. The holders of Series C Preferred Stock are entitled to receive cumulative dividends of 8% per share per annum which are payable annually beginning on December 18, 2004 and are payable in cash, unless the Company completes a successful IPO before December 18, 2004. As of December 22, 2004, approximately $673,000 of dividends of Series C preferred Stock which was due on December 18, 2004 remains unpaid.

No dividends shall be paid on any outstanding shares of common stock, or Series A and B Preferred Stock, unless all then accrued, but unpaid dividends have been paid with respect to all outstanding shares of Series C Preferred Stock.

Dividends in arrears at December 31, 2002 on the Company’s Series A Preferred Stock were approximately $643,000.

F-44

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

13. Preferred stock (continued)

Dividends (continued)

In January 2003, the Company’s Board of Directors (the “Board”) declared a stock dividend payable on the outstanding shares of Series A and B Preferred Stock (due on August 31, 2002 and March 31, 2003, respectively). The Board elected to issue shares of the Company’s common stock in lieu of cash at a conversion rate equal to $2.28 per share times the aggregate dividends due to the holders of both Series A and B preferred Stock at the date of record (August 15, 2002 and March 15, 2003, respectively). During the year ended December 31, 2003, 318,491 shares of the Company’s common stock valued at approximately $725,000 have been recorded and issued as a dividend to the Series A and Series B Preferred shareholders.

In December 2003, the Board declared a stock dividend payable on the outstanding shares of Series A and B Preferred Stock (due on August 31, 2003 and March 31, 2004, respectively). The Board elected to issue shares of the Company’s common stock in lieu of cash at a conversion rate equal to $2.98 per share times the aggregate dividends due to the holders of both Series A and B Preferred Stock at date of record (August 15, 2003 and March 15, 2004, respectively). At December 31, 2003, the Company recorded a stock dividend distributable of approximately $553,000 for the issuance of 185,962 shares of common stock to the holders of the Company’s Series A and Series B Preferred Stock.

Liquidation

In the event of any liquidation, dissolution, or winding up of the Company either voluntary or involuntary or a merger or consolidation with any other corporation, or a sale or other transfer of substantially all the assets of the Company, the holders of Series C Preferred Stock shall be entitled to receive, in preference to holders of Series A and B Preferred Stock and common stock, an amount equal to $90 per each outstanding share plus an amount equal to all accrued but unpaid dividends. Upon completion of the required distribution for Series C Preferred Stock, the holders of Series B Preferred Stock shall be entitled to receive, in preference to Series A Preferred Stock and common stock an amount equal to one and one half (1 1 / 2 ) times their initial investment, plus accrued and unpaid dividends.

If the assets and funds of the Company available for payment to the holders of the Series B and C Preferred Stock are insufficient to pay the liquidation preference described above, the entire remaining assets and property of the Company will be paid ratably to the holders of the Series B and C Preferred Stock in proportion to their aggregate liquidation preferences. Following the above payments, the remaining assets and funds of the Company legally available for distribution, if any, shall be distributed ratably among the holders of common stock, Series A, B and C Preferred Stock in proportion to the number of shares of common stock held on an as-if converted basis.

Redemption

The Company has the right to redeem the outstanding shares of Series A and B Preferred Stock at any time (with 30 days prior notice) for a redemption price of $10 per share plus accrued, but unpaid dividends. The Company has the right to redeem the outstanding shares of Series C Preferred Stock, commencing on the first anniversary of the first issuance of Series C Preferred Stock, at a price per share equal to 115% of the stated value of $90, plus pro rata accrued and unpaid dividends due through the date of redemption.

F-45

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

13. Preferred stock (continued)

Conversion

Each share of Series A and B Preferred Stock is convertible, at the option of the stockholder, at any time after the issuance date of such share into a number of shares of common stock as determined by the conversion rate in effect at the time of conversion, plus all accrued and unpaid dividends payable in either cash or common stock (at the Company’s option) (See conversion table below).

Series A Series B

Conversion Conversion Conversion Conversion

Price Date Price Date

$2.50 up to 8/30/02 $2.50 up to 3/30/03

$3.50 up to 8/30/03 $3.50 up to 3/30/04

$5.00 up to 8/30/04 $5.00 up to 3/30/05

$6.00 up to 8/30/05 $6.00 up to 3/30/06

$7.00 after 8/31/05 $7.00 after 8/31/07

At various times through the first six months of 2004, all the holders of the Company’s Series A & B Preferred Stock, elected to convert their shares into common stock (See Note 21).

Voting

No holders of Preferred Stock have voting rights, except as provided by law.

14. Stock options and warrants

Under the Company’s 1998 stock option plan (as amended), the Company has reserved 1,714,286 shares of common stock for issuance to employees at exercise prices determined by the Board. Options under the plan vest in annual increments over a four year period, expire ten years from the date of grant and are issued at exercise prices no less than 100% of the fair market value at the time of grant. As reported in Note 2, the Company has elected to adopt the disclosure-only provisions of SFAS No. 123 and will account for stock-based employee compensation plans in accordance with APB 25. As a result, no compensation cost for its stock option plan has been recognized in the periods presented. In November 2004, the Board approved an increase in the number options available for grant under the Company’s 1998 stock option plan to 2,680,857.

F-46

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

14. Stock options and warrants (continued)

A summary of the Company’s stock option plan as of December 31, 2003, 2002 and 2001 and changes during the years ended on those dates is as follows:

Weighted

Number Average

of Per Share Option

Shares Option Price Price

Shares under options at January 1, 2001 1,127,814 $2.35 – 14.00 $ 8.54

      Granted in 2001 148,186 8.75 – 17.50 10.57

      Exercised in 2001 (1,143) 2.35 – 2.35 2.35

      Expired in 2001 (337,543) 2.35 – 17.50 6.55

Shares under options at December 31, 2001 937,314 2.35 – 14.00 10.15

      Granted in 2002 184,757 8.23 – 17.50 8.96

      Expired in 2002 (112,300) 2.35 – 17.50 10.50

Shares under options at December 31, 2002 1,009,771 2.35 – 14.00 7.39

      Granted in 2003 9,771 8.75 – 8.75 8.75

      Expired in 2003 (363,335) 2.35 – 14.00 5.11

Shares under options at December 31, 2003 656,207 $2.35 – $11.66
$ 8.72

Options exercisable at December 31, 2003 452,315 $2.35 – $11.66
$ 8.58

Options exercisable at December 31, 2002 573,743 $3.35 – $14.00
$ 6.44

Options exercisable at December 31, 2001 402,510 $2.35 – $14.00
$ 6.76

The following table summarizes information about stock options outstanding at December 31, 2003:

Options Outstanding Options Exercisable

Number Weighted-Average Number

Outstanding Remaining Weighted-Average Exercisable Weighted-Average

Exercise Prices at 12/31/03 Contractual Life Exercise Price at 12/31/03 Exercise Price

$ 2.35 42,857 4.8 years $ 2.35 42,857 $ 2.35

8.23 – 8.75 527,636 7.7 years 8.75 340,887 8.75

11.66 85,714 5.8 years 11.66 68,571 11.66

656,207 452,315

F-47

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

14. Stock options and warrants (continued)

Weighted

Number Average

of Per Share Warrant

Shares Warrant Price Price

Shares under warrants at January 1, 2001 43,500 $2.98 – $2.98 $2.98

      Issued in 2001 15,714 8.75 – 8.75 8.75

Shares under warrants at December 31, 2001 59,214 2.98 – 8.75 4.52

      Issued in 2002 100,000 0.04 – 3.50 3.01

Shares under warrants at December 31, 2002 159,214 0.04 – 8.75 3.57

      Issued in 2003 93,537 2.98 – 3.57 3.01

Shares under warrants at December 31, 2003 252,751 $0.04 – $8.75
$3.33

All warrants are fully exercisable upon issuance.

15. Equity transactions

In November 2000, the Company commenced a private placement for the purpose of raising working capital for the Company’s operations. The private placement provided for the issuance of a maximum of 2,571,429 shares of the Company’s $0.01 par value common stock at a purchase price of $17.50 per share. The private placement was open through March 1, 2001, but was extended for an additional 90 days. The total number of shares of common stock issued in this private placement during 2001 was 46,286 (189,143 in the aggregate between 2001 and 2000) shares for which proceeds of $810,000 (approximately $3,310,000 in the aggregate between 2001 and 2000) were received.

In June 2001, the Company commenced a private placement for the purpose of raising working capital for the Company’s operations. The private placement provided for the issuance of a maximum of 1,100,000 shares of the Company’s Series A Preferred Stock at a purchase price of $10 per share. The private placement was valid through September 30, 2001, but was extended for an additional 60 days. The total number of shares of Series A Preferred Stock issued in this private placement was 443,225 shares for which proceeds of approximately $4,243,000 were received, net of expenses of approximately $189,000.

In March 2002, the Company commenced a private placement for the purpose of raising working capital for the Company’s operations. The private placement provided for the issuance of a maximum of 1,500,000 shares of Series B Preferred Stock at $10 per share. The private placement was valid through June 30, 2002, but was extended for an additional 90 days. The total number of shares of Series B Preferred Stock issued in this private placement was 83,500 shares for which proceeds of approximately $705,000 were received, net of expenses of approximately $130,000.

In July 2002, the Company commenced a private placement for the purpose of raising working capital for the Company’s operations. The private placement provided for the issuance of a maximum of 8,000,000 shares of common stock at $2.28 per share. The private placement was valid through September 21, 2002 but was extended for an additional 135 days. The total number of shares of common stock issued in this private placement during 2002 was 719,106 shares for which proceeds of approximately $1,636,000 were received. The total number of shares of common stock issued in this private placement during 2003 was 1,353,508 shares for which proceeds of approximately $3,084,000 were received.

F-48

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

15. Equity transactions (continued)

In June 2003, the Company commenced a private placement for the purpose of raising working capital for the Company’s operations. The private placement provided for the issuance of a maximum of 5,714,286 shares of the Company’s $0.01 par value common stock at $2.98 per share. The private placement was valid through September 15, 2003, but was extended for an additional 90 days. The total number of shares of common stock issued in this private placement was 1,342,844 shares for which proceeds of approximately $3,763,000 were received, net of expenses of approximately $232,000.

In December 2003, certain note holders elected to convert their notes and related accrued interest, totaling approximately $930,000, into shares of the Company’s Series C Preferred Stock at a conversion rate of $90 per share, resulting in the issuance of 10,336 shares of Series C Preferred Stock. Also during December 2003, a $10,000 advance from a potential investor in a proposed Asian joint venture (which did not materialize) was converted into 111 shares of Series C Preferred Stock at a conversion rate of $90 per share.

At various times during the year ended December 31, 2003, certain note holders elected to convert approximately $2,280,000 (in the aggregate) of their notes and accrued interest into common stock at conversion rates ranging between $2.28 and $5.25 per share. The conversions resulted in the issuance of an additional 623,234 shares of common stock. Also during 2003, the Company issued 16,807 shares of its common stock, at $2.98 per share for the assumption of a $50,000 letter of credit in the name of and secured by a shareholder of the Company.

At various times during the year ended December 31, 2002, certain note holders elected to convert approximately $3,731,000 (in the aggregate) of their notes into common stock at a conversion rate of $2.28. The conversion resulted in the issuance of an additional 1,639,850 shares of common stock.

During 2002 holders of Series A and B Preferred Stock elected to convert 112,250 and 10,000 shares, respectively, of their stock into common stock at conversion rates of $8.75 and $8.23, respectively. The conversion resulted in the issuance of 140,444 shares of common stock.

During 2001, a shareholder of common stock elected to convert 12,857 shares of common stock to Series A Preferred Stock at a conversion rate of $35 per Series A Preferred Stock. The conversion resulted in the issuance of 13,250 additional shares of Series A Preferred Stock valued at approximately $133,000.

At various times during the year ended December 31, 2001, certain note holders elected to convert $630,000 (in the aggregate) of their notes into Series A Preferred Stock at a conversion rate of $10 per share. The conversions resulted in the issuance of 63,000 additional shares of Series A Preferred Stock for a total of $630,000.

During the year ended December 31, 2000, an officer of the Company relinquished 371,429 shares of his common stock back to the Company (at no cost) for the purpose of the Company utilizing this stock for reissuance in subsequent private placements and the settlement of certain debt. During the years ended December 31, 2000 and 2001, the Company reissued 42,857 and 218,857 shares, respectively. During the year ended December 31, 2002, the Company issued the remaining 109,714 shares of this stock in connection with the conversion of long-term debt into common stock.

F-49

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

16. Forgiveness of debt

During 2002, the Company had an outstanding capital lease obligation with a lessor, aggregating approximately $1,814,000. In June 2002, the Company entered into a settlement agreement with the lessor whereas the Company agreed to pay the sum of $175,000, and the lessor would receive 166,571 shares of the Company’s common stock at $2.28 per share, resulting in a $1,260,000 forgiveness of debt. The settlement agreement also granted the lessor warrants to purchase 14,286 shares of the Company’s common stock at a purchase price of $.04 per share (See Note 9). For the year ended December 31, 2002, the Company recorded approximately $1,812,000 forgiveness of debt, including approximately $552,000 of settled accounts payable disputes.

During 2003, the Company had three outstanding capital lease obligations with lessors, aggregating approximately $1,974,000. During 2003, the Company entered into settlement agreements whereas the Company agreed to pay the sum of $695,000 and agreed to issue 14,286 shares of common stock at $2.28 per share, resulting in approximately $1,247,000 forgiveness of debt. For the year ended December 31, 2003, the Company recorded approximately $3,918,000 of forgiveness of debt, including approximately $2,671,000 of settled accounts payable disputes.

17. Profit sharing plan

The Company has a defined contribution profit sharing plan, which covers all employees who meet certain eligibility requirements. Contributions to the plan are made at the discretion of the Board. No contributions to the profit sharing plan were made for the years ended December 31, 2003, 2002 and 2001, respectively.

18. Related party transactions

At December 31, 2003 and 2002, the Company had an aggregate of approximately $3.4 million and $5.0 million of long-term debt due to stockholders of the Company. The repayment, conversion terms and interest rates are outlined in Footnote 9. In addition, the Company had approximately $564,000 and $392,000 of accrued interest outstanding on this related debt as of December 31, 2003 and 2002, respectively. Interest expense related to this debt was approximately $416,000, $680,029 and $765,000 for the years ended December 31, 2003, 2002, and 2001, respectively.

During 2003 and 2002, the Company generated funds from certain investors for the purposes of potential joint ventures and projects. These funds were put into escrow accounts, whereby if the projects are successful, the investors receive additional issuances of stock at the prevailing fair value of the stock or if unsuccessful are to be refunded to these investors. For the years ended December 31, 2003 and 2002, accounts payable and accrued expenses included $250,000 and $1,380,500, respectively, of amounts due to investors (See Note 8).

19. Concentrations

Major Customers

During 2003, eight customers of the Company accounted for revenues exceeding 56% in total and at least 5% individually of the Company’s total revenues for 2003. During 2002, five customers of the Company accounted for revenues exceeding 43% in total and at least 5% individually of the Company’s total revenues for 2002. During 2001, five customers of the Company accounted for revenues exceeding 38% in total and at least 5% individually of the Company’s total revenues for 2001. Revenues earned from these customers were approximately $18,816,000 in 2003, $12,169,000 in 2002 and $11,228,000 in 2001. At December 31, 2003, 2002 and 2001, the amounts owed to the Company by these customers were approximately $1,004,000, $474,000 and $661,000, respectively.

F-50

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

19. Concentrations (continued)

Geographic Concentrations

During 2003, 2002 and 2001, the Company generated revenue from continuing operations from customers in the following countries.

2003 2002 2001

India $ 2,119,000 $ 3,290,000 $ 1,472,000

United States 31,350,000 25,132,000 28,143,000

Other 256,000

$33,725,000 $28,422,000 $29,615,000

At December 31, 2003 and 2002, the Company had foreign long-lived assets as follows:

2003 2002

India $1,311,680 $1,779,646

Pakistan 229,522 286,648

$1,541,202 $2,066,294

Revenues by geographic area are based upon the location of the customers. The foreign long lived assets by geographic area represent those assets physically used in the operations in each geographic area

20. Selected quarterly results (unaudited)

2003

First Second Third Fourth

Quarter Quarter Quarter Quarter

      Net sales $ 9,373,375 $ 7,572,457 $ 7,894,724 $ 8,884,719

      Operating loss $(1,644,047) $(1,879,022) $(1,766,786) $(2,251,658)

      Forgiveness of debt 12,206 1,184,088 582,739 2,139,262

      Net loss $(1,825,083) $ (904,620) $(1,375,533) $ (71,335)

      Preferred stock dividends $ (82,015) $ — $ (488,670) $ (64,569)

      Net loss applicable to common
            stockholders $(1,907,098) $ (904,620) $(1,864,203) $ (135,904)

      Basic and diluted net loss per
            common share applicable to
            common stockholders $ (0.14) $ (0.07) $ (0.14) $ —

F-51

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

20. Selected quarterly results (unaudited) (continued)

2002

First Second Third Fourth

Quarter Quarter Quarter Quarter

      Net sales $ 9,104,339 $ 7,444,119 $ 5,517,079 $ 6,356,612

      Operating loss $(2,433,700) $(2,634,745) $(2,597,212) $(2,348,685)

      Forgiveness of debt — 1,611,094 2,460 198,538

      Net loss $(2,754,896) $(1,339,780) $(2,897,655) $(2,366,193)

      Preferred stock dividends $ — $ — $ (642,552) $ —

      Net loss applicable to common

            stockholders $(2,754,896) $(1,339,780) $(3,540,207) $(2,366,193)

      Basic and diluted net loss per

            common share applicable to

            common stockholders $ (0.28) $ (0.14) $ (0.39) $ (0.21)

21. Subsequent events

At various times through the first six months of 2004, all the shareholders of the Company’s Series A Preferred Stock, elected to convert their shares into common stock at a conversion rate of $3.50 per share. This conversion resulted in the issuance of 1,163,500 shares of common stock. In connection with this conversion accrued dividends from September 1, 2003 to the date of the respective conversions were issued in the form of common stock. These common stock dividends resulted in the issuance of 119,479 additional shares of common stock.

At various times through the first six months of 2004, all the shareholders of the Company’s Series B Preferred Stock, elected to convert their shares into common stock at a conversion rate of $3.50 per share. This conversion resulted in the issuance of 210,000 shares of common stock. In connection with this conversion accrued dividends from April 1, 2004 to the date of the respective conversions were issued in the form of common stock. These common stock dividends resulted in the issuance of 3,533 additional shares of common stock.

In March 2004, certain note holders elected to convert approximately $585,000 of their notes into shares of the Company’s Series C Preferred Stock at a conversion rate of $90 a share. The conversion resulted in the issuance of 6,504 additional shares of Series C Preferred Stock.

In March 2004, the Company issued 59,470 shares of its Series C Preferred Stock in a final closing of the private placement commenced in November 2003. The total proceeds received from the issuance of these shares amounted to approximately $4,629,000, net of investment expense of approximately $723,000.

In March 2004, the Board of Directors approved an increase of the authorized number of shares of the Company’s stock to be issued to 40,000,000. Of the total shares authorized to be issued, 30,000,000 are designated for the issuance of common stock and 10,000,000 are designated for the issuance of preferred stock.

F-52

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

21. Subsequent events (continued)

In December 2004, the Company entered into an agreement to acquire the 100% of the common stock of a Jamaican company in exchange for $150,000. Substantially all of the net assets of the company consist of international and domestic carrier license agreements with the Jamaican government which expire in 2013 and 2018, respectively.

On November 1, 2004, the Board of Directors, upon approval of the stockholders, authorized a 3.5 to 1 reverse stock-split applicable to all outstanding shares of the Company’s common stock. All transactions and disclosures in the consolidated financial statements, related to the Company’s common stock have been restated to reflect the effect of the reverse stock-split.

On November 1, 2004, the Board of Directors, upon approval of the stockholders, increased the authorized number of shares to 136,000,000 which includes 105,000,000 shares of common stock, 10,000,000 shares of preferred stock and 21,000,000 shares of Class A common stock. On or about December 15, 2004, each share of the Company’s outstanding common stock will automatically be converted into one share of Class A common stock. The Class A common stock may not be converted into common stock until one year after the successful completion of an initial public offering unless the holder agrees to exercise a one year lock up agreement.

In November 2004, the Company received net cash proceeds of $1,330,000 ($1,400,000 for a convertible note net with a $70,000 advisory fee) and refinanced $1,108,333 of existing notes payable and accrued interest in exchange for a convertible promissory note. These two notes aggregate $2,508,333, bear interest at 6.5% per annum and are due in November 2006. The notes would automatically convert into common shares at a conversion price of $3.85 per share upon successful registration from an initial public offering. The common stock is subject to a one year lock up provision.

The options issued under the Company’s stock option plan subsequent to December 31, 2003 is as follows:

Weighted

Number Average

of Per Share Option

Shares Option Price Price

Shares under options at January 1, 2004 656, 207 $2.35 – 11.66 $8.72

Granted in 1st quarter of 2004 11,071 8.75 – 8.75 8.75

Granted in 2nd quarter of 2004 7,071 8.75 – 8.75 8.75

Granted in 3rd quarter of 2004 1,150,970 3.15 – 8.75 4.12

Expired in 2004 (128,811) 2.35 – 11.66 9.62

Shares under options at September 30, 2004 1,696,508 $2.35 – $8.75 $5.53

Options exercisable at September 30, 2004 440,246 $2.35 – 8.75 $8.43

F-53

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

Balance at Additions

beginning of charged to Deductions Balance at end

period expense from Reserves of period

Allowance for Doubtful Accounts for the Years Ended:

December 31, 2003 $ 517,409 $ 183,735 $ 13,654 $ 687,490

December 31, 2002 972,073 231,088 685,752 517,409

December 31, 2001 1,196,584 1,526,927 1,751,438 972,073

Tax Valuation Account for the Years Ended:

December 31, 2003 $22,217,000 $1,747,000 $ – $23,964,000

December 31, 2002 19,063,000 3,154,000 – 22,217,000

December 31, 2001 12,481,000 6,582,000 – 19,063,000

F-54

[Alternate Page for Selling Securityholder Prospectus]

PROSPECTUS

SUBJECT TO COMPLETION DATED DECEMBER ___, 2004
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.
3,141,838 PURCHASE WARRANTS

This Prospectus relates to 3,141,838 redeemable common stock purchase warrants (the “Selling Securityholders’ Warrants”), of Fusion Telecommunications International, Inc., which are being offered for sale by certain selling Securityholders (the “Selling Securityholders”). Each Selling Securityholders’ Warrant expires on ___________, 2009, five years after the date of Prospectus, and entitles the holder thereof, commencing one year from the date of this Prospectus, to purchase one share of common stock at an exercise price of $____ (100% of the offering price of our common stock) during the four-year period beginning on the first anniversary of the date of our Prospectus. The warrant exercise price will increase to 133% of the then current exercise price (initially $____) of the purchase warrants on the eighteen month anniversary of the date of the prospectus provided that the registration statement covering the shares of common stock underlying the purchase warrants has been effective for at least sixty (60) days prior to the exercise price reset date. The Selling Securityholders received their Purchase Warrants upon conversion of the Class C preferred stock, at the closing of our initial public offering. The Selling Securityholders’ Warrants are sometimes hereinafter referred to as the “Selling Securityholders’ Securities.” See “SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION.”

We will not receive any of the proceeds from the sales of the Selling Securityholders’ Securities by the Selling Securityholders. The Selling Securityholders’ Securities may be offered from time to time by the Selling Securityholders, their pledgees and/or their donees, after the effective date of this Registration Statement through ordinary brokerage transactions in the over-the-counter market, in negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices. The Selling Securityholders will not be selling until the distribution of the initial public offering is completed and the warrants are trading on the American Stock Exchange.

The Selling Securityholders’ Securities offered by this Prospectus may be sold from time to time by the Selling Securityholders, their pledgees and/or their donees. No underwriting arrangements have been entered into by the Selling Securityholders. The distribution of the Selling Securityholders’ Securities by the Selling Securityholders, their pledgees and/or their donees, may be effected in one or more transactions that may take place on the over-the-counter market, including ordinary broker’s transactions, privately-negotiated transactions or through sales to one or more dealers for resale of such shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the Selling Securityholders, their pledgees and/or their donees, in connection with sales of the Selling Securityholders’ Securities.

A-1

[Alternate Page for Selling Securityholder Prospectus]

On the date of this Prospectus, a registration statement under the Securities Act with respect to an underwritten public offering of 3,325,000 shares of Common Stock and 3,325,000 Purchase Warrants (without giving effect to the overallotment option (the Overallotment Option”) granted to the underwriters to purchase an additional 498,750 shares of Common Stock and 498,750 Purchase Warrants), with each Purchase Warrant entitling the holder to purchase one share of Common Stock of the Company, was declared effective by the Securities and Exchange Commission. In connection with the offering of the Common Stock and Redeemable Warrants, the Company granted the representative of the underwriter a warrant to purchase 332,500 shares of Common Stock and 332,500 Redeemable Warrants (the “Underwriters’ Warrants”).

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE “RISK FACTORS.”

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.

The date of this Prospectus is December __, 2004

A-2

[Alternate Page for Selling Securityholder Prospectus]

THE OFFERING

Securities Registered 3,141,838 Purchase Warrants, each warrant entitling its holder to purchase one share of common stock. See “DESCRIPTION OF SECURITIES” and “SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION.”

Risk Factors This Offering involves a high degree of risk. See “RISK FACTORS.”

A-3

[Alternate Page for Selling Securityholder Prospectus]

PLAN OF DISTRIBUTION

Each Selling Securityholder is free to offer and sell his or her Purchase Warrants at such times, in such manner and at such prices as he or she shall determine. Such Purchase Warrants may be offered by the Selling Securityholders in one or more types of transactions, which may or may not involve brokers, dealers or cash transactions. The Selling Securityholders may also use Rule 144 under the Securities Act, to sell such securities, if they meet the criteria and conform to the requirements of such rule. There is no underwriter or coordinating broker acting in connection with the proposed sales of Purchase Warrants by the Selling Securityholders. The selling securityholders acquire the Purchase Warrants upon the automatic conversion of their series C preferred stock upon the completion of the Company’s initial public offering of this Registration Statement.

The Selling Securityholders have advised us that sales of Purchase Warrants may be effected from time to time in transactions (which may include block transactions) after effectiveness of this Registration Statement, on an exchange in the over-the-counter market, in negotiated transactions, or a combination of such methods of sale, at a fixed price which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. The Selling Securityholders may effect such transactions by selling Purchase Warrants directly to purchasers or to or through broker-dealers, which may as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions, or commissions from the Selling Securityholders and/or the purchasers of Purchase Warrants for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). The Selling Securityholders and any broker-dealers that act in connection with the sale of the Purchase Warrants might be deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act, and any commissions received by them and any profit on the resale of the Purchase Warrants as principal might be deemed to be underwriting discounts and commissions under the Securities Act. The Selling Securityholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares against certain liabilities, including liabilities arising under the Securities Act.

Because Selling Securityholders may be deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act, the Selling Securityholders will be subject to prospectus delivery requirements under the Securities Act. If any broker-dealers are used by the Selling Securityholders, their pledgees and/or their donees, any commissions paid to broker-dealers and, if broker-dealers purchase any Selling Securityholders’ Securities as principals, any profits received by such broker-dealers on the resale of the Selling Securityholders’ Securities may be deemed to be underwriting discounts or commissions under the Securities Act. In addition, any profits realized by the Selling Securityholders, their pledgees and/or their donees, may be deemed to be underwriting commissions. All costs, expenses and fees in connection with the registration of the Selling Securityholders’ Securities offered by Selling Securityholders will be borne by the Company. Brokerage commission, if any, attributable to the sale of the Selling Securityholders’ Securities will be borne by the Selling Securityholders, their pledgees and/or their donees. Furthermore, in the event of a “distribution” of shares, any Securityholders, any selling broker-dealer and any “affiliated purchasers” may be subject to Regulation M under the Securities Exchange Act of 1934 which prohibits any “stabilizing bid” or “stabilizing purchase” for the purpose of pegging, fixing or stabilizing the price of Purchase Warrants in connection with this offering.

USE OF PROCEEDS

We will not receive any proceeds upon the sale of any of the Purchase Warrants registered on behalf of the Selling Securityholders.

A-4

[Alternate Page for Selling Securityholder Prospectus]

The following table sets forth certain information with respect to persons for whom the Company is registering the Selling Securityholders’ Securities for resale to the public. The Company will not receive any of the proceeds from the sale of the Selling Securityholders’ Securities. Beneficial ownership of the Selling Securityholders’ Securities by such Selling Securityholders after the Offering will depend on the number of Selling Securityholders’ Securities sold by each Selling Securityholder. The Selling Securityholders’ Securities offered by the Selling Securityholders are not being underwritten by the Underwriter.

Beneficial Ownership of Beneficial Ownership after

Selling Securityholder (1) Shares and Warrants Prior to Sale offering if all Warrants are sold

Shares (2) Warrants Shares Warrants

David Abel 14,286 7,143 7,143 0

Michael I. Abrams 3,430 1,715 1,715 0

Russell Abrams 22,172 11,086 11,086 0

Scott Adams 15,830 7,915 7,915 0

Adventure Seekers LLC 57,144 28,572 28,572 0

AFA Private Equity Fund I 114,286 57,143 57,143 0

Dick Alaimo Jr 14,286 7,143 7,143 0

Gary Alderman 14,286 7,143 7,143 0

William B. Alsup III 51,430 25,715 25,715 0

Vijay Anand & Nanda Anand 17,144 8,572 8,572 0

David Anderson 28,572 14,286 14,286 0

Robert F. & Susan L. Arnold JTWROS 11,430 5,715 5,715 0

Howard Baron 15,830 7,915 7,915 0

Patrick A. Bello &
      Sheila M. Bello JTWROS* 62,804 31,402 31,402 0

Marc E. Bengualid 11,430 5,715 5,715 0

Anthony Beninato Sr &
      Johanne Beninato JTWROS 14,286 7,143 7,143 0

Mark Berkowitz & Lois Berkowitz 20,000 10,000 10,000 0

Berkowitz & Garfinkel DDS PA
      Employee Pension Plan 20,000 10,000 10,000 0

Berryman Global Holdings LLC 31,772 15,886 15,886 0

William Blake 28,572 14,286 14,286 0

Patrick Boyce & Sonja Boyce JTWROS 28,572 14,286 14,286 0

Thomas P. Broderick 28,572 14,286 14,286 0

Gregory Brotzman 28,572 14,286 14,286 0

James A. Brownell 31,716 15,858 15,858 0

Carl T. Brozek 28,572 14,286 14,286 0

E. Alan Brumberger* 17,144 8,572 8,572 0

Mark A. Bruno 31,716 15,858 15,858 0

Daniel Burstein 9,486 4,743 4,743 0

Bruce Buyers 28,572 14,286 14,286 0

John Buyers 28,572 14,286 14,286 0

Lawrence V. Carra 14,286 7,143 7,143 0

Nicholas Centola 14,286 7,143 7,143 0

Louis Centola Jr. 14,286 7,143 7,143 0

John Chaffins 31,716 15,858 15,858 0

Dennis Codon 28,572 14,286 14,286 0

Stephen Cohen 9,486 4,743 4,743 0

William W. Collins & Ann Y. Collins
      JTWROS 8,572 4,286 4,286 0

Continental Screen Printing Corporation
      Profit Sharing Plan & Trust 6,344 3,172 3,172 0

Stephen M. Cumbie 17,144 8,572 8,572
0

A-5

[Alternate Page for Selling Securityholder Prospectus]

Beneficial Ownership of Beneficial Ownership after

Selling Securityholder (1) Shares and Warrants Prior to Sale offering if all Warrants are sold

Shares (2) Warrants Shares Warrant

John Curtin 14,286 7,143 7,143 0

Rameshahandra Dabhi &
      Nila Dabhi JTWROS 11,430 5,715 5,715 0

Davis Family Investments Limited Partnership 126,972 63,486 63,486 0

David W DeFisher 14,286 7,143 7,143 0

John DeFrancesco & Paula DeFrancesco
      JTWROS 31,716 15,858 15,858 0

Richard Della Porta 14,286 7,143 7,143 0

Jeffrey B. & Tamara S. Dierman TEN ENT 17,144 8,572 8,572 0

Nuala Drescher 14,286 7,143 7,143 0

Jonathan Ellman 15,830 7,915 7,915 0

James A. Enright & Judith A. Enright,
      Trustees of The Enright Family Trust
      UDT 5/3/02 14,286 7,143 7,143 0

Briggs Ferguson 28,572 14,286 14,286 0

Anita Frankel 15,830 7,915 7,915 0

Andrew Gamba & Wen Gamba JTWROS 14,286 7,143 7,143 0

Kumar Ganapathy 64,000 32,000 32,000 0

Alex Garfield 5,716 2,858 2,858 0

Eric Garfinkel & Cindy Garfinkel JTWROS 17,144 8,572 8,572 0

Marshall Geller 95,200 47,600 47,600 0

Greg Gentling 62,858 31,429 31,429 0

Gilcy Partners Ltd., LP 14,286 7,143 7,143 0

Peter J. Giroux 19,430 9,715 9,715 0

Global ePoint, Inc. 15,830 7,915 7,915 0

David Goldberg 28,572 14,286 14,286 0

Howard Goldberg 28,572 14,286 14,286 0

Roy Goldberg 28,572 14,286 14,286 0

George H. Gordon Trust 14,286 7,143 7,143 0

Patricia A Gordon Trust 14,286 7,143 7,143 0

Michael Graves 57,144 28,572 28,572 0

Randall M. Griffin 28,572 14,286 14,286 0

E. John Helmon 31,716 15,858 15,858 0

Joanne C. Himmel 17,144 8,572 8,572 0

Fred P. Hochberg * 14,286 7,143 7,143 0

Martin Hodas 57,144 28,572 28,572 0

Marc Honigfeld & Rona Honigfeld JT TEN 28,572 14,286 14,286 0

Paul Horowitz 7,144 3,572 3,572 0

John Houston 14,286 7,143 7,143 0

James E. Hutchinson 14,286 7,143 7,143 0

Insiders Trend Fund, LP 74,286 37,143 37,143 0

Miles Jaffe 63,486 31,743 31,743 0

Dr. Rajammal Jayakumar &
      Arumugam Jayakumar JTTEN 28,572 14,286 14,286 0

Jorel Management Corp. 17,144 8,572 8,572 0

Michael Karpoff &
      Patricia Rothbardt JTWROS 28,572 14,286 14,286 0

Allan J. Katz 2,858 1,429 1,429 0

Dr. Louis Katz & Irene Katz JTTEN 28,572 14,286 14,286 0

Alan & Amy Dean Kluger JTROS 22,858 11,429 11,429 0

Alain Krakirian 14,286 7,143 7,143
0

A-6

[Alternate Page for Selling Securityholder Prospectus]

Beneficial Ownership of Beneficial Ownership after

Selling Securityholder (1) Shares and Warrants Prior to Sale offering if all Warrants are sold

Shares (2) Warrants Shares Warrant

Martin D. & Ruth F. Krall JTROS 17,144 8,572 8,572 0

Nathaniel Kramer 28,572 14,286 14,286 0

Denise Labella & Vito Labella JTWROS 14,286 7,143 7,143 0

Bruce Lamchick & Eileen Lamchick JTWROS 5,716 2,858 2,858 0

The Larsen 2000 Revocable Trust 28,572 14,286 14,286 0

James G. Lawrence 19,030 9,515 9,515 0

Richard Kurt Lee 28,572 14,286 14,286 0

Mark Lieb 12,686 6,343 6,343 0

Jeff Lippert 14,286 7,143 7,143 0

Arthur R. Lubojasky &
      Gaynor L. Lubojasky JTWROS 28,572 14,286 14,286 0

David Macchia Sr. 28,572 14,286 14,286 0

Jay Macchitelli 57,144 28,572 28,572 0

Margui Family Partners Ltd. 17,144 8,572 8,572 0

Markan Inc. 28,572 14,286 14,286 0

Peter Markovics 15,830 7,915 7,915 0

Paine Webber Group, Inc – Senior Officer
      Deferred Comp Plan DCA Trust FBO
      Donald B. Marron 158,686 79,343 79,343 0

Allan Marshall 28,572 14,286 14,286 0

Dee L. Martinez, MD 28,572 14,286 14,286 0

Michael M. Matluck &
      Karen S. Matluck JTWROS 47,546 23,773 23,773 0

Rachel L. Mellon 185,716 92,858 92,858 0

Robert A. Melnick 42,858 21,429 21,429 0

Joseph P. Metz & Catherine Metz JTWROS 20,000 10,000 10,000 0

Richard Milazzo 28,572 14,286 14,286 0

Joseph E. Miller, Jr. 126,972 63,486 63,486 0

Leo E. Mindel Non-Gst Exempt Family Trust II 74,286 37,143 37,143 0

Richard Molinsky 57,144 28,572 28,572 0

John Morton & Lorraine Morton JTWROS 14,286 7,143 7,143 0

Peter S Morton & Kathleen M Morton JTWROS 14,286 7,143 7,143 0

MRL Trust 93,944 46,972 46,972 0

Frank Musacchio 14,286 7,143 7,143 0

James Nation 14,286 7,143 7,143 0

Jerome Oksiuta 28,572 14,286 14,286 0

Terry R. Otton IRA Charles Schwab & Co.,
      Inc. Custodian 45,716 22,858 22,858 0

Jang S. Park 28,572 14,286 14,286 0

Frank J. Pearl, M.D. and
      Suzanne F. Pearl JT TEN 17,144 8,572 8,572 0

Performance Capital Group LLC 14,286 7,143 7,143 0

Robert L. Plummer 342,858 171,429 171,429 0

Walter Pollack & Barbara Pollack JTWROS 28,572 14,286 14,286 0

Michael F. Power 28,572 14,286 14,286 0

Preminger Family Trust 17,144 8,572 8,572 0

David Price 28,572 14,286 14,286 0

Tracy Price 28,572 14,286 14,286 0

Carl Priest & Katherine Priest JTWROS 14,286 7,143 7,143 0

Donald H. Putnam 28,572 14,286 14,286 0

Barry Rabkin 31,716 15,858 15,858
0

A-7

[Alternate Page for Selling Securityholder Prospectus]

Beneficial Ownership of Beneficial Ownership after

Selling Securityholder (1) Shares and Warrants Prior to Sale offering if all Warrants are sold

Shares (2) Warrants Shares Warrant

Hubert Riegler 14,286 7,143 7,143 0

John C. Roberts 13,944 6,972 6,972 0

James Robertson 14,286 7,143 7,143 0

Donald A. Robins 14,286 7,143 7,143 0

Marvin S. Rosen* 190,458 95,229 95,229 0

Frederick Sandvick 28,572 14,286 14,286 0

Michael Sansevero 28,572 14,286 14,286 0

Charles A. Schmitz 28,572 14,286 14,286 0

John Schulman 28,572 14,286 14,286 0

Marilyn E. Shapo 22,858 11,429 11,429 0

David Shlaes 14,286 7,143 7,143 0

Gary R. Siegel 14,286 7,143 7,143 0

Eric R. Sisser 14,286 7,143 7,143 0

Gregory Small 38,058 19,029 19,029 0

David L. Smith 17,144 8,572 8,572 0

Kevin B. Smith 57,144 28,572 28,572 0

Michael Smith 28,572 14,286 14,286 0

Stanley Spielman 28,572 14,286 14,286 0

Richard Spinelli 15,830 7,915 7,915 0

Dean T. Sposto 28,572 14,286 14,286 0

Harold Stalcup & Rebecca Stalcup JTWROS 44,572 22,286 22,286 0

Joan Stanton 185,716 92,858 92,858 0

Marisa Starr 17,144 8,572 8,572 0

Edward Steinberg 63,486 31,743 31,743 0

Marshall Steingold 6,344 3,172 3,172 0

Sterling & Sterling, Inc 11,430 5,715 5,715 0

F. Joseph Straub 28,572 14,286 14,286 0

John H. Sununu * 142,802 71,401 71,401 0

Eric Tanner 28,572 14,286 14,286 0

Alphonso Tindall 6,286 3,143 3,143 0

Theodore L. Tolles 17,144 8,572 8,572 0

Leonard M. Toonkel &
      Janis G. Toonkel JTWROS 28,572 14,286 14,286 0

Philip D. Turits * 190,458 95,229 95,229 0

Tim T. Turner 14,286 7,143 7,143 0

Leonard Van Orden &
      Laura Van Orden JTWROS 28,572 14,286 14,286 0

James M. Walsh 14,286 7,143 7,143 0

William H. Warren 14,286 7,143 7,143 0

Melvin Weidner 28,572 14,286 14,286 0

Melvyn I. Weiss 63,486 31,743 31,743 0

Michael J. Weiss 14,286 7,143 7,143 0

Dale Wilson 57,144 28,572 28,572 0

Woodland Partners 126,972 63,486 63,486 0

Philip Woodworth &
      Linda Woodworth JTWROS 16,000 8,000 8,000 0

World Capital Corporation* 190,458 95,229 95,229 0

Joseph R. Wright, Jr. 14,286 7,143 7,143 0

Albert Yan 14,286 7,143 7,143 0

Nir Zuk & Tumar Zuk Trustees of the
      Zuk 2003 trust dated 2/24/03 28,572 14,286 14,286 0

A-8

[Alternate Page for Selling Securityholder Prospectus]

Beneficial Ownership of Beneficial Ownership after

Selling Securityholder (1) Shares and Warrants Prior to Sale offering if all Warrants are sold

Shares (2) Warrants Shares Warrants

6,283,676 3,141,838 3,141,838 0

(1) Except as indicated by an *, no Selling Securityholder is an officer, director, affiliate or 5% shareholder of ours.

(2) Includes shares issuable upon exercise of the Selling Securityholder Warrants.

* Mr. Rosen beneficially owns an agreggate of 2,251,188 shares, Mr. Turits beneficially owns an aggregate of 1,940,388 shares, Mr. Bello beneficially owns an agreggate of 235,436 shares, Mr. Sununu beneficially owns an agreggate of 165,686 shares, Mr. Brumberger beneficially owns an aggregate of 237,524 shares and Mr. Hochberg beneficially owns an aggregate of 7,143 shares. Messrs. Rosen and Turits are officers and directors of our company and Messrs. Brumberger and Hochberg are directors. Messrs. Bello and Sununu are members of our Advisory Board. Mr. Eric Ram, our Executive Vice President, is the managing director and principal shareholder of World Capital Corporation and beneficially owns an aggregate of 96,429 shares.

A-9

[Alternate Page for Selling Securityholder Prospectus]

Where You Can Find More Information

We have filed with the SEC a registration statement of Form S-1 relating to the securities being offered through this prospectus. As permitted by the rules and regulations of the SEC, the prospectus does not contain all the information described in the registration statement. For further information about us and our securities, you should read our registration statement, including the exhibits and schedules. In addition, we will be subject to the requirements of the Securities Exchange Act of 1934, as amended, following the offering and thus will file annual, quarterly and special reports, proxy statements and other information with the SEC. These SEC filings and the registration statement are available to you over the Internet at the SEC’s web site at http://www.sec.gov/ . You may also read and copy any document we file with the SEC at the SEC’s public reference room in 450 Fifth Street, N.W., Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. Statements contained in this prospectus as to the contents of any agreement or other document are not necessarily complete and, in each instance, you should review the agreement or document which has been filed as an exhibit to the registration statement.

Following the offering, we intend to furnish our stockholders with annual reports containing audited financial statements.

EXPERTS

Our consolidated financial statements as of December 31, 2002 and 2003, and for each of the three years in the period ended December 31, 2003, have been audited by Rothstein, Kass & Company, P.C., an independent registered public accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such reports and given the authority of such firm as experts in accounting and auditing.

A-10

[Alternate Page for Selling Securityholder Prospectus]

FUSION TELECOMMUNICATIONS INTERNATIONAL INC.

3,141,838 PURCHASE WARRANTS

A-11

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth an estimate of the costs and expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the issuance and distribution of the Common stock being registered.

SEC registration fee $ 11,225.00

NASD filing fee 9,360.00

American Stock Exchange 70,000.00

Legal fees and expenses 250,000.00

Accountants’ fees and expenses 225,000.00

Printing and Engraving expenses 50,000.00

Blue Sky Fees and Expenses 2,500.00

Transfer Agent and Registration Fees 2,500.00

Miscellaneous 4,415.00

Total $625,000.00

All amounts except the SEC registration, NASD and AMEX fees are estimated. All of the expenses set forth above are being paid by us.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 102(b)(7) of the Delaware General Corporation Law, which we refer to as the “DGCL,” permits a provision in the certificate of incorporation of each corporation organized under the DGCL eliminating or limiting, with some exceptions, the personal liability of a director to corporation the or its stockholders for monetary damages for some breaches of fiduciary duty. Our Certificate of Incorporation eliminates the personal liability of directors to the fullest extent permitted by the DGCL.

Section 145 of the DGCL, which we refer to as “Section 145,” in summary, empowers a Delaware corporation to indemnify, within limits, its officers, directors, employees and agents against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement that they actually and reasonably incur in connection with any suit or proceeding, other than by or on behalf of the corporation, if they acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interest of the corporation and, with respect to a criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful.

With respect to any action by or on behalf of the corporation, Section 145 permits a corporation to indemnify its officers, directors, employees and agents against expenses (including attorneys' fees) they actually and reasonably incur in connection with the defense or settlement of the action or suit, provided that person meets the standard of conduct described in the preceding paragraph. No indemnification is permitted, however, in respect of any claim where that person has been found liable to the corporation, unless the Court of Chancery or court in which the action or suit was brought approves the indemnification and determines that the person is fairly and reasonably entitled to be indemnified.

Our Certificate of Incorporation contains a provision that eliminates the personal liability of our directors to us and our stockholders for monetary damages for breach of a director's fiduciary duty to us. This provision does not permit any limitation on, or elimination of the liability of a director for, disloyalty to us or our stockholders, for failing to acting good faith, for engaging in intentional misconduct or a knowing violation of law, for obtaining an improper personal benefit or for paying a dividend or approving a stock repurchase that would be illegal under the DGCL.

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Our Certificate of Incorporation requires us to indemnify our directors and officers against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative, other than an action by or in our right (a “derivative action”), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to our best interests, and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard of care is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys’ fees) incurred in connection with defense or settlement of such an action. Moreover, the DGCL requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation.

Insofar as indemnification for liabilities under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have 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. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by our director, officer or controlling person 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, we will, unless in the opinion of our counsel the matter as 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 Securities Act and will be governed by the final adjudication of such issue.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following is a list of our securities that have been sold or issued by us during the past three years. Each of these securities were sold without registration under the Securities Act in reliance on Section 4(2) of the Securities Act. There were no underwriting discounts or commissions paid in connection with the sale of these securities, except as noted.

In March 2002, we issued pursuant to a private placement an aggregate of 83,500 shares of series B preferred stock at $10 per share for gross proceeds of $835,000. We did not pay commissions in connection with the sale of these shares. The offering was made to 4 accredited investors pursuant to Rule 506 of Regulation D of the Securities Act. We provided each purchaser with a private placement memorandum and required each purchaser to represent that they were accredited investors. In March of 2003 and 2004, dividends were issued in the form of common stock in the amounts of $82,013 and $84,525 respectively. In May of 2004, the series B Preferred shareholders elected to convert their preferred stock to common stock at $3.50 per share, as authorized by the Board of Directors in December of 2003. During September 2004, dividends from the period of March 2004 until the day of conversion were issued to shareholders, in the form of common stock for a total amount of $10,510.

In July 2002, we issued 2,358,956 shares of common stock at $2.28 per share pursuant to a rights offering to existing holders of record as of July 31, 2002. We received gross proceeds of $5,366,625, including $3,730,658 from the conversion of debt. In 2003, we issued an additional 1,546,540 shares for gross proceeds of $3,523,529, including $439,147 from the conversion of debt. We paid commissions of $42,875 to Joseph Stevens & Co. in connection with the sale of these shares. The offering was made to 83 accredited investors pursuant to Rule 506 of Regulation D of the Securities Act. We required each purchaser to represent that they were accredited investors.

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In June 2003, we issued pursuant to a private placement 1,543,187 shares of common stock at $2.98 per share for gross proceeds of $4,590,980 including $596,000 from the conversion of debt. In 2004, we issued an additional 430,252 shares for aggregate proceeds of $1,280,000. We paid commissions of $68,000 to Joseph Stevens & Co. in connection with the sale of these shares. The offering was made to 29 accredited investors pursuant to Rule 506 of Regulation D of the Securities Act. We provided each purchaser with a private placement memorandum and required each purchaser to represent that they were accredited investors.

In November 2003, we issued pursuant to a private placement 43,988 shares of series C convertible preferred stock at $90 per share for gross proceeds of $3,958,920, including $940,140 from the conversion of debt. Approximately $930,140 was converted into shares of the Company’s Series C Preferred Stock at a conversion rate of $90 per share, resulting in the issuance of 10,336 shares of Series C Preferred Stock. Also during December 2003, a $10,000 advance from a potential investor in a proposed Asian joint venture (which did not materialize) was converted into 111 shares of Series C Preferred Stock at a conversion rate of $90 per share. In February 2004, we issued an additional 65,974 shares of series C convertible preferred stock for gross proceeds of $5,937,660, including $585,360 from the conversion of debt. The notes were converted into shares of our Series C preferred stock at the conversion rate of $90 per share. The conversion resulted in the issuance of 6,504 additional shares of Series C preferred stock. We paid commissions of $1,151,186 to Kirlin Securities, Inc. in connection with the sale of these shares. The offering was made to 178 accredited investors pursuant to Rule 506 of Regulation D of the Securities Act. We provided each purchaser with a private placement memorandum and required each purchaser to represent that they were accredited investors.

On December 24, 2003, Fusion and a large U.S. carrier entered into a settlement agreement, which included the issuance of 246,667 shares of common stock at $5.25 per share for the amount of $1,295,000 and a note payable of $555,000. The note payable is being repaid through a service agreement where the carrier is receiving a reduced rate for every minute of traffic that is passed through our network for a period of twenty-four (24) months, which will be through December 2005.

At various times during the year ended December 31, 2003, certain note holders elected to convert approximately $985,165 of their notes and accrued interest into common stock at conversion rates ranging between $2.28 and $5.25 per share. The conversions resulted in the issuance of an additional 376,567 shares of common stock. Also during 2003, the Company issued 16,807 shares of its common stock, at $2.98 per share for the assumption of a $50,000 letter of credit in the name of and secured by a shareholder of the Company.

In October 2004, we issued 19,048 shares of our common stock at $5.25 per share to the Saif Group in exchange for all outstanding obligations owed to them as of July 1, 2004. In connection with the issuance of such shares, we relied on Section 4(2) of the Securities Act.

On November 10, 2004, we issued convertible promissory notes to one individual in the aggregate amount of $2,508,333, representing $1,400,000 in cash and $1,108,333 to refinance certain debt and accrued interest owed to an existing related party. The promissory notes bear interest at 6.5% per annum and are due on November 2006. The notes will automatically convert into common shares at a conversion price of $3.85 per share upon the closing of the offering. The common stock is subject to a one-year lock up provision. We paid Kirlin Securities, Inc. $70,000 as an advisory fee in connection with this issuance.

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ITEM 16. EXHIBITS

(a) Exhibits

Exhibit No. Document

1.1 Form of Underwriting Agreement (*)

1.2 Form of Selected Dealer Agreement (*)

1.3 Form of Merger Fee Agreement (*)

1.4 Form of Agreement Among Underwriters (*)

1.5 Form of Warrant Agreement with Continental Stock Transfer & Trust Company (*)

1.6 Form of Common Stock Certificate (2)

1.7 Form of Redeemable Common Stock Purchase Warrant Certificate (2)

1.8 Form of Underwriter Warrant (*)

3.1 Certificate of Incorporation, as amended (1)

3.1(a) Certificate of Designation of Series C Convertible Redeemable Preferred Stock (1)

3.3 Bylaws (1)

5.1 Opinion of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP (2)

10.1 1998 Stock Option Plan (*)

10.2 Employment Agreement between registrant and Matthew Rosen (*)

10.3 Master Service Agreement between registrant and Terremark Worldwide, Inc., dated May 29, 2003 (1)

10.4 Agreement between registrant and Pakistan Telecommunications Company, Ltd, dated May 20, 2002 (1)

10.5 Joint Venture Agreement between registrant and Karamco, Inc., dated December 12, 2002 (1)

10.6 Agreement between Fusion registrant and Communications Ventures PVT. LTD, dated May 13, 2004 (1)

10.7 Form of Warrant to Purchase Common Stock (2)

10.8 Lease Agreement between registrant and SLG Graybar Sublease, LLC for the 420 Lexington Avenue, New York, NY office (1)

10.9 Lease Agreement between registrant and 67 Broad Street LLC for the 75 Broad Street, New York, NY office (1)

10.10 Lease Agreement between registrant and Fort Lauderdale Crown Center, Inc. for the Fort Lauderdale, Florida office, as amended (1)

10.11 Agreement between registrant and Dennis Mehiel, dated November 10, 2004 and attached promissory note of even date therewith (*)

10.12 Shareholders Joint Venture Agreement between registrant and Communications Ventures Index Pvt. Ltd., dated March 11, 2000 (1)

10.13 Convertible Subordinated Note issued by registrant to Marvin Rosen, dated April 9, 1999 (*)

10.14 Demand note issued by registrant to Marvin Rosen, dated March 28, 2001 (1)

10.15 Demand note issued by registrant to Marvin Rosen, dated April 13, 2001 (1)

10.16 Demand note issued by registrant to Marvin Rosen, dated December 4, 2000 (1)

10.17 Demand note issued by registrant to Marvin Rosen, dated May 24, 2001 (1)

10.18 Warrant to Purchase Common Stock issued by registrant to Marvin Rosen, dated July 31, 2002 (*)

10.19 Convertible Subordinated Note issued by registrant to Philip Turits, dated April 9, 1999 (1)

10.20 Demand note issued by registrant to Philip Turits, dated January 31, 2003 (1)

10.21 Demand note issued by registrant to Philip Turits, dated October 14, 2002 (1)

10.22 Demand note issued by registrant to Philip Turits, dated December 31, 2002 (1)

10.23 Demand note issued by registrant to Philip Turits, dated July 31, 2002 (1)

10.24 Demand note issued by registrant to Philip Turits, dated September 24, 2002 (1)

10.25 Demand note issued by registrant to Evelyn Langlieb Greer, dated July 10, 2002 (1)

10.26 Non-Competition Agreement between registrant and Marvin Rosen (2)

10.27 Stock Purchase Agreement between registrant, Convergent Technologies, Ltd. and the stockholders listed on Schedule 1 Attached thereto, dated December 16, 2004 (1)

II-4

10.28 International VoIP Agreement, dated April 25, 2002, as amended (1)

21.1 List of Subsidiaries (*)

23.1 Consent of Rothstein, Kass & Company, P.C (1)

23.2 Consent of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP (Contained in Exhibit (J)(2)

24.1 Powers of Attorney (included on signature page)

(*) previously filed

(1) Filed herewith.
(2) To be filed by Amendment

ITEM 17. UNDERTAKINGS

The undersigned 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.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to any provision of the certificate of incorporation, bylaw, contract arrangements, statute, 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 Securities Act of 1933, as amended, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by 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 issuer 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 Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.

We hereby undertake that:

• For purposes of determining any liability under the Securities 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 us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

• For the purpose of determining any liability under the Securities 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 this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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Signatures

In accordance with the requirements of the Securities Act of 1933, as amended, 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 December 22, 2004.

Fusion Telecommunications International, Inc.

By: /s/

Marvin S. Rosen

Chief Executive Officer

Power Of Attorney

Each person whose signature appears below hereby constitutes and appoints Marvin S. Rosen, his true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his behalf, individually and in each capacity stated below, all amendments and post-effective amendments to this registration statements and to file the same, with all exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission under the Securities Act of 1933, as amended, granting into said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intends and purposes as each might or could do in person, hereby ratifying and confirming each act that said attorney-in-fact and agent may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this amended registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Name Title Date

/s/ Marvin S. Rosen Chief Executive Officer and Chairman of the Board December 22, 2004

Marvin S. Rosen

/s/ Joel Maloff Executive Vice President and Chief Technology December 22, 2004

Officer

Joel Maloff

/s/ Eric D. Ram Executive Vice President December 22, 2004

Eric D. Ram

/s/ Matthew D. Rosen President and Chief Operating Officer December 22, 2004

Matthew D. Rosen

/s/ Barbara Hughes Vice President of Finance and Principal Accounting December 22, 2004

and Financial Officer

Barbara Hughes

/s/ Philip Turits Treasurer, Secretary and Director December 22, 2004

Philip Turits

/s/ Cesar A. Baez Director December 22, 2004

Cesar A. Baez

/s/ E. Alan Brumberger Director December 22, 2004

E. Alan Brumberger

/s/ Evelyn Langlieb Greer Director December 22, 2004

Evelyn Langlieb Greer

/s/ Raymond E. Mabus Director December 22, 2004

Raymond E. Mabus

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/s/ Manuel D. Medina Director December 22, 2004

Manuel D. Medina

/s/ Paul C. O’Brien Director December 22, 2004

Paul C. O’Brien

/s/ Kenneth I. Starr Director December 22, 2004

Kenneth I. Starr

/s/ Julius Erving Director December 22, 2004

Julius Erving

/s/ Michael J. Del Giudice Director December 22, 2004

Michael J. Del Giudice

/s/ Fred P. Hochberg Director December 22, 2004

Fred P. Hochberg

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CERTIFICATE OF INCORPORATION

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

The undersigned, a natural person, for the purpose of organizing a corporation for conducting the business and promoting the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto and known, identified, and referred to as the "General Corporation Law of the State of Delaware"), hereby certifies that:

FIRST. The name of the corporation (hereinafter called the corporation)
is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

SECOND. The address, including street, number, city, and county, of the registered office of the corporation in the State of Delaware is 1013 Centre Road, Cit of Wilmington 19805, County of New Castle; and the name of the registered agent of the corporation in the State of Delaware at such address is Corporation Service Company.

THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH: The total number of shares of stock which the corporation shall have authority to issue is two hundred, all of which are without par value. All such shares are of one class and are shares of common stock.

FIFTH: The name and address of the incorporator are as follows:

NAME                                    MAILING ADDRESS

Merryl Wiener                           375 Hudson Street, 11th Floor
                                        New York, New York 10014

SIXTH: The corporation is to have perpetual existence.

SEVENTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in summary way of this corporation or any of creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under ss. 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under ss. 279 of Title 8 of the Delaware Code order a meeting or creditors or class of creditors, and/or of the stockholders or a class of stockholders of this corporation, as the case may be, to be summoned in such a manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or a class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement, the said compromise and arrangement and the said reorganization shall, if sanction by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or of the stockholders or a class of stockholders of this corporation, as the case may be, and also on this corporation.

EIGHTH: For the management of business and for the conduct of the affairs of the corporation, and in further definition, limitation, and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided:

1. Management of the business and the conduct of affairs of the corporation shall be vested in the Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total directors" shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot.

2. After the original or other Bylaws of the corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of ss. 109 of the General Corporation Law of the State of Delaware, and, after the corporation has received any payment for any of its stock, the power to adopt, amend or repeal the Bylaws of the corporation may be exercised by the Board of Directors of the corporation; provided however, that any provision for the classification of directors of the corporation for staggered terms pursuant to the provisions of subsection (d) of ss. 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial Bylaw or in a Bylaw adopted by the stockholders entitled to vote of the corporation unless provisions for such classification shall be set forth in this certificate of incorporation.

3. Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of the stockholders. Whenever the corporation shall be authorized to issue more than once class of stock, no outstanding share of any class of stock which is denied voting power under the provision of the certificate of incorporation shall entitle the holder thereof the right to vote at any meeting of the stockholders except as the provisions of paragraph (2) of subsection (b) of ss. 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class.

NINTH: The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by the provision of paragraph
(7) of subsection (b) of ss. 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented.

TENTH: The corporation shall, to the fullest extent permitted by the provisions of ss. 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer or employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.

ELEVENTH: From time to time any of the provisions of this certificate of incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be

added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article Eleventh.

Signed on September 16, 1997.

/s/ Merryl Wiener
-------------------------------
    Merryl Wiener, Incorporator

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

It is hereby certified that:

1. The name of the corporation (hereinafter called the "Corporation") is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2. The Certificate of Incorporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article:

"FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is 115,000,000, of which 105,000,000 shares shall be common stock, par value $0.01 per share, and 10,000,000 shares shall be preferred stock, par value $0.01 per share."

1. COMMON STOCK REVERSE STOCK SPLIT: A reverse stock split of the shares of common stock of the Corporation subscribed for, accepted or issued by the Corporation prior to January 1, 1998 (the "Original Stock") was effected upon the filing and recording of a Certificate of Amendment of the Certificate of Incorporation of the Corporation on February 27, 1998 (the "Effective Time"), as follows:

(a) Each one hundred (100) shares of Original Stock, having a value of One Cent ($.01) per share on the Effective Date, were combined and converted automatically, and without further action by the holder thereof, into one (1) validly issued share of common stock of the Corporation (the "Split Stock"), having a par value of One Cent ($.01) per share and having all of the rights and benefits applicable to the Original Stock and any right, option, warrant or claim to acquire or receive one hundred (100) shares of Original Stock were converted automatically, and without any further action by the holder thereof, into the right to acquire or receive one
(1) share of Split Stock upon, and in compliance with, the terms of the right, option, warrant or claim, except that the purchase price per shall be proportionately increased; provided, however, that, with respect to such shares of Split Stock, an aggregate of One Dollar ($1.00) of the consideration paid to the Corporation for each such share of Split Stock shall continue to be treated as capital of the Corporation.

(b) From and after the Effective Time, subscriptions for or certificates representing shares of Original Stock are deemed to represent only the right to receive shares of Split Stock to which a stockholder would be entitled pursuant to the reverse stock split effected.

2. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The preferred stock authorized may be issued from time to time in one or more series. The Board of Directors is hereby authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon any series of preferred stock, and the number of shares constituting any such series and the designation thereof, or of any of them. The Board of Directors is authorized to increase or decrease the number of shares of any series, prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the

status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

3. The amendment of the certificate of incorporation has been duly adopted and written consent has been given in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

4. The effective time of the amendment herein certified shall be the date of filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of May 21, 2004.

/s/ Philip D. Turits
-------------------------------
    Philip D. Turits, Secretary

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

It is hereby certified that:

1. The name of the corporation (hereinafter called the "Corporation") is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2. The Certificate of Incorporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article:

"FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is 80,000,000, of which 70,000,000 shares shall be common stock, par value $0.01 per share, and 10,000,000 shares shall be preferred stock, par value $0.01 per share."

status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

4. The effective time of the amendment herein certified shall be the date of filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of June, 2001.

/s/ Philip D. Turits
-------------------------------
    Philip D. Turits, Secretary

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

It is hereby certified that:

1. The name of the corporation (hereinafter called the "Corporation") is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2. The Certificate of Incorporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article:

"FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is 60,000,000, of which 50,000,000 shares shall be common stock, par value $0.01 per share, and 10,000,000 shares shall be preferred stock, par value $0.01 per share."

(a) Each one hundred (100) shares of Original Stock, having a value of One Cent ($.01) per share on the Effective Date, were combined and converted automatically, and without further action by the holder thereof, into one (1) validly issued share of common stock of the Corporation (the "Split Stock"), having a par value of One Cent ($.01) per share and having all of the rights and benefits applicable to the Original Stock and any right, option, warrant or claim to acquire or receive one hundred (100) shares of Original Stock were converted automatically, and without any further action by the holder thereof, into the right to acquire or receive one (1) share of Split Stock upon, and in compliance with, the terms of the right, option, warrant or claim, except that the purchase price per shall be proportionately increased; provided, however, that, with respect to such shares of Split Stock, an aggregate of One Dollar ($1.00) of the consideration paid to the Corporation for each such share of Split Stock shall continue to be treated as capital of the Corporation.

status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

3. The amendment of the certificate of incorporation has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

4. The effective time of the amendment herein certified shall be the date of filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment on the 15th day of May, 2001.

/s/ Robert Nelson
-------------------------------------------
    Robert Nelson, Executive Vice President

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

Fusion Telecommunications International, Inc. (the "Corporation"), a corporation duly organized and existing under the General Corporation Law of the State of Delaware, does, by Clifford J. Preminger, its Assistant Secretary, under its corporate seal, hereby certify that:

I. The original Certificate of Incorporation of the Corporation was dated September 16, 1997 and recorded with the Office of the Secretary of State of Delaware on September 17, 1997.

II. Pursuant to Sections 141 and 242 of the General Corporation Law of the State of Delaware, the Directors of the Corporation resolved that amending Article FOURTH of the Certificate of Incorporation of the Corporation by adding the following provision was advisable and in the best interests of the Corporation and directed that the Certificate of Incorporation of the Corporation be amended by adding the following provision to the end of Article FOURTH:

"A reverse stock split of the shares of common stock of the Corporation subscribed for, accepted or issued by the Corporation prior to January 1, 1998 (the "Original Stock") shall be effected automatically upon the filing and recording of this Certificate of Amendment of the Certificate of Incorporation of the Corporation (the "Effective Time"), as follows:

(a) Each one hundred (100) shares of Original Stock, (having a current par value of One Cent ($.01) per share) shall be combined and converted automatically, and without further action by the holder thereof, into one (1) validly issued share of common stock of the Corporation (the "Split Stock"), having a par value of One Cent ($.01) per share and having all of the rights and benefits applicable to the Original Stock and any right, option, warrant or claim to acquire or receive one hundred (100) shares of Original Stock shall be converted automatically, and without any further action by the holder thereof, into the right to acquire or receive one (1) share of Split Stock upon, and in compliance with, the terms of the right, option, warrant or claim, except that the purchase price per share shall be proportionately increased; provided, however, that, with respect to such shares of Split Stock, an aggregate of One Dollar ($1.00) of the consideration paid to the Corporation for each such share of Split Stock shall continue to be treated as capital of the Corporation.

III. Pursuant to Section 242 of the General Corporation Law of the State of Delaware, a majority of the outstanding stock entitled to vote hereon voted in favor of, approved, and adopted the foregoing proposed amendment of the Certificate of Incorporation of the Corporation.

IV. The foregoing amendment of the Certificate of Incorporation of the Corporation was duly adopted in accordance with the provisions of Sections 141 and 242 of the General Corporation Law of the State of Delaware.

V. The undersigned, under penalties or perjury, acknowledges that the foregoing instrument dated February 27, 1998, is the act and deed of the Corporation, and that the facts stated therein are true.

/s/ Clifford J. Preminger
-------------------------
    Clifford J. Preminger,
    Assistant Secretary

(CORPORATE SEAL)

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

It is hereby certified that:

1. The name of the corporation (hereinafter called the "Corporation") is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2. The Corporation was formed pursuant to a Certificate of Incorporation dated September 16, 1997 and recorded September 17, 1997 with the Office of the Secretary of State of Delaware.

3. The Certificate of Incorporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article:

"FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is 50,000,000, all of which shares shall be Common Stock having a par value $0.01."

4. The amendment of the certificate of incorporation has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

5. The effective time of the amendment herein certified shall be the date of filing.

IN WITNESS WHEREOF, the parties hereunto set our hands and the seal of the Corporation and affirm that the statements herein are true under penalty of perjury on this 18th day of February, 1998.

/s/ Steven M. Glazer
-----------------------------------------
    Steven M. Glazer, Assistant Secretary

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

It is hereby certified that:

1. The name of the corporation (hereinafter called the "Corporation") is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2. The certificate of incorporation of the Corporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article:

"FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is 10,000,000, all of which shares shall be Common Stock having a par value $0.01."

3. The amendment of the certificate of incorporation has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

4. The effective time of the amendment herein certified shall be the date of filing.

IN WITNESS WHEREOF, the parties hereunto set our hands and the seal of the Corporation and affirm that the statements herein are true under penalty of perjury on this 20th day of October, 1997.

/s/ Philip D. Turits
-------------------------------
    Philip D. Turits, President

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

It is hereby certified that:

1. The name of the corporation (hereinafter called the "Corporation") is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2. The certificate of incorporation of the Corporation is hereby amended by striking out Article FOURTH thereof and by substituting in lieu of said Article the following new Article:

"FOURTH: The total number of shares of capital stock which the Corporation shall have authority to issue is 136,000,000, of which 105,000,000 shares shall be common stock, par value $0.01 per share; 10,000,000 shares shall be preferred stock, par value $0.01 per share; and 21,000,000 shares shall be class A common stock, par value $0.01 per share.

1. FEBRUARY 27, 1998 COMMON STOCK REVERSE STOCK SPLIT: A reverse stock split of the shares of common stock of the Corporation subscribed for, accepted or issued by the Corporation prior to January 1, 1998 (the "Original Stock") was effected upon the filing and recording of a Certificate of Amendment of the Certificate of Incorporation of the Corporation on February 27, 1998 (the "Effective Time"), as follows:

(a) Each one hundred (100) shares of Original Stock, having a value of One Cent ($.01) per share on the Effective Date, were combined and converted automatically, and without further action by the holder thereof, into one (1) validly issued share of common stock of the Corporation (the "Split Stock"), having a par value of One Cent ($.01) per share and having all of the rights and benefits applicable to the Original Stock and any right, option, warrant or claim to acquire or receive one hundred (100) shares of Original Stock were converted automatically, and without any further action by the holder thereof, into the right to acquire or receive one (1) share of Split Stock upon, and in compliance with, the terms of the right, option, warrant or claim, except that the purchase price per shall be proportionately increased; provided, however, that, with respect to such shares of Split Stock, an aggregate of One Dollar ($1.00) of the consideration paid to the Corporation for each such share of Split Stock shall continue to be treated as capital of the Corporation.

restrictions granted to or imposed upon any series of preferred stock, and the number of shares constituting any such series and the designation thereof, or of any of them. The Board of Directors is authorized to increase or decrease the number of shares of any series, prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

3. RIGHTS AND RESTRICTIONS OF CLASS A COMMON STOCK. The rights of the class A common stock shall be identical to the rights of the common stock except that class A common stock shall be subject to the following transfer restriction:

Prior to the Transfer Restriction Termination Date (as hereinafter defined) no holder of class A common stock may transfer or dispose of any share of class A common stock or any interest in any such share. Any purported transfer or disposition of a share of class A common stock in violation of the aforesaid restriction shall be null and void and the Company shall NOT BE required to register the same or otherwise give effect thereto. Certificates evidencing shares of class A common stock shall bear a legend evidencing the foregoing restriction. For purposes hereof, the term "Transfer Restriction Termination Date" shall mean the date which is 365 days following the closing by the Company of an initial public offering of shares of the common stock registered under the Securities Act of 1933, as amended.

On the Transfer Restriction Termination Date, all shares of class A common stock shall automatically convert into common stock and all Transfer Restrictions shall be null and void except for any restrictions pursuant to Rule 144 of the Securities Act of 1933, as amended.

Notwithstanding the transfer restrictions set forth herein, holders of class A common stock may convert their stock into common stock by entering into a lock up agreement with the Company after the closing of the initial public offering referenced above, restricting their ability to make any transfer of the shares of common stock issuable upon conversion until the first anniversary of the closing of the initial public offering, which restriction on public sale can be released only with the consent of the underwriter prior to the Transfer Restriction Termination Date.

4. DECEMBER 10, 2004 COMMON STOCK REVERSE STOCK SPLIT. Effective December 10, 2004 (the "Effective Date") (a) Each three and one half (3.5) issued and outstanding shares of common stock ("Common Stock"), having a par value of One Cent ($.01) per share on Effective Date, shall be combined and converted automatically, and without further action by the holder thereof, into one (1) validly issued share of Common Stock of the Corporation (the "Reverse Split Stock"), having a par value of One Cent ($.01) per share and having all of the rights and benefits applicable to the Common Stock and any right, option, warrant or claim to acquire or receive three and one half (3.5) shares of Common Stock shall be converted automatically, and without any further action by the holder thereof, into the right to acquire or receive one (1) share of Reverse Split Stock upon, and in compliance with, the terms of the right, option, warrant or claim, except that the purchase price per shall be proportionately increased; provided, however, that, with respect to such shares of Reverse Split Stock, an aggregate of One Dollar ($1.00) of the consideration paid to the Corporation for each such share of Reverse Split Stock shall continue to be treated as capital of the Corporation.

(b) From and after the Effective Date, subscriptions for or certificates representing shares of Original Common Stock are deemed to represent only the right to receive shares of Reverse Split Stock to which a stockholder would be entitled pursuant to the reverse stock split.

5. CONVERSION OF COMMON STOCK TO CLASS A COMMON STOCK. Effective on December 10, 2004, each share of common stock and any right, option, warrant or claim to acquire or receive common stock (except for shares of common stock issuable upon conversion of series C preferred stock) shall be automatically and irrevocably converted into one share of class A common stock without further action on the part of the holder thereof and all rights of the holders of shares of common stock at the time of conversion shall cease and such holders shall be treated for all purposes as having become the holders of shares of class A common stock.

3. The amendment of the certificate of incorporation herein certified has been duly adopted and written consent has been given in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

4. The effective time of the amendment herein certified shall be the date of filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of December __, 2004.

/S/ PHILIP D. TURITS

Name:             Philip D. Turits
     -----------------------------------
Title:            Secretary
      ----------------------------------

CERTIFICATE OF DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS OF
SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

It is hereby certified that:

1. The name of the corporation (hereinafter called the "Company") is FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

2. The Company's certificate of incorporation, as amended, authorizes the issuance of 10,000,000 shares of Preferred Stock, par value $0.01 per share and expressly vests in the Board of Directors of the Company the authority provided therein to issue any or all of said shares in one or more series and by resolution or resolutions, the designation, number, full or limited voting powers, or the denial of voting powers, preferences and relative, participating, optional, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics of each series to be issued.

3. The Board of Directors of the Company, pursuant to the authority expressly vested in it as aforesaid has adopted the following resolutions creating a Series C Convertible Redeemable issue of Preferred Stock.

RESOLVED, that the Company is authorized to issue Series C Convertible Redeemable Preferred Stock on the following terms and with the provisions herein set forth:

(1) DESIGNATION AND NUMBER OF SHARES. Of the 10,000,000 shares of Preferred Stock authorized pursuant to the Fourth Article of the Company's Certificate of Incorporation, as amended, 110,000 are hereby designated as Series C Convertible Redeemable Preferred Stock (the "Series C Preferred Stock''). Shares of Series C Preferred Stock are sometimes referred to herein as "Series C Preferred Shares."

(2) DIVIDENDS. The Series C Preferred Stock shall pay, on each anniversary of the issuance of the first share of Series C Preferred Stock, cumulative dividends at the rate of 8.0% per annum of the Stated Value (as defined herein), in cash, out of any funds and assets legally available and will receive dividends on an as converted basis at any time holders of the common stock of the Company ("Common Stock") receive dividends. The right to cash dividends on the Series C Preferred Stock will not accrue if the Series C Preferred is mandatorily converted at any time prior to the first anniversary of the first issuance of any shares of the Series C Preferred Stock, by reason of the occurrence of the Company's initial public offering as provided in Section
3.b; not withstanding the foregoing, dividends will accrue on a daily basis, based on a 360 calendar year, and upon any non-mandatory conversion or redemption will be paid in cash. No dividends shall be paid to the holder of any other security of the Company, including but not limited to shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock and any other class or series of capital stock hereafter issued (together all such specified and unspecified

securities of the Company being referred to collectively as "Junior Securities"), unless all then accrued but unpaid dividends have been paid with respect to all outstanding shares of the Series C Preferred Stock. Notwithstanding the foregoing limitations of this Section (2), the Company shall be permitted to pay dividends to the holders of the Company's Series A and Series B Preferred Stock in the form of common stock, but not in cash.

(3) CONVERSION.

a. VOLUNTARY CONVERSION. Each share of Series C Preferred Stock shall be convertible into a number of shares of Common Stock (the "Conversion Shares") based upon a conversion price per share of Common Stock of $0.90 per share (the "Voluntary Conversion Price''). The Voluntary Conversion Price shall be subject to adjustment as provided in Section (3) c.

Conversion shall be effective at the close of business on the day of receipt by the Company of the Notice of Conversion (as hereafter defined) from the holder of the Series C Preferred Stock, together with the original stock certificate evidencing the Series C Preferred Stock.

b. MANDATORY CONVERSION. In the event the Company completes an initial public offering of its Common Stock (either alone or in combination with other securities of the Company) under the Securities Act of 1933, as amended ("Securities Act"), the Series C Preferred Stock will immediately convert into shares of the Company's Common Stock without any notice required on the part of the Company or the holder. In such event the Mandatory Conversion Price shall be equal to the lesser of (i) 75% of the initial public offering price of the Common Stock; or (ii) the Voluntary Conversion Price then in effect. In the event that the Company's initial public offering provides for one or more warrants to be received by purchasers of the Common Stock, the holder of Series C Preferred Stock shall also receive one or more warrants identical to the warrants issued in the initial public offering, at the same ratio as that in the initial public offering. By way of example and not intended to limit the foregoing, if the Company's initial public offering provides that purchasers must purchase one warrant to purchase Common Stock for each share of Common Stock purchased in the offering (regardless of whether the Common Stock and warrant are offered as separate securities with a separate price as components of a unit), then the holders of the Series C Preferred Stock will also receive one warrant for each share of Common Stock issued upon conversion of the Series C Preferred Stock.

c. ADJUSTMENTS TO VOLUNTARY CONVERSION PRICE. The Voluntary Conversion Price provided for herein shall be subject to the following adjustments:

i. If the Company shall declare and pay to the holders of the shares of Common Stock a dividend in shares of Common Stock, the Voluntary Conversion Price in effect immediately prior to the date fixed for the determination of shareholders entitled to such dividends shall be proportionately decreased (adjusted to the nearest 1/1,000 of a share of Common Stock), such adjustment to become effective immediately after the date fixed for such determination.

ii. If the Company shall subdivide the outstanding shares of Common Stock into a greater number of shares of Common Stock or combine the outstanding shares of Common Stock into a smaller number of shares of Common Stock, the Voluntary Conversion Price in effect immediately prior to such subdivision or combination, as the case may be, shall be proportionately decreased or increased (adjusted to the nearest 1/1,000 of a share of Common Stock), as the case may require, such decrease or increase, as the case may be, to become effective when such subdivision or combination becomes effective.

iii. In the case of any reclassification or change of outstanding shares of Common Stock issuable upon the conversion of the Series C Preferred Stock, or in the case of any consolidation or merger of the Company with or into another corporation, or in the case of any sale or conveyance to another corporation of all or substantially all of the property of the Company, the holder of each share of Series C Preferred Stock then outstanding shall have the right thereafter to convert such Series C Preferred Stock into the same kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock of the Company into which such shares of Series C Preferred Stock might have been converted immediately prior to such reclassification, change, consolidation, merger, sale or conveyance, and shall have no other conversion rights under these provisions; provided, however, that effective provision(s) shall be made, in the Articles or Certificate of Incorporation of the resulting, surviving or successor corporation or otherwise, so that the provisions set forth herein for the protection of the conversion rights of the shares of Series C Preferred Stock shall thereafter become applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of the shares of Series C Preferred Stock (that remains outstanding or other convertible preferred shares receivable in place of the Series C Preferred Stock by the holders thereof); and provided, further, that any such resulting, surviving, or successor corporations shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such shares, securities, or property as the holders of the shares of Series C Preferred Stock remaining outstanding, or other convertible preferred shares receivable by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provisions for the protection of the conversion right as above provided. The provisions of this Section 3.
c. iii. shall similarly apply to successive reclassifications, changes, consolidations or mergers.

In case securities or property other than shares of Common Stock shall be issuable or deliverable upon the conversion as aforesaid, then all references in this section shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property. The subdivision or combination of shares of Common Stock at any time outstanding into a greater or lesser number of shares of Common Stock (whether with or without par value) shall not be deemed to be a reclassification of the Common Stock of the Company for the purposes of this subsection iii.

d. CONVERSION PROCEDURE. The Company shall use its reasonable best efforts to issue or cause its transfer agent to issue the Common Stock and other securities issuable upon conversion within three (3) business days after the mandatory conversion, or in the case of a voluntary conversion after the Company receives a fully executed Notice of Conversion and original certificates for the Series C Preferred Stock. The Company shall bear the cost associated with the issuance of the Common Stock and other securities issuable upon conversion. The Common Stock and other securities issuable upon conversion shall be issued with a restrictive legend indicating that it was issued in a transaction which is exempt from registration under the Securities Act, and that it CANNOT BE transferred unless it is so registered, or an exemption from registration is available, in the opinion of counsel reasonably acceptable to the Company. The Common Stock and other securities issuable upon conversion shall be issued in the same name as the person who is the holder of the Series C Preferred Stock unless, in the opinion of counsel reasonably acceptable to the Company, such transfer can be made in compliance with applicable securities laws. The person in whose name the certificates of Common Stock are so registered and other securities issuable upon conversion shall be treated as a common stockholder of the Company at the close of business on the date the Notice of Conversion is received by the Company. With respect to a mandatory conversion the certificates representing the Series C Preferred Stock shall be cancelled, as reflected in the records of the Company on the date of the initial closing of the initial public offering.

f. Upon conversion of the Series C Preferred Stock after the date of the first issuance of the first share thereof, the Company will pay in cash any pro rata accrued dividends and unpaid dividends due at the effective date of conversion, unless such conversion occurs prior to the one year anniversary of issuance.

(4) LIQUIDATION PREFERENCE. The Series C Preferred Stock upon any bankruptcy, liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary (a "Liquidation") will be entitled to a liquidation preference to any payment of any nature whatsoever in respect of the Junior Securities equal to $90 per share (the "Stated Value"), plus any accrued and unpaid dividends. If the assets and funds of the Company available for payment to the holders of the Series C Preferred Stock, after payment with respect to all senior securities, if any, are insufficient to pay the liquidation preference described above, the entire remaining assets or property of the Company will be paid ratably to the holders of the Series C Preferred Stock in proportion to their aggregate liquidation preferences.

(5) A MANDATORY REDEMPTION.

a. At any time commencing on the first anniversary of the first issuance of Series C Preferred Stock and ending thirty days thereafter, the Company may give written notice ("Mandatory Redemption Notice") of its intention to redeem, in whole or in part, the Series C Preferred Shares at a price per share equal to 115% of the Stated Value plus pro rata accrued dividends and unpaid dividends due through the date of redemption (the "Mandatory Redemption Price"). The Mandatory Redemption Notice may not be given prior to the one-year anniversary of the first issuance of Series C Preferred Stock. No sinking fund shall be required for the redemption of the Series C Preferred Stock.

b. The Company shall give the Mandatory Redemption Notice by first class mail to all holders of the Series C Preferred Stock. The Mandatory Redemption Notice shall set forth the number of Series C Preferred Shares being redeemed, the date on which such redemption shall be effective (the "Redemption Date"), which date shall be not later than 30 days after to the date the Mandatory Redemption Notice is mailed. The Mandatory Redemption Notice shall be mailed to each holder at the address as it appears on the stock transfer books of the Company.

c. In order to receive the Mandatory Redemption Price, each holder of the Series C Preferred Stock shall surrender to the Company at the place designated in the Mandatory Redemption Notice the certificate(s) representing the number of shares specified in the Mandatory Redemption Notice, where upon the Company shall within three (3) business days pay the Mandatory Redemption Price multiplied by the number of shares redeemed to such holder. Upon the Redemption Date, such redeemed Series C Preferred Shares shall no longer be deemed outstanding and all rights of the holder with respect to such shares shall immediately terminate, except the right to receive the Mandatory Redemption Price per share. The right to convert the Series C Preferred Shares shall terminate as to the shares designated for redemption as of the close of business on the business day immediately preceding the Redemption Date.

(5) B. VOLUNTARY REDEMPTION.

a. After the second year anniversary of the first issuance of Series C Preferred Stock and for so long as the Company's Common Stock or other securities into which the Series C Preferred Stock is convertible are not publicly traded and a Liquidation has not occurred, each holder of Series C Preferred Stock may, at its option, require the Company to redeem its shares of Series C Preferred Stock. The price per share payable upon redemption of the Series C Preferred Stock shall be 112% of the Stated Value, plus pro rata accrued dividends and unpaid dividends due (the "Voluntary Redemption Price").

b. If the funds of the Company legally available for redemption of shares of the Series C Preferred Stock are insufficient to redeem the total number of shares of Series C Preferred Stock requested to be redeemed on such date, the Company shall use those funds that are legally available to redeem the maximum possible number of such shares on a pro rata basis (based upon aggregate liquidation value) among the holders of such shares to be redeemed. The shares of the Series C Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter, when additional funds of the Company are legally available for the redemption of shares of the Series C Preferred Stock, such funds will immediately be used to redeem the balance of, or if not sufficient to redeem the full balance, redeem on a pro rata basis (based upon aggregate liquidation value), the shares that the Company has become obligated to redeem but which it has not redeemed.

(6) RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, such number of its shares of Common Stock as shall from time to time be necessary to effect the

conversion of all of the then outstanding shares of Series C Preferred Stock, the sufficiency of which shall be determined by using the Voluntary Conversion Price then in effect.

(7) NO PREEMPTIVE RIGHTS. No holder of the Series C Preferred Stock shall be entitled, as a right, to purchase or subscribe for any part of the unissued capital stock of the Company, or to purchase or subscribe for any bonds, certificates of indebtedness, debentures, or other securities convertible into or carrying options or warrants to purchase stock or other securities of the Company or by its nominee or nominees, or to have any other preemptive rights now or hereafter defined by the laws of the State of Delaware.

(8) NO VOTING RIGHTS. Holders of Series C Preferred Stock shall not have voting rights other than as may be required by law, provided, however, that the Company shall provide the holders of the Series C Preferred Stock with notice at least twenty (20) days in advance of the record date for any vote by the holders of Common Stock in connection with a merger, dissolution, or sale of all or substantially all of the assets of the Company.

(9) NO FRACTIONAL SHARES. The Series C Preferred Stock shall not be converted into fractions of a share and, where applicable, will be rounded up to the nearest whole number of shares or other securities upon conversion into Common Stock or other securities.

(10) NO IMPAIRMENT; SENIORITY. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Certificate of Designations. The Company (i) will not create any class of capital stock that is senior or pari passu in any way to the rights of the Series C Preferred Stock, as herein set forth or (ii) repurchase or otherwise acquire for cash or property any outstanding securities of the Company, unless and until the Company has obtained the approval of a majority of the then outstanding shares of Series C Preferred Stock, in the manner as provided in the Delaware General Corporation Law and filed the appropriate amendment to this Certificate of Designations with the Secretary of State of the State of Delaware.

(11) RETURN OF STATUS AS AUTHORIZED SHARES. Upon any conversion or redemption of the Series C Preferred Stock, the shares converted or redeemed will be automatically returned to the status of authorized and unissued shares of preferred stock, available for future designation and issuance pursuant to the terms of the Certificate of Incorporation.

FURTHER RESOLVED, that the statements contained in the foregoing resolutions creating and designating the said Series C Convertible Redeemable Preferred Stock and fixing the number, powers, preferences and relative, optional, participating, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the Certificate of Incorporation of the Company pursuant to the provisions of Sections 104 and 151 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation of the Series C Convertible Redeemable Preferred Stock effective as of December 18, 2003.

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

By:  /S/ MATTHEW ROSEN
Name:  MATTHEW ROSEN
Title:  PRESIDENT AND CHIEF OPERATING OFFICER

[FUSION TELECOMMUNICATIONS INTERNATIONAL(SM) LOGO OMITTED]

EXHIBIT 10.3

MASTER SERVICES AGREEMENT

This MASTER SERVICES AGREEMENT is made and entered into as of this 29th day of May, 2003, by and between FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. ("FUSION/AND OR PROVIDER"), a Delaware corporation, with a principal place of business at 420 Lexington Avenue, Suite 518, New York, NY 10170 and TERREMARK WORLDWIDE, INC. ("TWW"), a Delaware corporation, with a principal place of business at 2601 S. Bayshore Dr., Miami, Florida 33133. This Agreement, together with the relevant Service Order(s) issued and accepted in accordance with this Agreement and attached Exhibits, establishes the terms and conditions under which Provider will provide Service (as defined below) to TWW.

1. SERVICE ORDERS

TWW shall send Provider an application for service via e-mail, detailing the specific service requested. Upon receipt, Provider shall present TWW with a Service Order for each Service (hereinafter collectively referred to as the "Service(s)") ordered by TWW. Each Service Order shall be read in conjunction with the terms of this Agreement and relevant attachment(s). TWW will notify Provider, within forty-eight (48) hours of Provider's tender of a Service Order, if said Service Order is accepted by TWW.

2. DELIVERY OF SERVICES

Provider shall deliver the Services in accordance with the terms of this Agreement, the relevant Service Order and in accordance with the TWW Internet One/Overall Service Requirements addendum (hereinafter referred to as "OSR"), attached hereto and incorporated herein as Exhibit "A". Provider shall determine the most appropriate means of providing the Service, including the method, technology and route of delivery of the Service to TWW and Provider may vary the method, technology and route of delivery at any time without notice.

Without releasing it from any of its obligations and/or duties hereunder, but except as otherwise provided herein, Provider shall be entitled at any time and from time to time, and without notice, to use Provider's affiliates and/or subcontractors to perform some or all of such duties and/or obligations. Provider reserves the right, from time to time, to change the configuration of the network or the service equipment, provided always that such change does not materially affect the relevant Service or the OSR. Provider shall use reasonable endeavors to give TWW a minimum of twenty (20) business days' notice of any such changes.

Each party shall comply with all applicable laws, codes, administrative or executive orders, rules and regulations applicable to its performance under this Agreement.

Fusion Telecommunications International, Inc. 420 Lexington Avenue, Suite 518 New York, New York 10170

[LOGO OMITTED]

3. TERM & MINIMUM COMMITMENT

Each Service Order sets out a minimum service term (the "Service Term") commitment of one (1) year, ("Minimum Commitment").

TWW shall comply with such Minimum Commitment during the period for the commitment set out in the relevant Service Order ("Commitment Period"). In the event TWW does not meet the Minimum Commitment, in addition to any other remedies which Provider may have, TWW shall pay to Provider an amount equal to the difference between the charges paid to date during the Commitment Period by TWW for the Service and the charges that should have been paid during the Commitment Period for that Service if the Minimum Commitment had been made.

TWW may extend the term of this Agreement and any relevant Service Order for consecutive, dependent periods of one (1) year each, by written notice to Provider within 30 days provided that, TWW gives Provider a preliminary written notice of its intent to extend at least 30 days before the relevant Service Order expires. The preliminary notice does not commit TWW to an extension. If TWW exercises this option, the extended Agreement and relevant Service Order shall be considered to include this option clause.

4. CHARGES

Provider shall invoice and TWW shall pay the charges in accordance with this Agreement and each applicable Service Order. In addition to any non-recurring Service initiation charges as contained in each relevant Service Order, recurring charges shall accrue from the relevant Acceptance Date and will be payable monthly, quarterly or annually in advance as set forth in this Agreement and the relevant Service Order. Service provided for part of a billing period will be charged on a pro-rata basis.

Charges for all Provider Services(s) shall be billed and paid in U.S. Dollars.

5. CREDIT

Prior to accepting a Service Order, Provider may carry out a credit check. As a result of such credit check, Provider may request from TWW a cash deposit or bank guarantee. The bank guarantee shall be in a form that is approved by Provider and issued by a bank acceptable to it in an amount not exceeding the total charges which Provider might reasonably expect TWW to incur during the Service Term. TWW shall cooperate in providing Provider with any available financial information to assist Provider with such credit checks.

TWW authorizes Provider and/or its authorized agents to make any and all inquiries necessary for the purpose of obtaining credit information. TWW shall indemnify Provider, its shareholders, Board of Directors, officers, employees, and agents, from any liability resulting from any credit inquiry. TWW will provide any reasonable security deposit requested from Provider prior to commencement of Service(s) or as a condition of continued Service(s).

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6. PAYMENTS AND BILLING

a. TWW is responsible for timely payment of all charges for Services furnished to Customer.

b. Payment is due monthly unless otherwise specified in the relevant Service Order (the "Due Date").

c. All amounts not paid by the Due Date are subject to interest at the rate of 1.5% per month or the highest rate allowed by law, whichever is lower.

d. Provider must receive written notice of any dispute within ten (10) days of invoice date, or other period as required by applicable law, or such invoice shall be deemed correct and binding.

e. TWW agrees to pay all costs of collection, including reasonable attorneys' fees, incurred by Provider in the collection of any and all unpaid amounts, breach of contract actions. A fee, as allowed by tariff or law, may be charged for each check returned for insufficient funds.

f. Charges for Service are exclusive of applicable taxes and regulatory charges. Applicable taxes and regulatory charges shall be paid by TWW along with the charges for Service(s) on the Due Date.

g. Upon execution of a Service Order under this Agreement, Provider will bill TWW for any advanced payments and non-recurring charges, pre-payments and security deposits required by connecting foreign underlying providers

h. In the event Provider provides third party services on behalf of TWW, should a voluntary or involuntary bankruptcy petition, liquidation or winding up order be filed against TWW, Provider shall have the right to bill and to receive payment from third parties directly for all amounts due.

7. TAXES

Except as otherwise provided in this section, Provider shall separately state on each applicable invoice, and TWW shall pay, any sales, use, excise or similar tax legally imposed on or with respect to the Services furnished hereunder.

Provider shall not invoice TWW for any such tax if, and to the extent that, TWW
(i) submits a properly executed certificate of exemption or direct pay permit; or (ii) otherwise notifies Provider in writing of its position that such tax does not apply to some or all of the services furnished hereunder in which case TWW shall indemnify Provider.

TWW shall protect and indemnify Provider from and against any such tax not invoiced by Provider, provided that, in the event Provider becomes aware of an intent to assess or collect such tax, it promptly notifies TWW and permits TWW to contest such assessment

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or collection or, if necessary, contests such assessment or collection on behalf of TWW; and provided further that Provider provides reasonable assistance to TWW in any such contest.

8. SERVICE COMMENCEMENT DATE

The Service Commencement Date shall be the Acceptance Date as defined in Exhibit
A.

9. CUSTOMER OBLIGATIONS

TWW shall grant or shall procure the grant to Provider, its agents, affiliates, and/or subcontractors of such rights of access to each TWW site and shall provide to Provider such facilities and information as Provider may reasonably require enabling it to perform its obligations or exercise its rights under this Agreement.

TWW shall notify Provider of any existing technical or other facilities including, but not limited to electrical, communication services, water and gas, which could be damaged during the installation of the Service Equipment and Provider shall have no liability in respect of any damage or loss arising out of TWW's failure to comply with its obligations under this Section 9.

10. APPROVALS AND LICENSES. RIGHT TO SUBLICENSE USE

The performance of this Agreement by each Party hereto is contingent upon each party obtaining and continuing in effect such approvals, consents, governmental authorizations and permits as may be required or reasonably deemed necessary by such Party for the performance by it hereunder and as may be satisfactory to it. Notwithstanding the foregoing, Provider hereby represents and warrants that, as of the date of this Agreement, Provider has all necessary approvals, consents, governmental authorizations, licenses and permits for the performance by Provider under of this Agreement.

TWW may license use of the Service to its customer(s), provided no sublicense permitted hereunder shall involve any delegation or other transfer of any of TWW's obligations or liabilities hereunder. Each sublicense of any right to use the Service shall derive all of its rights solely through TWW and such rights shall be enforceable solely against TWW. No TWW customer(s) shall become a third party beneficiary of this Agreement or obtain any right, title or interest in, to or under this Agreement or the ability to enforce any provision hereof, nor shall any sublicensee have any rights or claims against the Provider for any reason whatsoever. The rights of any sublicense of a right to use the Service shall be subject and subordinate to all the terms of this Agreement and TWW shall remain primarily liable hereunder for the performance of all the terms of this Agreement to the same extent as if such the sublicense had not occurred. Any such sublicense shall prohibit further assignment, transfer or other disposition of the Service.

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11. CONFIDENTIALITY.

The provisions of this Agreement and any non-public information, written or oral, with respect to this Agreement or which is otherwise disclosed in connection herewith ("Confidential Information") will be kept confidential and shall not be disclosed, in whole or in part, to any person other than Affiliates, officers, directors, employees, agents or representatives of a Party (collectively, "Representatives") who need to know such Confidential Information for the purpose of negotiating, executing and implementing this Agreement. Each Party agrees to inform its Representatives of the non-public nature of the Confidential Information and to direct such persons to treat such Confidential Information in accordance with the terms of this Addendum. Nothing herein shall apply to information that:

(i) is in or comes into the public domain (other than by breach of this Agreement or of any other duty);

(ii) is or has already been independently generated by the recipient Party;

(iii) is lawfully received by the recipient Party from a third party on an unrestricted basis;

(iv) is in the possession of or is known by the recipient Party prior to the date of this Agreement, to the extent that such recipient Party is not bound by any existing obligation of confidentiality in respect of such information; or

(v) is required to be disclosed under any applicable law, rules or regulation in the countries of the Parties.

On termination of this Agreement for any reason, the recipient Party shall return to the disclosing Party (or, at the discretion of the disclosing Party, destroy) all copies of Confidential Information of the other Party that it has in its possession. No Party shall make any public announcement or disclosure with respect to the subject matter of this Agreement without obtaining the written consent of the other Parties hereto, which consent shall not be unreasonably withheld.

12. SEVERABILITY, WAIVER AND TERMINATION

In the event that any term or provision of this Agreement shall be declared invalid, illegal or unenforceable, in any respect, by any court or regulatory agency of competent jurisdiction, such invalidity, or unenforceability shall not in any manner affect the validity or enforceability of any other term of provision of this Agreement.

The waiver by any Party, in whole or in part, of a breach of or a default under any of the provisions of the Agreement, or the failure, in whole or in part, of any Party, upon one or more occasions, to enforce any of the provisions of the Agreement or to exercise any right or privilege hereunder shall not thereafter be construed as a waiver of any subsequent breach or default or as a waiver of any other provision, right or privilege hereunder.

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Provider may disconnect service in accordance with the applicable tariff(s) and/or breach of this Agreement and/or in case of breach of, or default under, any of the provisions under a particular Service Order, disconnect the service of such particular Service Order; i.e., under court order, for non-payment, illegal use of service, violation of applicable laws and regulations.

In the event of a material breach by a Party to this Agreement and/or in case of breach of, or default under, of any of the provisions under a particular Service Order which material breach is not remedied within five (5) days after receipt of written notice thereof, then the non-defaulting Party may immediately:

a. In the case of Provider, suspend the Service(s) under the Agreement and/or in case of breach of, or default under, of any of the provisions under a Service Order, suspend the Service of such Service Order until such payment default or other breaches have been cured (provided however, Provider shall only be required to give twenty-four (24) hours notice);

b. In the case of TWW, suspend payment of un-accrued charges for the applicable affected Service Order hereunder until such default or other breaches have been cured. Notwithstanding anything contained in this Agreement, TWW reserves the right, in TWW's sole discretion (1) to terminate this Agreement and/or (2) in case of breach of, or default under, any of the provisions under a Service Order, in TWW's sole discretion, terminate such Service Order, and pursue any and all rights and legal and/or equitable remedies available to it, at any time upon five (5) business days after receipt of written notice by Provider if:

(i) Provider breaches or is unable to perform any of its obligations under this Agreement and/or under a Service Order and which (in the case of a breach capable of being remedied) has not been remedied within five (5) business days after receipt of written notice to remedy the same;

(ii) If Provider is not able, after using its best efforts, to make the Services available to TWW within fifteen (15) business days of the Service Commencement Date;

(iii) Notwithstanding the curing of any one or more breaches by Provider, TWW shall have the right to terminate this Agreement, and/or a Service Order, for cause if Provider causes three (3) or more breaches during the term of the Agreement.

TWW may voluntarily terminate a Service Order prior to the expiration of the Service Term of that Service, if it pays to Provider the following termination charges which TWW acknowledges as liquidated damages reflecting a reasonable measure of actual damages and not penalty: in the event the termination is after the Acceptance Date but prior to expiration of the Service Term or Commitment Period, whichever is longer,

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TWW shall pay Provider in addition to any outstanding invoices, an amount equal to 100% of the Charges that would have been paid had the Service been provided for the duration of the Service Term and/or the Commitment Period, except as expressly provided in sections 12 (b) (i), 12 (b) (ii) and 12 (b) (iii) immediately above.

If payment has not been received by the Due Date, for all undisputed charges (including transmission charges, service charges and monthly fixed charges, if any) billed to TWW, then Provider may, at its sole discretion and with five (5) business days prior written notice to TWW, terminate this Agreement in part or in whole.

The adjudication of bankruptcy of either party under any Federal, state or local bankruptcy or insolvency act, or the appointment of a receiver or any act or action constituting a general assignment by a party of its proprieties and interest for the benefit of its creditors and such event is not discharged within 30 days of its occurrence shall constitute a material default of this Agreement.

13. FORCE MAJEURE

Neither Party shall be liable for default if nonperformance is caused by an occurrence beyond Party's reasonable control (whether, in whole or in part) including, without limitation, fire, flood, acts of God or the public enemy, epidemics, quarantine restrictions, strikes, unusually severe weather, and delays of common carriers or other circumstances or conditions that render it hazardous for a Party's personnel to travel to or enter onto the affected site; strikes, lockouts and other labor disturbances; acts or omissions of governmental authorities, other telecommunications operators(not due to the fault of the claiming party under this provision) administrators or other competent authorities; military operations; riots and industry wide government codes, ordinances, laws, rules, regulations or restrictions that render performance under this Agreement impossible. If any party is unable to perform its obligations hereunder to a material extent as a result of a Force Majeure, the Party affected by such event of Force Majeure shall notify the other Party in writing as soon as it is reasonably possible after the commencement of any Force Majeure, setting forth the full particulars in connection therewith. During the period of any Force Majeure condition, the obligations of the Parties hereunder, except for the obligation to pay for Services delivered, shall be suspended. Provided however, TWW shall not be required to make payment in relation to any Service to the extent that Provider is unable to deliver due to an event of Force Majeure. Notwithstanding the foregoing, if any party is unable to perform its obligations hereunder to a material extent as a result of a Force Majeure for thirty (30) consecutive days, the other party shall be entitled to terminate this Agreement by written notice without penalty.

14. ASSIGNMENT

This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns; provided that neither this Agreement nor any of the rights, interests or obligations

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hereunder shall be assigned or transferred by a Party hereto without the prior written consent of the other Party, which shall not be unreasonably withheld or delayed. Any attempted assignment, transfer or disposal without said prior written consent shall be void. Notwithstanding the foregoing, each Party shall be permitted to assign, transfer or otherwise dispose of any of its rights or obligations hereunder, to any of its Affiliates or successors in interest. Any assignment, transfer or other disposition by any Party which is in violation of this Section shall be null, void and of no force and effect.

15. LIABILITY

Order of Precedence: Provider's liability to TWW and to any and all third parties for any and all causes of action is set forth in Provider's applicable state and federal tariffs, and these tariffs shall govern in all applicable cases.

In the event the service is not governed by tariff or other regulatory body, in no event shall either Party be liable to the other Party,or any third party, for any loss, expense or damage for (i) loss of revenue, profits, savings, business or goodwill, and (ii) exemplary, proximate, consequential, or incidental damages and expenses of any type or nature or on account of the use or nonuse or the services.

To the extent not in conflict with an applicable tariff, Provider shall use reasonable best efforts to provide Services to client, however, Provider makes no warranty, express or implied, with respect to the transmission services provided hereunder and expressly disclaims any warranty of merchantability, description or fitness for any particular purpose or function.

No agent or employee of any other carrier shall be deemed to be such for Provider.

16. NOTICES

Any change to the name, address and facsimile number may be made at any time by giving fifteen (15) days prior written notice. Any such notice, demand or other written communication shall be deemed to have been received, if delivered by hand, at the time of delivery or, if posted, at the expiration of seven (7) days after the envelope containing the same shall have been deposited in the post for such purpose, postage prepaid, or if sent by facsimile, at the date of transmission, if confirmed receipt is followed by postal notice.

Notices shall be made to the following persons at the following addresses and facsimile telephone numbers (which may be changed only by properly given notice):

IF TO TWW: Terremark Worldwide, Inc. 2601 S. Bayshore Dr.

Miami, Florida 33133
ATTN: General Counsel
Fax: (305) 250-4290

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IF TO PROVIDER:

Fusion Telecommunications International, Inc.
420 Lexington Avenue, Suite 518
New York, New York 10170

Attention: Legal Dept
Fax : +1.212.972.7884

17. GOVERNING LAW

This Agreement shall be governed and construed in accordance with the laws of the State of New York (without giving effect to any conflict of laws principles under New York State law) and the Parties irrevocably agree to the exclusive jurisdiction of the trial and appellate courts sitting within the State of New York.

18. INDEMNIFICATION

TWW agrees to indemnify and hold Provider and its officers, agents and employees, harmless from and against any claim, loss, damages, injury, and liability, including reasonable attorneys' fees and costs, however caused, resulting from or arising out of: a) any third party claim relating to the Service(s); b) any material breach of this Agreement by TWW c) TWW's violation of any law or regulation applicable to this Agreement and the related Service(s); and any taxes or regulatory fees related to the provision or purchase of the Service(s).

Provider expressly agrees to indemnify and to save TWW, its officers, agents and employees harmless from and against any claim, loss, damages, injury, and liability, however caused, resulting from or arising out of a) Provider's material breach of this Agreement, and b) Provider's actual or alleged direct or contributory infringement of, or inducement to infringe, any United States or foreign patent, trademark or copyright, arising out of the performance of this Agreement, provided Provider is reasonably notified of such claims and proceedings.

19. RELATIONSHIP OF THE PARTIES

At all times the relationship between the Parties shall be that of independent contractors, and nothing expressed or implied shall constitute the parties as partners, joint venturers or co-owners. Neither Party shall have the right to enter into a binding agreement on behalf

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of, or otherwise bind, the other, nor have the right to direct or control the activities of the other, nor shall one Party act as an agent of the other Party.

20. EXPORT CONTROL.

The Parties acknowledge that to the extent any products, software or technical information provided under this Agreement are or may be subject to any applicable export laws and regulations, the Parties agree that they will not use, distribute, transfer or transmit the products, software or technical information (even if incorporated into other products) except in compliance with such export laws and regulations (or licenses or orders issued pursuant thereto). If reasonably requested by a Party, the other Parties agrees to sign all necessary export related documents as may be required to comply therewith.

21. ENTIRE AGREEMENT

This Agreement, Service Order(s), and related exhibits, constitute the entire agreement between the Parties with respect to the subject matter hereof, and supersedes all prior agreements, understandings or proposals, whether oral or written, with respect to the subject matter hereof. If any of the provisions of the Agreement is found by an appropriate arbitral, judicial or regulatory authority to be void or unenforceable, such provision shall be deemed to be deleted from this Agreement and the remaining provisions shall constitute in full force and effect.

22. AMENDMENTS, HEADINGS, COUNTERPARTS

The Agreement and the Service Order(s) may only be altered or added by another agreement in writing signed by a duly authorized person on behalf of each of the Parties. The section headings of the Agreement and the Service Orders are for convenience of reference only and are not intended to restrict, affect or influence the interpretation or construction of provisions of such section. The Agreement may be executed in counterparts, each of which when executed and delivered shall be deemed an original. Such counterparts shall together (as well as separately) constitute one and the same instrument.

IN WITNESS WHEREOF, the Parties, intending hereby to be legally bound, by their authorized officers, have executed this Agreement on the date written below.

TWW:

/s/:

Name:

Title:

Date:

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FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

/s/:

Name:

Title:

Date:

Page 11

EXHIBIT 10.4

AGREEMENT

BETWEEN

PAKISTAN TELECOMMUNICATION COMPANY LIMITED

AND

M/S FUSION TELECOMMUNICATIONS INTERNATIONAL, INC., USA
FOR

THE TERMINATION OF

ADDITIONAL INTERNATIONAL INCOMING VOICE TRAFFIC

FROM USA & EUROPE

TO PAKISTAN THROUGH VOICE OVER INTERNET PROTOCOL

(VoIP)

PAKISTAN

Table of Contents

1.  DEFINITIONS .............................................................  2

2.  THE AGREEMENT DOCUMENTS .................................................  4

3.  ENTIRE AGREEMENT ........................................................  4

4.  DURATION OF AGREEMENT ...................................................  5

5.  SERVICE COMMENCEMENT DATE ...............................................  5

6.  OBLIGATIONS OF THE CONTRACTOR ...........................................  5

7.  APPROVAL OF EQUIPMENT ................................................... 10

9.  TECHNICAL ARRANGEMENTS WITH PTCL NETWORK ................................ 10

10.   REPORTING OBLIGATIONS OF CONTRACTOR ................................... 11

14.   CURRENCY OF PAYMENT ................................................... 16

15.   SUBCONTRACTORS ........................................................ 16

16.     REVIEW .............................................................. 16

17.   FORCE MAJEURE ......................................................... 17

18.   TERMINATION ........................................................... 18

19.   OBLIGATION AT TERMINATION ............................................. 21

20.   CONTRACTOR TO COMPLY WITH APPLICABLE LAW .............................. 21

21.   FAIRNESS AND GOOD FAITH ............................................... 22

22.   SETTLEMENT OF DISPUTES & ARBITRATION .................................. 23

23.   CONFIDENTIALITY ....................................................... 23

24.   INDEMNITIES ........................................................... 24

25.   AFFIRMATION ........................................................... 24

26.   APPLICABLE LAWS ....................................................... 25

27.   RULES OF CONSTRUCTION ................................................. 25

28.   NOTICES ............................................................... 26

29.   ADDITIONAL TERMS ...................................................... 26

TOPPING UP/DOWN PROCEDURE.................................................  36

SCHEDULES

Schedule-I              IP Telephony Solutions Analysis
Schedule-II             Platform Connectivity Topology Diagram
Schedule-III            Diagram of Annual International Incoming Minutes and
Schedule-IV             Accounting and Method of Settlement
Schedule-V              List of Incumbent Carriers in USA and Europe
Schedule-VI             Programme of Commitments (Milestone)

PAKISTAN

AGREEMENT

This Agreement is made in duplicate and is deemed to be executed at Islamabad on this 20 Day of May 2002.

Between

Pakistan Telecommunication Company Ltd., a public limited company incorporated under the Companies Ordinance 1984, with its registered office at PTCL headquarters, G-8/4, Islamabad (hereinafter referred to as "PTCL" which expression shall, where the context so permits, be deemed to mean and include its successors-in-interest and assigns), through its duly authorised representative, OF THE ONE PART

And

M/s Fusion Telecommunications International, Inc. USA with its registered office at 420 Lexington Avenue, Suite 518, New York, New York 10170, USA (hereinafter referred to as the "Contractor" which expression shall, where the context so permits, be deemed to mean and include its successors-in-interest and assigns), through its duly authorised representative, OF THE OTHER PART

WHEREAS PTCL has the exclusive right under the Pakistan Telecommunication (Re-organisation) Act, 1996 to provide Basic Telephone Services in Pakistan until 31 December 2002 and PTCL is not barred from executing and performing this Agreement under the License;

AND WHEREAS PTCL proposes on non- exclusive basis to arrange for the termination of (illegal) additional incoming international Traffic, focusing on channellising illegal traffic, from non-Incumbent Carriers through Voice over IP (VoIP) from USA & Europe into Pakistan;

WHEREAS it is agreed that the Contractor, in consideration of PTCL authorising the Contractor to procure and install the VoIP Platform to terminate international voice traffic at the rates and on the terms of this Agreement, will procure and install at entirely its own cost and expense for and on behalf of PTCL (at no additional cost to PTCL) appropriate equipment and facilities as per specifications mentioned in respective Clauses of this Agreement at premises and at points controlled by PTCL so as to

PAKISTAN

enable VoIP traffic to terminate in Pakistan through VoIP gateway at Rawalpindi to be connected with PTCL's respective transit exchange from the USA & Europe.

AND WHEREAS the Contractor has agreed with PTCL that the VoIP Platform installed at Rawalpindi by the Contractor shall be owned and operated by PTCL on the terms and conditions hereinafter appearing.

NOW THEREFORE in consideration of the mutual covenants hereinafter set out and for good and valuable consideration, the adequacy of which is hereby acknowledged, the Parties have agreed as under:

1. DEFINITIONS

Unless the context otherwise requires, the following terms, wherever used in this Agreement, shall have the following meanings:

(a) "Act" means the Pakistan Telecommunication (Re-organisation) Act, 1996 (Act No. XVII of 1996).

(b) "Applicable Law" means the law of Pakistan including any instruments having the force of law in Pakistan;

(c) "Agreement" means this Agreement between PTCL and the Contractor along with the other documents forming part of this Agreement as described in Clause 2 hereof;

(d) "Basic Telephone Service" means "basic telephone service" as defined in the Act;

(e) "Securitization Agreement" means the agreement between PTCL and LaSalle National Bank, Chicago dated 14.8.1997 pursuant to which certain receivables of PTCL are securitized;

(f) "VoIP" or "Voice over IP" means the transmission of voice sent over the packet switched data communication protocol set of TCP/IP;

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PAKISTAN

(g) "Customer" means a person in the USA and/or Europe who makes a call or fax to Pakistan and such call or fax is routed through the VoIP Platform in accordance with this Agreement;

(h) "License" means the license issued by PTA to PTCL and any amendments thereto;

(i) "Party" means PTCL or the Contractor, as the case may be, and "Parties" means both of them;

(j) "VoIP Platform" means the equipment, hardware/ software to be installed at PTCL premises at Rawalpindi and connected at the level of transit exchange by the Contractor for and on behalf of PTCL to enable international incoming calls to be terminated on any fixed line or mobile subscribers, through PTCL Network, anywhere in Pakistan (using VoIP technology);

(k) "US Settlement Rate" means 50% of Total Accounting Rate (TAR), in US cents per minute, agreed between Incumbent Carriers and PTCL for termination of international traffic in Pakistan;

(l) "PTA" means the Pakistan Telecommunication Authority established under the Act;

(m) "Services" means the work to be performed by and the services to be undertaken by the Contractor pursuant to this Agreement;

(n) "Service Commencement Date" means the date on which VoIP traffic will start being terminated on the VoIP Platform in accordance with this Agreement.

(o) "Effective Date" means June 15th 2002.

(p) "Legal Traffic" means total incoming international voice/fax traffic passing through PTCL's international gateway exchanges and terminated on any type of telephone subscribers through PTCL network of transit and local exchanges;

(q) "Illegal Traffic" means international incoming voice/fax traffic using VoIP or any other technology terminating on any type of telephony network, bypassing PTCL's international gateway exchanges through various means including leaky PABX (excluding VoIP traffic under this Agreement) and/or any other bypass mechanism using VoIP or any other technology;

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PAKISTAN

(r) "Day" means a Day on which banks are open for business in USA and/or Pakistan, as may be relevant. This definition relates only to payment obligations under this Agreement.

(s) "Terminated Minutes," means the total incoming international voice/fax traffic terminated at PTCL's transit exchange at Rawalpindi routed through the VoIP Platform. For avoidance of doubt, Terminated Minutes shall not include incoming international voice/fax traffic, the duration of which is less than 6 (six) seconds;

(t) "Incumbent Carriers" means such foreign carriers of USA & Europe with whom PTCL has bilateral agreements or arrangements for direct international traffic "as listed in Schedule V";

(u) "Designated Account" means the bank account to be notified by PTCL to the Contractor on or before the Service Commencement Date or from time to time thereafter, in which the Contractor shall make payments.

(v) "Statement of Qualification (SoQ)": means the statement in the format specified in the Proposal Form comprising benchmarks and requirements for eligibility of the party to enter into an agreement with PTCL for termination of additional incoming international traffic through VoIP.

(w) "USA" shall mean and include the United States of America and all other countries bearing Country Code,"+1"

(x) "CDR" shall mean Call Data Record.

Other terms not defined in this Section will have the same meaning as defined in the Act and, if not defined in the Act, as generally understood in the telecommunication industry.

2. THE AGREEMENT DOCUMENTS

The following documents form an integral and substantive part of this Agreement and, in the event of any inconsistencies between them; the order of precedence shall (unless expressly stated to the contrary) be as follows:

(a) Preamble and Recitals to this Agreement;

(b) Main body of this Agreement; and

(d) Statement of Qualification

3. ENTIRE AGREEMENT

This Agreement constitutes the entire agreement with respect to the subject matter hereof and hereby cancels and supersedes any and/ or all previous or

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contemporaneous agreements, representations or understandings, whether oral or written between the Parties pertaining to the subject matter hereof. This Agreement shall not be modified or amended except by an agreement in writing signed by the Parties.

4. DURATION OF AGREEMENT

This Agreement shall come into effect on the Effective Date and shall remain valid initially for a term of one (1) year, subject to extension at the option of Contractor for an additional one (1) year. If, following the exercise by the Contractor of its option to extend the Agreement for an additional one (1) year, either Party desires extension in the term of this Agreement, it shall give the other a notice to this effect 90 days in advance prior to termination date of the agreement. If the Parties do not agree to any extension as aforesaid, the term of this Agreement shall expire on the first anniversary of the Effective Date if the Contractor has not elected to extend the Agreement by an additional one (1) year or if the Contractor has so elected (by written notice to PTCL such notice to be served not less than sixty days prior to the expiry of the first anniversary of the Effective Date).

5. SERVICE COMMENCEMENT DATE

The Contractor agrees that the Service Commencement Date shall be a date not later than sixty (60) Days after the Effective Date, or any other date, which PTCL may agree to in writing prior to the expiry of such 60
(sixty) Days period subject to clause 13 of this Agreement. The Contractor undertakes and agrees that by the Service Commencement Date the VoIP Platform shall be fully functional so as to enable Customers to make international calls to Pakistan using VoIP technology through the VoIP Platform in the manner and on the terms contemplated by this Agreement.

6. OBLIGATIONS OF THE CONTRACTOR

The Contractor shall be responsible for the design, supply and installation of the VoIP Platform in accordance with and subject to the terms of this Agreement. The Contractor shall on or before the Service Commencement Date provide PTCL the invoice of the equipment to be installed in VoIP Platform. In addition to this obligation the Contractor agrees to use its best efforts to ensure that Customers are made aware of the option to connect to Pakistan through the VoIP Platform and for such purpose the Contractor agrees to ensure that

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appropriate marketing takes place of this option and that competitive prices are charged to Customers so as to ensure the development of an appropriate market and so as to facilitate the substitution of Illegal Traffic.

6.1 Standard of Performance

The Contractor shall perform the Services and carry out its obligations under this Agreement with all due diligence, efficiency and economy, in accordance with generally accepted techniques and practices used in the sector and shall observe sound management practices. The Contractor shall always, in respect of any matter relating to the installation of the VoIP Platform, act as faithful contractors to PTCL, and shall at all times support and safeguard PTCL's legitimate interests, as reasonably determined by PTCL.

6.2 VoIP Equipment

(a) All the equipment and other items to be installed at VoIP Platform should be brand new, of the latest model available, chassis based with embedded processor, expandable, A-law compatible, having ITU SS7 (ISUP) signaling capability, supporting voice/fax through dynamic universal port, ANI authentication, IVR for trouble announcement and number proscriptions. Moreover, the VoIP Platform should be capable of passing on call progress signals, providing billing information and network management capabilities as per Schedule I. For avoidance of doubt, Contractor shall not install in the VoIP Platform such equipment having quality and specifications inferior to those mentioned in the Agreement.

(b) All equipment, hardware, software and other items to be installed for the VoIP Platform shall be in accordance with and as laid down in PTCL specifications approved in writing by PTCL. PTCL will provide reasonable assistance to the Contractor in obtaining any required approval, if necessary, from PTA prior to its installation. The Contractor is required to provide detailed list for all the equipment (to be installed and used in VoIP Platform) including the quantities, origin, model number, existing certifications and contact names of the manufacturer/supplier along with relevant literature so that the approval thereof can be processed expeditiously. Contractor will not install any unapproved equipment to interface with PTCL network under any circumstances and will be entirely

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responsible for all costs incurred if any equipment is not
approved by the PTCL prior to installation.

Listed below are some of the key features of the VoIP Platform that will need to be verified prior to the approval of the equipment. These items are provided as an indicative list only and the final approval of the equipment and its acceptance for interface with the PTCL network may be based on additional items in the discretion of PTCL:

(i) The major modules of the system, e.g. hard disks, CPU, main memory etc. shall be duplicated;

(ii) The system shall be highly reliable and the configuration of the system shall be such that the stored data is not lost in any case due to faults in the system. This will need to be demonstrated under different kinds of failure scenarios;

(iii) The system shall have fully redundant back up to cope with the malfunctioning of any part of the VoIP Platform. It shall have redundant processing units, subscriber database, storage, administrative processors, switching network, alarming devices / systems etc.

6.3 The Services

(a) The Contractor agrees to design, install, test and commission at entirely its own cost and expense the VoIP Platform at Rawalpindi in PTCL premises as may be mutually agreed by the Parties in writing. Once the VoIP Platform is tested and commissioned into service, the Contractor agrees that the VoIP Platform shall be handed over to PTCL at no cost. For avoidance of doubt it is clarified that after the equipment is handed over to PTCL, the Contractor shall not under any circumstances or for any reason claim return of the equipment, its cost, damages etc, if the Agreement expires or is earlier terminated under the terms hereof.

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(b) The Contractor hereby represents and warrants that the VoIP Platform shall be free from all material defects and shall be capable of terminating international calls from the USA and Europe within the performance parameters contemplated by this Agreement. Without prejudice to the generality of the foregoing, the Contractor agrees that the VoIP Platform when used shall meet the performance criteria set forth in
Section 6.2(c) hereto. The VoIP Platform shall generate data that presents a complete and accurate picture of usage of VoIP Platform for termination of international calls. In the event that there is any defect or fault in the VoIP Platform during the term of this Agreement, the Contractor agrees to promptly remedy such defects (including spare parts) at its own cost and expense. The Contractor shall use its best endeavors to ensure that any defect or fault in the VoIP Platform shall be fully remedied within 3
(three) Days of such defects or fault arising.

(C) In order for PTCL to make, the required facilities available to accommodate the VoIP Platform, the Contractor shall submit to PTCL details of its requirements in the form of a site preparation plan within 7 (seven) Days of the Effective Date. PTCL shall within 7 (seven) Days thereafter approve such plan or suggest changes therein. In the event PTCL does not communicate its decision as aforesaid, the site preparation plan submitted by the Contractor shall be deemed acceptable, provided however that, the Contractor shall have at least 45 (forty five) Days before the anticipated Service Commencement Date to implement such plan. The site preparation plan will consist of details of requirements for floor space, electrical connectivity, air-conditioning etc. If PTCL in its sole discretion prepares a final plan, the Contractor will be required to install the VoIP Platform in accordance with this final plan. In any event PTCL shall supply free of charge industry standard co-location space to the Contractor (As per Schedule VI).

(d) While PTCL will provide all available assistance, the Contractor is completely responsible for performing its own due diligence regarding the PTCL network for interfacing the VoIP Platform to the PSTN.

(e) PTCL and the Contractor will jointly prepare analysis for the traffic requirements and the consequent sizing of the connectivity requirements of the Contractor for each of the VoIP Platform. The Contractor will

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provide ample notice to PTCL for the interface requirements for the VoIP Platform such that the final decision between the Parties in respect of the same is reached at least 45 (forty five) Days prior to the anticipated Service Commencement Date. Similar arrangements shall apply after the Service Commencement Date if the demand for use of the VoIP service expands and consequently greater connectivity is required.

(f) The Contractor will market the VoIP service in USA and Europe at its own cost, expense and responsibility.

(g) The Contractor will be responsible for technically establishing the new links from USA/EUROPE to VoIP Platform in Pakistan and between the VoIP Platform and PTCL's PSTN network including the cost of all hardware/software and shall be responsible for providing at its own cost appropriate training for the PTCL staff to ensure that there is a smooth and effective interface between the VoIP Platform and the PTCL Digital Transit Exchange (DTE). PTCL will be responsible for one-half of the cost of connectivity (or for the Pakistan half circuit in the case of IPLC) between USA/"Europe" and Pakistan which may be, by option of Contractor, by (1) PTCL IP IPL between 60 Hudson Street, New York and Pakistan, (2) IPLC on fiber (SeMeWe3/FLAG, etc. and onward fiber), or (3) IPLC on satellite, and in any of these cases PTCL will provide at its expense all IP connectivity between cable head or earth station in Pakistan and Contractor's POP in Rawalpindi.

(h) The Contractor shall terminate only traffic from USA and Europe through the VoIP Platform. Contractor hereby agrees to terminate 3 to 5 million minutes per month per location through the VoIP Platform focusing on capturing of Illegal Traffic. In consideration of the Contractor terminating traffic under this Agreement, fixed terminations rate of US$ 0.19 (US cents nineteen only) per minute will be applicable till the revision of the US carrier settlement rates (bilateral carrier rate). Subsequent termination benchmark rate would be revised as provided for in Section 12.6 of this Agreement.

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7. APPROVAL OF EQUIPMENT

PTCL will not unreasonably delay processing of a request for approval of the equipment to be used in the VoIP Platform from the Contractor. PTCL shall not unreasonably withhold approval of such equipment for use in the Services and will inform the Contractor of the reasons for not approving any such equipment. Any approval provided by PTCL shall not in any way impact on or derogate from the obligation on the Contractor to obtain all approvals required under the laws of Pakistan in respect of the such equipment and the installation thereof including any Type Approvals required from the PTA. The Contractor shall submit to PTCL details of the equipment to be used in the VoIP Platform within 7 (seven) Days of the Effective Date. PTCL shall within 7 (seven) Days thereafter approve such equipment or suggest changes therein. In the event PTCL does not communicate its decision as aforesaid, the details of such equipment submitted by the Contractor shall be deemed acceptable, provided, however, that the Contractor shall have at least 45 (forty five) Days before the anticipated Service Commencement Date to implement the same.

8. ACCESS TO THE VOIP PLATFORM

The number of circuits to be provided by PTCL will be based on the size of the VoIP Platform and the traffic analysis and will be mutually agreed between PTCL and the Contractor. PTCL will provide the Contractor access to the VoIP Platform within 60 (sixty) Days of the Effective Date and in case PTCL is not able to provide such access within this stipulated time, the Service Commencement Date will be extended accordingly.

9. TECHNICAL ARRANGEMENTS WITH PTCL NETWORK

9.1 PTCL will provide the VoIP Platform, an interconnection at the El level on the Rawalpindi transit exchange as shown diagrammatically in Schedule II. No special routing requests from the Contractor will be entertained by PTCL.

9.2 PTCL and the Contractor will mutually agree to prepare demand analysis for the projected traffic and the consequent sizing of the connectivity requirements of the Contractor for the VoIP Platform in Rawalpindi. This exercise will be conducted at least once a year but may be conducted earlier or more frequently on mutual agreement. PTCL will fully cooperate

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with the Contractor in finalizing the connectivity requirement schedule and will not unreasonably delay such an arrangement.

9.3 PTCL will co-operate with the Contractor and will furnish the Contractor with all relevant information and data concerning PTCL, which PTCL and the Contractor mutually agree as appropriate for determining the compatibility of interfacing its equipment with the PTCL network.

10. REPORTING OBLIGATIONS OF CONTRACTOR

The Contractor shall submit to PTCL CDRs generated in a platform installed in USA and Europe on a fortnightly basis. CDRs for the first fortnight of a given month shall be submitted on or before the 21st of such month, and the CDRs for the second fortnight in the given month shall be submitted on or before the 7th of the following month. CDRs submitted as aforesaid will include number of calls and recorded Terminated Minutes on a per originating and destination basis, and shall be in the following format:

-------------------------------------------------------------------------
 Date      A-Tel*    B-Tel    Start    End Time    End Date   Duration
                              Time
-------------------------------------------------------------------------

* Note: Country Code will be a part of A-Tel.

11. BILLING & PAYMENT The Contractor shall:

i. Keep accurate and systematic accounts and records in respect of revenues generated from sale of VoIP service to Customers in accordance with internationally accepted accounting principles. For avoidance of doubt it is clarified that CDRs will be generated on per second basis, however, will be charged on the basis of cumulative minutes. (e.g. if the total number of cumulative seconds in a billing period is 106,800,261, then the total number of minutes to be billed at the Termination Rate will be 1,780,004 minutes).

ii (a) Submit CDRs generated in a platform installed in USA/Europe to PTCL under Clause 10 above. Such CDRs will be compared with records created in the PTCL transit exchanges. PTCL will generate bills based on figures at PTCL transit exchanges. However, the CDRs supplied by the

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Contractor must be in a format readable by PTCL billing centers. Subject to provisions of sub clause (b) below, in case of any variation between the Contractor's CDRs and the figures generated through CDRs of PTCL transit exchanges/VoIP Platform, the PTCL CDRs figures shall (subject to paragraphs (b) and (c) below) be considered as final and conclusive for the purpose of billing under this "Agreement". Amount so determined and billed shall be binding on the Contractor.

(b) In case of any discrepancy in CDR's reconciliation (where PTCL CDR shows more minutes terminated than the Contractor's CDR) up to 0.75% or less of the relevant CDR, the Contractor shall not make the same a basis for dispute and shall pay the same. However, the contractor will be given due opportunity to highlight any discrepancy in PTCL's CDR for correction and if, such discrepancy is accepted by the PTCL the contractor shall be entitled for the credit. In case, the discrepancy exceeds the afore said figure of 0.75 %, the Contractor shall pay the undisputed amount and the parties will resort to mutual negotiations, reconciliation and settlement for the disputed amount.

(c) If the settlement is not arrived at amicably within four weeks, the dispute may be resolved through the dispute resolution mechanisms provided in this agreement or as may otherwise be agreed between the parties.

iii. be billed fortnightly for the number of minutes multiplied by the agreed rate which is US$ 0.19 (US cents nineteen) per minute at present. The bill will be e-mailed/faxed to the Contractor or its designated agent, which shall be the valid document for the purpose of payments. However, for the purposes of record and fulfillment of other contractual requirements, the hard copies of such invoices shall later on be provided to the contractor by the PTCL.

iv. solely be responsible for the payment within seven days of the "confirmed" issuance/transmission of the invoice through e-mail/fax. The date and time for the payment shall be calculated from the date of issuance/transmission of such invoices. For avoidance of any doubt it is hereby clarified that only the date of credit of payment into the "Designated Account" shall be considered as payment receipt date.

v. solely be responsible for the suspension of service at the discretion of the PTCL for such period of time till the payment is not made within stipulated

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period of time. PTCL shall have the right to terminate the "Agreement" if the service is suspended due to non-payment.

12. CHARGES AND DEPOSITS

12.1 Proposal Security

To determine its seriousness in the project, an amount of Rs. 5.0 (M) (rupees five million only) or US$.84,000 (US Dollars Eighty-four Thousand only) per site in the shape of pay order/demand draft issued by any Pakistani scheduled Banks as proposal security was deposited by the contractor with the Pakistan Telecommunication Company Limited (PTCL). This proposal security will be refunded to the Contractor after the receipt of full amount of rolling advance. Failure to deposit rolling advance within the stipulated period of time so explained in Clause 11 of the "Agreement" shall result in the forfeiture of the proposal security without any notice.

12.2 Rolling Advance for Billing

12.2.1 The Contractor shall within 15 (fifteen) days of the Effective Date of the "Agreement" deposit and maintain in the "Designated Account" a cash rolling advance to secure amounts due from the Contractor under this Agreement in respect of calls terminating through use of the VoIP Platform. The Rolling Advance shall be based on the PTCL's billing estimate for 30 (Thirty) Days following the Service Commencement Date and the minimum amount of the rolling advance (regardless of actual billing) shall be based on 3
(three) million Terminated Minutes per month per site. In case the Terminated Minutes per month increase above 3
(three) million, the rolling advance shall be increased PRO RATA. The rolling advance will be topped up in accordance with the procedure laid down in clause-12 of the "Agreement" and the amount of rolling advance shall be maintained by the contractor until the termination of the "Agreement" and thereafter till the full and final settlement of its amounts due to PTCL. In the event there are no amounts due to PTCL from the Contractor, the balance of the rolling advance shall be refunded. No interest, profit or other return shall accrue on the rolling advance to the Contractor. Whenever traffic exceeds three million minutes in a calendar month, PTCL will issue the notice to the contactor for topping up the rolling advance, and the Contractor shall within 7 (seven) Days top up the rolling advance. In case Contractor fails to top up the rolling advance, PTCL may at its sole discretion and without prior notice to the Contractor terminate this Agreement without prejudice to

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any other interest or claim that may have accrued in favour of PTCL or to which PTCL may in the future be entitled to under this Agreement.

12.2.2 If as a direct consequence of any act, omission or violation committed by the Contractor in connection with the provision of the Services (as reasonably demonstrated by PTCL), the non-VoIP traffic of PTCL from either USA or Europe decreases as set forth in Schedule-III hereto, other than as a result of migration of some percentage of Contractor's existing traffic on the VoIP platform, then the Contractor will, in addition to being liable to pay PTCL in accordance with the terms of this Agreement for the VoIP traffic routed through the VoIP Platform, become liable to pay compensation to PTCL as calculated and set forth in Schedule IV. The maximum compensation claimed by PTCl shall not be more than the total number of minutes that have been terminated by the Contractor for that period. PTCL will gave no more that 30 days after the end of the billing cycle to make such claim. All such claims by PTCL will be made in writing after the end of thirty (30) days of the billing cycle shall be invalid. The Contractor shall however render all possible assistance, cooperation and support to PTCL to identify parties responsible for terminating voice traffic bypassing PTCL's International Gateways.

12.3 The Contractor shall be liable to pay PTCL for each Terminated Minute of an incoming call routed through the VoIP Platform. Regardless of the total number of incoming calls routed through VoIP Platform, the Contractor will make a minimum guaranteed payment to PTCL based on 3 (three) million incoming Terminated Minutes of VoIP Platform per month per site, unless it has been precluded from passing the minimum number of minutes due to Force Majeure. Keeping in view initial traffic built-up process, the minimum 3 (three) million Terminated Minutes per month per site will be averaged over a period of 3 (three) months. However, the Rolling Advance will increase to cover the difference of 3 (three) million Terminated Minutes and actual traffic for that month. For example if the traffic for a month is only 1 (one) million Terminated Minutes the Rolling Advance will be topped up by an amount equal to 2 (two) Million Terminated Minutes multiplied by US$ 0.19 (US cents nineteen) US$ 380,000. However the payment for first 3 (three) months will be for a minimum of 9 (nine) Million Terminated Minutes.

12.4 The Contractor shall make all due payments under this Agreement (as per relevant Clauses/Schedules) in PTCL's Designated account, which will not be subject to any deductions, counter-claims or set-off.

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12.5 PTCL reserves the right at any time to require the Contractor to provide an additional security deposit, or irrevocable standby letter of credit or other form of security acceptable to PTCL, in case of the Contractor's unsatisfactory financial condition, payment history or credit check is or becomes unacceptable to PTCL. In all such cases, the Contractor will be given 15 (fifteen) Days notice to remedy the situation to the satisfaction of PTCL. "If the contractor does not agree with the demand of PTCL then either party has the right to terminate the contract effective immediately. Unused balance of the rolling advance after making necessary adjustments will be returned to the contractor within thirty (30) days of termination of the contract."

12.6 The rates set forth in this Agreement in respect of per minute charges for incoming calls shall be locked-in until revision of US carrier settlement rate (bilateral carrier rate). However, these shall not be more than US$ 0.19 (US cents nineteen) per minute and shall be reviewed at least biannually on 1st January and 1st July every year in the light of bilateral settlement accounting rates to ensure that the rate remains 15% below settlement rate i.e. US Settlement Rate minus15% of that.

13 PROGRAMME OF COMMITMENTS (MILESTONES)

13.1 Notwithstanding any thing contained in the Agreement, the commitments for the commencement of service shall be carried out in accordance with the programme of commitments (Milestones) as stipulated in Schedule VI.

13.2 If, after the Date of execution of the Agreement, either party shall have been delayed or impeded by any act or omission of the said party or any circumstances beyond the reasonable control of that party, in that event the subsequent milestones shall be extended by the period of such delay.

13.3 Notwithstanding 13.2, if PTCL does not stay within the timetable for its tasks as set forth in the attached Milestone Schedule VI, then at the request of Contractor, the Rolling Advance on deposit with PTCL and the equipment shall, within five (5) days after such request, be returned to Contractor and the Agreement shall stand terminated if the overall delay is more than four weeks, otherwise, if the overall delay is equal to or less than four weeks, then PTCL will pay interest on the Rolling Advance to Contractor at the rate of LIBOR (as measured on the first day of delay) plus 2% per annum for the total number of days of delay.

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13.4 Notwithstanding any thing contained in the Agreement other than clause 13.2, if the Contractor fails to complete the commitments by the completion Dates in accordance with the Schedule VI, the PTCL shall have the right to terminate the Agreement by returning the Rolling Deposit to Contractor and retaining the equipment by PTCL, provided that the delay is more than four weeks.

14. CURRENCY OF PAYMENT

All payments by the Contractor under this Agreement except Proposal Security shall be made to the Designated Account in US Dollars.

15. SUBCONTRACTORS

15.1 The Contractor shall not engage any subcontractor in Pakistan for the performance of any of the Services without the prior written approval of PTCL including the terms of such engagement. The Contractor shall provide to PTCL such details as PTCL may request. The Contractor may not terminate or amend terms of the approved subcontractor without prior written approval of PTCL.

15.2 The appointment of any subcontractor shall not relieve the Contractor from any liability or obligation under this Agreement.

16. REVIEW

16.1 Either Party may seek to amend this Agreement by serving on the other a review notice if:

(a) the License is materially modified (whether by amendment or replacement) to the extent that such modification or replacement directly or indirectly affects the provision of the Services; or

(b) a material change occurs in the law or regulations (including codes of practice whether or not having the force of law) governing telecommunications in Pakistan; or

(c) a material change (including enforcement action by any regulatory authority) occurs which affects or reasonably could be expected to affect the commercial or technical basis of this Agreement.

16.2 A review notice shall set out in reasonable details the issues to be discussed between the Parties.

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16.3 On the service of a review notice, the Parties shall forthwith negotiate in good faith, the matters to be resolved with a view to agreeing the relevant amendments to this Agreement.

16.4 If the Parties fail to reach agreement on the subject matter of a review notice within 3 (three) months from the date of service of such review notice, either Party may at its option after the expiry of the aforementioned 3 (three) month period terminate this Agreement without any further obligation or liability.

16.5 If either Party is required by applicable law or regulation to modify or discontinue the Services or any part thereof then either Party reserves the right to do so and will notify the other as soon as possible of any such modification which shall forthwith be binding on the Parties and neither will have any further obligation or liability to the other in respect of such modification. "However, if these modifications are materially detrimental to the other Party then that other Party can terminate this Agreement without liability by providing one month's notice in writing to the first party."

17. FORCE MAJEURE

For the purposes of the Agreement, "Force Majeure" means an event or circumstance which is beyond the reasonable control of a Party, and which makes a Party's performance of its obligations under this Agreement impossible, and includes, but is not limited to, Acts of God, war, riots, civil disorder, earthquake, fire, explosion, storm, flood or other adverse weather conditions, strikes, lockouts or other industrial action.,

17.1 Force Majeure shall not include:

17.1.1 an event, which is caused by the negligence or willful action of a Party or its subcontractor;

17.1.2 an event which a diligent Party could reasonably have been expected to:

(i) have taken into account as at the Effective Date, or

(ii) have avoided or overcome in the course of carrying out its obligations under this Agreement. 17.2 Force Majeure shall not include insufficiency of funds or circumstances arising from a failure to make any payment required by this Agreement.

17.3 The failure of a Party to fulfill any of its obligations under this Agreement shall not be considered to be a breach of, or a default under, this Agreement insofar as the inability arises from an event of Force Majeure,

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provided that the Party affected by that event has taken reasonable precautions, due care and attempted to put in place reasonable alternative arrangement all with the objective of carrying out the terms of this Agreement without delay.

17.4 Measures to be Taken

A Party affected by an event of Force Majeure shall take all reasonable measures to remove its inability to fulfill its obligations under this Agreement with a minimum of delay and shall notify the other Party in writing of the event concerned as soon as possible, and in any event not later than 7 (seven) Days following the occurrence of the event concerned, and shall similarly give notice of the restoration of normal conditions as soon as possible. The Parties shall take all reasonable measures to minimize the consequences of any event of the Force Majeure.

17.5 Extension of Time

Any period, within which a Party must, pursuant to this Agreement, complete any action or task, shall be extended Day-for-Day up to a period equal to the time during which that Party was unable to perform such action as a result of Force Majeure.

17.6 Consultation

Not later than 14 (fourteen) Days after a Party has become unable to perform a material portion of the Services as the result of an event of Force Majeure, the Parties shall consult with each other with a view to agreeing on appropriate measures to be taken in the circumstance.

18. TERMINATION

18.1 Either Party may terminate this Agreement immediately on written notice if the other:

(a) commits a material breach of this Agreement, which is capable of remedy, and the Party in breach fails to remedy the breach within a reasonable time of a written notice to do so; or

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(b) commits a material breach of this Agreement which cannot be remedied; or

(c) is repeatedly in breach of this Agreement "and has had prior notice in writing that a further breach of this agreement will result in termination of it"; or

(d) is the subject of a bankruptcy order, or becomes insolvent, or makes any arrangement or composition with or assignment for the benefit of its creditors, or if it goes into either voluntary (other than for reconstruction or amalgamation) or compulsory liquidation, or a receiver or administrator is appointed over its assets or if the equivalent of any such events under the laws of any of the relevant jurisdictions occurs.

18.2 PTCL may, by not less than 15 (fifteen) Days' written notice to the Contractor "(during which period the contractor shall be entitled and permitted to attempt to remedy the breach):, terminate this Agreement without prejudice to any rights which may have accrued under this Agreement to either Party prior to such termination, if:

18.2.1 the VoIP Platform has an adverse impact on PTCL network;

18.2.2 any subcontractor does or allows anything to be done which in PTCL's reasonable opinion is likely to jeopardize the operation of the PTCL network;

18.2.3 the Contractor files with PTCL a statement in writing which has a material effect on the rights, obligations or interests of PTCL and which the Contractor knows or should reasonably have known to be false;

18.2.4 the Contractor is unable as a result of Force Majeure or for any other reason to perform a material portion of the Services for a continuous period of not less than 60
(sixty) Days;

18.2.5 the Contractor fails to start full scale commencement of the Service within 30 (thirty) Days of the Service Commencement Date;

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18.2.6 the Contractor introduces any equipment which has not been approved in advance by PTCL and, where required, by PTA;

18.2.7 the Contractor introduces or provides any service through the VoIP Platform or otherwise which has not been approved by PTCL;

18.2.8 the Contractor commits an act which is in violation or which places PTCL in violation of its License or of the Act;

18.2.9 PTCL may terminate this Agreement as provided in Clause 12.2;

18.2.10 Notwithstanding the foregoing, after the first year of the commencement of service, this Agreement may be terminated at any time by either Party by giving 90 (ninety) Days written notice to the other Party.

18.2.11 Without prejudice to PTCL's general rights to terminate the Agreement, the following INTER ALIA shall constitute a material irremediable breach by the Contractor entitling PTCL to terminate the Agreement forthwith without any further liability:-

a. if Contractor terminates more than 5 (five) million minutes per month through a VoIP Platform for consecutive 3 (three) months, provided however that, PTCL shall not exercise its right to terminate this Agreement under this Clause, if the additional minutes terminated are less than 10% (ten per cent) of the aforesaid volume for such period;

b. if Contractor terminates traffic from origins other than Europe and USA through VoIP Platform;

c. if more than 25% (twenty five percent) A-telephone numbers in CDRs are not provided;

d. if Contractor terminates traffic through any other mechanism (except bilateral gateways) bypassing VoIP Platform installed under this Agreement. In addition to the termination, the Contractor shall also be liable to compensate for the loss caused due to bypassing of PTCL International/VoIP Gateways.

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e. if the service is suspended for three times in a calendar year (due to non re-couping and non toping-up of the rolling advance),.

f. any disclosure contrary to the information, documents and other material provided by the contractor.

g. any disclosure contrary to the affirmations given in Clause 24.

19. OBLIGATION AT TERMINATION

19.1 On termination of this Agreement in accordance with its terms, or upon expiration of this Agreement as the case may be all rights and obligations of the Parties shall cease, except:

a. rights and obligations that have accrued as of the date of termination or expiration; b. the obligation of confidentiality set forth in this Agreement; c. any right which a Party may have under the Applicable Law;
d. the indemnification obligations set forth in this Agreement.

19.2 Upon termination of this Agreement:

(a) the Contractor shall forthwith pay to PTCL any outstanding amounts, which it is liable to pay under this Agreement,

(b) PTCL shall without delay return to Contractor all amounts held by it after the adjustment of payments due to PTCL , if any .

19.3 Upon termination of this Agreement by notice of either Party to the other pursuant to this Agreement, the Contractor shall, immediately on receipt of notice to that effect, take all necessary steps to bring the Services to a close within 30 (thirty) Days of the receipt of the notice in an orderly manner.

20. CONTRACTOR TO COMPLY WITH APPLICABLE LAW

20.1 The Contractor shall pay all the taxes, levies, duties and impositions on the import of equipment which are levied on the Contractor within the time period stipulated by the levying authority. The Contractor is solely responsible for all such taxes and duties even if they are imposed or become effective after the Effective Date.

- 21 -

PAKISTAN

20.2 The Contractor shall be solely responsible for obtaining any authorization, registration, permit or licenses ("Authorization") as required under the Applicable Law at its own cost for any import/export required to be undertaken for the performance of its obligations under this Agreement. PTCL will provide reasonable assistance to the Contractor in this regard and any delay in clearance of any equipment to be used in the VoIP Platform shall be considered as Force Majeure pursuant to the relevant Clause of this Agreement.

20.3 The Parties will at all times comply with the Applicable Law. The Parties will use their best efforts to ensure that their respective subcontractors and personnel comply with the Applicable Law.

21. FAIRNESS AND GOOD FAITH

21.1 The Parties undertake to act in good faith with respect to each other's rights and obligations under this Agreement and to adopt all reasonable measures to ensure the realization of the objectives of this Agreement.

21.2 The Parties recognize that it is impractical in this Agreement to provide for every contingency, which may arise during the life of the Agreement, and the Parties agree that it is their intention that this Agreement shall operate fairly as between them, and without detriment to the interest of either of them. If during the term of this Agreement, either Party has evidence to believe that the other is performing its obligations under this Agreement unfairly, then the Parties undertake to use their best efforts to agree on such action as may be necessary to remove the cause or causes of such unfairness.

21.3 PTCL shall not take any action, discriminatory or arbitrary, which `materially or adversely affects or is likely to affect the enjoyment of the rights and interests of the Contractor under or pursuant to this Agreement.

21.4 The parties agree that, save in respect of death, personal injury and any other liabilities that can not be excluded by law, their aggregate liabilities to each other under or related to this agreement shall not exceed the

- 22 -

value of the Rolling Advance at the date upon which the event giving rise to the liability arose.

22. SETTLEMENT OF DISPUTES & ARBITRATION

22.1 The provisions contained in this Clause shall survive the termination and/or expiration of this Agreement.

22.2 The Parties shall use their best efforts to settle amicably all disputes arising out of or in connection with this Agreement or its interpretation. Any dispute between the Parties as to matters arising under this Agreement which cannot be settled amicably within 10 (ten) days after receipt by one Party of the other Party's request for amicable settlement may be submitted by either Party to arbitration in accordance with the provisions set out below.

22.3 In the event of disputes between the Parties arising out of the terms of this Agreement, the same shall be settled by arbitration by 2 (two) arbitrators, 1 (one) each to be appointed by the Parties. The Parties shall appoint such arbitrators within 10 (ten) working days of receipt of the first notice in this behalf by a Party. In case of a disagreement among the arbitrators or if they are unable to resolve the matter within
30 (thirty) days thereafter, the matter will be referred to an umpire nominated by both parties or their arbitrators who shall preferably be a retired judge of the High Court of a Province or the Supreme Court of Pakistan or an internationally reputed Telecom Lawyer. The award given by the arbitrator(s) as aforesaid shall be binding on the Parties.

22.4 Arbitration proceedings shall be held in Islamabad, Pakistan. The procedure shall be that provided in the Arbitration Act 1940 and all subsequent amendments thereto.

22.5 In any arbitration proceedings under this Agreement the decision of the arbitrator shall be final and binding and shall be enforceable in any court of competent jurisdiction, and each of the Parties waives any objections to or claims to immunity in respect of the enforcement of the claim.

23. CONFIDENTIALITY

23.1 The Contractor shall not, either during the term, or after the expiration of this Agreement, disclose any proprietary or confidential information relating to the Services, this Agreement, or PTCL's business or operations without the prior written consent of PTCL, unless such disclosure is

- 23 -

PAKISTAN

required by law or regulation or such information has entered the public domain other than by a breach of this Agreement. The Contractor agrees that it will use its best efforts to ensure-that its subcontractors and personnel are bound by and comply with the requirement of confidentiality set out in this Clause.

23.3 PTCL shall not, either during the term, or after the expiration of this Agreement, disclose any proprietary or confidential information relating to the Services, this Agreement, or the Contractor's business or operations without the prior written consent of the Contractor, unless such disclosure is required by law or regulation or such information has entered the public domain other than by a breach of this Agreement. PTCL agrees that it will use its best efforts to ensure that its subcontractors and personnel are bound by and comply with the requirement of confidentiality set out in this Clause.

23.3 Notwithstanding the provisions of the above paragraphs of this Clause, the Parties may require each other to sign a Confidentiality Agreement on a case-by-case basis before specific information can be made available.

24. INDEMNITIES

The Contractor shall keep PTCL, both during and after the term of this Agreement, fully and effectively indemnified against all losses, claims, damages, liabilities, costs and expenses incurred by or imposed upon PTCL as a consequence of:

(a) any conclusive claim made by a subcontractor of the Contractor;
(b) any conclusive claim made by a Customer in respect of the Services.

25. AFFIRMATION

The Contractor declares and affirms that;

a) The Contractor and its shareholders, directors, officers, employees, and agents have not paid or received, nor undertaken to pay or receive, any bribe, pay-off, kick-back or unlawful commission and that the Contractor and its shareholders, directors, officers, employees, and agents have not in any other way or manner paid any sums, whether in Rupees or a foreign currency and whether in Pakistan or abroad, given or offered to give any such gifts and presents in Pakistan or abroad, to any official or employee of the PTCL or any

- 24 -

other person to procure this Agreement. The Contractor undertakes not to engage in any of these or similar nets during the term of this Agreement.

b) Neither the Contractor nor any of its director or executive is Israeli or Indian national. Notwithstanding any thing contained elsewhere in this Agreement PTCL will have the right to terminate the Agreement in the event PTCL has reasons to believe that the Contractor or any of its director or executive is Israeli or Indian national.

26. APPLICABLE LAWS

This Agreement shall be governed by the laws of Pakistan.

27. RULES OF CONSTRUCTION

27.1 The captions or headings in this Agreement are strictly for convenience and shall not be considered in interpreting this Agreement or as amplifying or limiting any of its content. Words in this Agreement, which import the singular connotation, shall be interpreted as plural, and words, which import the plural connotation, shall be interpreted as singular, as the identity of the Parties or objects referred to may require.

27.2 Unless expressly defined herein, words having well known technical or trade meanings shall be so construed. All listing of items shall not be taken to be exclusive, but shall include other items, whether similar or dissimilar to those listed, as the context reasonably requires.

27.3 Except as set forth to the contrary herein, any right or remedy of PTCL or the Contractor shall be cumulative and without prejudice to any other right or remedy, whether contained herein or not.

27.4 This Agreement has been fully negotiated between and jointly drafted by the Parties.

27.5 All actions, activities, consents, approvals and other undertakings of the Parties in this Agreement shall be performed in a reasonable and timely manner, it being expressly acknowledged and understood that time is of the essence in the performance of obligations required to be performed by a date expressly specified herein. Except as specifically set forth herein, for the purpose of this Clause the normal standards of performance within the telecommunications industry in the relevant market shall be the measure of whether a Contractor's performance is reasonable and timely.

- 25 -

PAKISTAN

28. NOTICES

28.1 Any notice, request or consent required or permitted to be given or made pursuant to this Agreement shall be in writing and shall be deemed to have been given or made when delivered in person to any authorized representative of the Party to whom the communication is addressed, or when sent by registered mail, telex, telegram or facsimile to such Party at the following address:

For the Contractor:            For PTCL:
Exec. Vice President-Int'l     GM (Tele-housing & VoIP)
Fusion Telecommunications      Pakistan Telecommunication
International, Inc.            Company Limited
420 Lexington Avenue           Headquarters G-8/4,
Suite 518, New York,           Islamabad
NY, 10170 USA
Telephone: +1-212-972-2000     Telephone:  92-51-2272021

Fax: +1-212-972-7884 Fax: 92-51-2201015/2260710

28.2 A Notice will be deemed to be effective as follows:

In case of personal delivery or registered mail, on delivery; and in the case of facsimiles, 24 (twenty -four) hours following confirmed transmission, disregarding weekends and national holidays. Facsimile notices shall not require confirmation by hard copies.

23.3 Party may change its address or fax number for notice under this Agreement by giving the other Party notice pursuant to this Clause.

29. ADDITIONAL TERMS

29.1 The Contractor undertakes and warrants that the VoIP Platform and the equipment installed for PTCL will not in any manner damage property of PTCL or in any way interfere with or affect PTCL's existing system or services. The Contractor hereby undertakes to indemnify PTCL for any loss, damage, cost or expense incurred by PTCL(unless caused by erroneously supplied information or the act of omission of PTCL) as a consequence of a breach by the Contractor of this undertaking and warranty. For the avoidance of doubt, it is understood that commencement of operations under this Agreement on the Service Commencement Date shall be deemed fulfillment of this Clause, and the

- 26 -

PAKISTAN

Contractor shall, following the Service Commencement Date, have no liability under this Clause.

29.2 The Contractor does not have an exclusive right under this Agreement to terminate traffic through VoIP technology, and PTCL will not be prevented by virtue of this Agreement from engaging any other contractors to provide VoIP services, in Pakistan.

29.3 VoIP Platform will be installed in PTCL premises to be interconnected to PSTN network at appropriate levels. This Agreement is strictly for traffic brought into PTCL network from USA & Europe through the packet switched data communication protocol of TCP/IP.

29.4 PTCL has securitized a substantial portion of its future receivables from its international settlement payments through the Securitization Agreement. The Contractor will use reasonable efforts to ensure at its own cost and expense that its entering into and its performance of its obligations under this Agreement will not impact PTCL's obligations under the Securitization Agreement.

29.5 The Contractor will provide free of cost training to 1 (one) PTCL official in USA and 3 (three) PTCL officials in Pakistan so that they gain expertise and experience in the operation of VoIP Platform. For the purpose of this Clause and all matters connected therewith, the Contractor or its nominees shall be allowed free access to the premises where the VoIP Platform is installed. PTCL also undertakes to provide the Contractor or its nominees due access to the VoIP Platform so that it may, from time to time, to monitor proper functioning or operations of the same including its interconnectivity with VoIP Platforms installed by Contractor in USA and Europe.

29.6 The quality of service of calls routed through VoIP Platform shall not be less than GSM quality (MOS 3.5 or above).

29.7 The Contractor shall at its own cost and discretion take appropriate legal action in USA & Europe to stop Illegal Traffic coming into Pakistan there from.

29.8 The Contractor agrees to cooperate with PTCL in exchange of relevant information for monitoring of the volume and source of any Illegal Traffic and

- 27 -

PAKISTAN

originating points to safeguard interests of both the Parties. The Parties agree as to the manner and the mechanism to be adopted (on best effort basis).

29.9 The Contractor will not enter into any agreement with an Incumbent Carrier for diversion of normal bilateral traffic on to VoIP routes. The Contractor will not procure or re-file legal bilateral traffic of PTCL meaning only gray area traffic will be addressed. A list of the Incumbent Carriers is attached herewith as Schedule-V. Any change thereof shall be duly communicated to the Contractor.

29.10 It is mutually agreed and understood that this agreement is being executed on a non-exclusive basis. Nothing contained herein shall curtail, limit or restrict the right of PTCL to enter into similar agreements with other parties. Provided always that none of the other parties shall be offered commercial terms more beneficial than those contained herein.

29.11 All obligations outside Pakistan whether in respect of the Services or in respect of incoming traffic into the VoIP Platform shall be the sole responsibility of the Contractor. PTCL shall in any way neither be responsible nor shall be considered as providing any Service outside Pakistan as a consequence of this Agreement. The Contractor hereby indemnifies PTCL in respect of any conclusive action against PTCL directly pertaining to this Agreement or the performance of its terms herein where the action relates to a matter which was the result of any direct or indirect act or omission of the contractor.

29.12 The Contractor hereby acknowledges and declares that it is an independent Contractor for the performance of Services mentioned herein and no relationship of Agency, Licensee or sub Licensee between PTCL and the Contractor is created by virtue of this Agreement.

29.13 The Contractor undertakes to make, during the term of this Agreement, complete written disclosure of its existing and future business and agreements executed relating to VoIP services, which directly or indirectly lead to termination of traffic into Pakistan.

29.14 The PTCL shall have the right to inspect the VoIP Platforms installed, owned and operated by the Contractor in USA and Europe, which relate to termination of traffic into Pakistan.

- 28 -

29.15 The Parties recognize that time is of the essence of this Agreement.

IN WITNESS WHEREOF the Parties have caused this Agreement to be signed as of the Day and year first above written.

FOR AND ON BEHALF                         FOR AND ON BEHALF OF
OF THE PAKISTAN                           THE CONTRACTOR
TELECOMMUNICATION
                                COMPANY LIMITED

      /s/                                       /s/
------------------------------            ---------------------------------
Noor ud Din Baqai(Member-Technical)       Eric D. Ram, EVP- Int'l
Witnesses:                                Witnesses:


(1)   /s/                                       /s/
   ---------------------------            ---------------------------------
    Ashiq Hussain Javed                       Farrakh Qayyum
    Chief Engineer                            Minister (Trade)
                                              Embassy of Pakistan
                                              Washington, DC

(2)   /s/                                       /s/
   ---------------------------            ---------------------------------
    Iftikhar Ahmad Bashir                     Commercial Assistant
    Legal Advisor                             Washington, DC

- 29 -

PAKISTAN

Schedule -I

IP TELEPHONY SOLUTIONS ANALYSIS

TEMPLATE

                                    Hardware
--------------------------------------------------------------------------------
Port Capacity - Analog                       0
--------------------------------------------------------------------------------
Port Capacity-T1/E1                          10 E-1's
--------------------------------------------------------------------------------
A-law / u - law Compatibility                Both
--------------------------------------------------------------------------------
Call Capacity                                300 DSO
--------------------------------------------------------------------------------
PC-Based                                     No
--------------------------------------------------------------------------------
Chassis based with embedded processing       Yes
--------------------------------------------------------------------------------
Architecture Nomenclature - Nuera GX-21 ORCA
--------------------------------------------------------------------------------
Signaling
--------------------------------------------------------------------------------
ANSI/Euro (ITU) ISDN/SS7/C7 and ISUP         Yes
--------------------------------------------------------------------------------
MFC R1/R2                                    Yes
--------------------------------------------------------------------------------
DTMF support                                 Yes
--------------------------------------------------------------------------------
H.323 Fast Connect                           No
--------------------------------------------------------------------------------
Type of Service
--------------------------------------------------------------------------------
Registered Service-Pre-Paid                  No
--------------------------------------------------------------------------------
Registered Service-Post-Paid                 No
--------------------------------------------------------------------------------
Real-Time Fax-T.30                           Yes
--------------------------------------------------------------------------------
T.38 Fax                                     No
--------------------------------------------------------------------------------
Data Calls                                   Yes
--------------------------------------------------------------------------------
Dynamic Universal Port (Voice/Fax/Data)      Yes
--------------------------------------------------------------------------------
Multiple Calling Cards                       No
--------------------------------------------------------------------------------
ANI Authentication                           Yes
--------------------------------------------------------------------------------
Single Stage Dialing                         Yes
--------------------------------------------------------------------------------
Pre-Paid Calling Card                        No
--------------------------------------------------------------------------------
Messaging Services Support                   No
--------------------------------------------------------------------------------
IVR
--------------------------------------------------------------------------------
Language Selection                           N/A
--------------------------------------------------------------------------------

- 30 -

PAKISTAN

--------------------------------------------------------------------------------
Trouble Announcement                         N/A
--------------------------------------------------------------------------------
IVR Editor                                   N/A
--------------------------------------------------------------------------------
IVR Location                                 N/A
--------------------------------------------------------------------------------
Creation/Billing Per port                    Yes
--------------------------------------------------------------------------------
Redundant Routes                             Yes
--------------------------------------------------------------------------------
Call Routing-Country / Area Code             Yes
--------------------------------------------------------------------------------
Proscribed Number                            ?
--------------------------------------------------------------------------------
Call Block-Destination Number                Yes
--------------------------------------------------------------------------------
Maximum GW / GK Ratio                        N/A
--------------------------------------------------------------------------------
Existing Numbering Plans                     No
--------------------------------------------------------------------------------
Service Classes & User Groupings             ?
--------------------------------------------------------------------------------
Location of Routing Logic                    Excel Switch
--------------------------------------------------------------------------------
Call Progress Signals
--------------------------------------------------------------------------------
Ring back, Busy Tone                         Yes
--------------------------------------------------------------------------------
Timer for Inter Digit, First-digit, No       Yes
Answer
--------------------------------------------------------------------------------
Maximum latency

  o   End-to-end
                                             < 400 MS
  o   Element wise
                                             ?
--------------------------------------------------------------------------------
5.    Billing
--------------------------------------------------------------------------------
Authentication (User/Subscriber)             No
--------------------------------------------------------------------------------
Billing Data Creation per Gateway            Yes
--------------------------------------------------------------------------------
Central Billing Data Storage                 Yes
--------------------------------------------------------------------------------
Retransmit Billing Data During Link Failure  N/A
--------------------------------------------------------------------------------
Rating by Country / Area                     Yes
--------------------------------------------------------------------------------
Automatic Rate Change                        Yes
--------------------------------------------------------------------------------
Real-Time Billing                            No
--------------------------------------------------------------------------------
No Charge Function for Small Fraction Call   Yes
--------------------------------------------------------------------------------
Standard DB for Billing Storage              Yes
--------------------------------------------------------------------------------
Multiple Rates / Route                       Yes
--------------------------------------------------------------------------------
Drop-Off Rates                               ?
--------------------------------------------------------------------------------

- 31 -

PAKISTAN

--------------------------------------------------------------------------------
Billing Increments

                                             Programmable
--------------------------------------------------------------------------------
Billing based on Units or Money              Money
--------------------------------------------------------------------------------
Holiday Rates                                Yes
--------------------------------------------------------------------------------
Grace Period                                 ?
--------------------------------------------------------------------------------
Billing Answer After Egress                  ?
--------------------------------------------------------------------------------
Network Management
--------------------------------------------------------------------------------
SNMP MIB                                     Yes
--------------------------------------------------------------------------------
Fault Monitoring                             Yes
--------------------------------------------------------------------------------
Performance Statistics                       Yes
--------------------------------------------------------------------------------
Command Line Interface                       Yes
--------------------------------------------------------------------------------
Web-based Management                         Yes
--------------------------------------------------------------------------------
SS7
--------------------------------------------------------------------------------
Physical Interfaces                          Yes
--------------------------------------------------------------------------------
Redundant Link                               No
--------------------------------------------------------------------------------
# Point Codes Supported                      Yes
--------------------------------------------------------------------------------
Signaling Level                              Lvl 4 ISUP
--------------------------------------------------------------------------------
Standalone Processor                         Yes
--------------------------------------------------------------------------------
Embedded Processor                           Yes
--------------------------------------------------------------------------------
Transport Protocol Suit
--------------------------------------------------------------------------------
H.323                                        Yes
--------------------------------------------------------------------------------
Support for Industry standard H.323 Clients  No
--------------------------------------------------------------------------------
TCP/IP                                       Yes
--------------------------------------------------------------------------------
UDP                                          Yes
--------------------------------------------------------------------------------
RTP/RTCP                                     Yes
--------------------------------------------------------------------------------
RSVP                                         No
--------------------------------------------------------------------------------
SIP                                          Yes
--------------------------------------------------------------------------------
MGCP                                         Yes
--------------------------------------------------------------------------------

o Interfacing / Inter-working With IP-Backbone

ATM N/A

- 32 -

PAKISTAN

--------------------------------------------------------------------------------
Frame Relay                                  N/A
--------------------------------------------------------------------------------
IP                                           Yes
--------------------------------------------------------------------------------
Other
--------------------------------------------------------------------------------
Secure Administration                        No
--------------------------------------------------------------------------------
Secure Voice                                 Yes
--------------------------------------------------------------------------------
APIs                                         Yes
--------------------------------------------------------------------------------
Codecs Supported                             G.711, G.723, G.726, G.729, GSM,
                                             ECELP
--------------------------------------------------------------------------------
Compression Algorithm Scalability            8Kbps-64 Kbps
--------------------------------------------------------------------------------
Built-In Inter-connection Capability for     No
Traffic Sharing
--------------------------------------------------------------------------------

- 33 -

PAKISTAN

Schedule -II

Platform Connectivity Topology Diagram

[GRAPHIC OMITTED]

- 34 -

PAKISTAN

Schedule-III

ANNUAL INTERNATIONAL INCOMING MINUTES (IN MILLIONS) FROM USA AND EUROPE

Actual Incoming Traffic (Million Minutes) Forecast Traffic

S/No. COUNTRY     96-97    97-98    98-99    99-00    00-01     01-02    02-03
--------------------------------------------------------------------------------
1. USA           170.528  178.346  199.907  273.997  359.243   405.945  458.718
--------------------------------------------------------------------------------
2. EUROPE         92.400  109.987  151.167  217.026  183.844   207.744  234.751
--------------------------------------------------------------------------------
   USA + Europe  262.928  288.333  351.073  491.023  543.088   613.689  693.468
   -----------------------------------------------------------------------------

[GRAPHIC OMITTED]

- 35 -

PAKISTAN

Schedule-IV

ACCOUNTING AND METHOD OF SETTLEMENT

a) Fortnightly traffic account and methods of settlement

i) Within 2 (two) days from the end of every fortnight to which the account relates, PTCL will prepare a fortnightly accounts settlement statement in a format designed by PTCL in its discretion showing the balances from the fortnightly accounts to which it relates and shall send the same to the Contractor. The contractor shall make payment within seven days of transmission of invoice as provided in clause-11. In the event of dispute between the Parties and subject to the provisions of Clause 11, the Contractor shall still be obliged to make payment by the Due Date in accordance with PTCL's fortnightly accounts settlement statement in the Designated Account.

ii) In case the Contractor fails to make the payment by the Due Date, then PTCL may, at its sole discretion having provided four days prior notice in writing (during which period, Contractor may remedy the breach and prevent termination of the Agreement), to the Contractor terminate the Agreement without prejudice to any other interest or claim that may have accrued in favour of PTCL or to which PTCL may in the future be entitled to under the Agreement.

b) ROLLING ADVANCE CALCULATION FOR THIRTY (30) DAYS & APPLICABILITY

The Contractor shall deposit in the Designated Account an amount of US$ 570,000 (Five hundred and seventy thousand US$) i.e. the termination price of 3 million minutes (minimum traffic for thirty days) per VoIP Platform @ US$ 0.19 (US cents nineteen) per minute within 15 days of the Effective Date. This is the minimum amount of rolling advance for the commencement of VoIP Service, rolling advance for subsequent months will be calculated for a minimum of 3 (three) million Terminated Minutes per month for one month (30 days) at the applicable rate.

Topping Up/Down Procedure

In case, the per month per VoIP Platform site termination traffic rises above 3 (three) million minutes, the 30 (thirty) days Rolling Advance shall be increased by the Contractor pro-rata over and above the minimum amount specified above. If the traffic through any VoIP Platform is in excess of 3 (three) million minutes per month per site, within 7 (seven) days following the end of such month, the Rolling Advance shall be topped up and if decreases will be topped down according to the following procedure:

i. PTCL shall determine the traffic for the preceding month on the basis of data available to PTCL. The recording and accounting shall be a permanent feature for each succeeding month during the currency of the Agreement.

ii. PTCL shall give notice to the Contractor to deposit the additional amount determined by PTCL to top up the Rolling Advance and accordingly the PTCL shall make payment to the contractor to top down the rolling advance, as a result of traffic recorded in PTCL system according to the following example:

- 36 -

PAKISTAN

EXAMPLE FOR CALCULATION OF ROLLING ADVANCE

Final schedule to be prepared and will be attached at the time of contract signing, however an example to demonstrate the calculation for seven months is as under;

ROLLING ADVANCE (AMOUNT IN US$)

MONTH TERMINATED MINUTES RATE AMOUNT RECEIPT MONTHLY
MINUTE FOR PER INCREASED/ /(ADJUSTED) BALANCE
TOPPING MINUTE DECREASE AMOUNT
UP/(DOWN)

Initial advance   3 MM          --      0.19          --     570,000    570,000
--------------------------------------------------------------------------------
TOPPING-UP/ (DOWN)
--------------------------------------------------------------------------------
    Month-1        2MM          --        --          --          --    570,000
--------------------------------------------------------------------------------
    Month-2        3MM          --        --          --          --    570,000
--------------------------------------------------------------------------------
    Month-3        4MM         1MM       0.19    190,000          --    570,000
--------------------------------------------------------------------------------
    Month-4        5MM         1MM       0.19    190,000     190,000    760,000
--------------------------------------------------------------------------------
    Month-5        5MM          --        --          --     190,000    950,000
--------------------------------------------------------------------------------
    Month-6        4MM        (1MM)      0.19   (190,000)         --    950,000
--------------------------------------------------------------------------------
    Month-7        3mm        (1MM)      0.19   (190,000)   (190,000)   760,000
--------------------------------------------------------------------------------

iii. Within 7 (seven) days after the issuance date of such notice from PTCL, the Contractor shall make payment of the incremental amount notified by PTCL into the Designated Account.

iv. In case the Contractor fails to top up the Rolling Advance as set forth above, PTCL reserves the right to terminate the Agreement forthwith.

c) Traffic Dilution Compensation amount calculation & Reconciliation Procedure

Subject to and as limited by Section 12.2.2 of this Agreement, for any month the Contractor will be liable to pay PTCL compensation if the international traffic from the USA and Europe routed through non-VoIP routes not utilizing the VoIP Platform, falls below the average that may have been expected in such month from such area, such averages (allowing for the expected 13% annual increase in volume) being set forth in Schedule-III hereto for the USA and Europe collectively. The compensation amount for each month shall be the number of minutes by which the traffic falls below the average multiplied by carrier settlement rate minus Contractor settlement rate. The compensation figure will be calculated monthly following the Service Commencement Date to determine if any compensation amount is payable to PTCL hereunder and if so what amount. The compensation amount shall be payable by the Contractor to PTCL along with its fortnightly bill given in Clause 11. PTCL's calculation of the same shall be binding on the Contractor. The Rolling Advance will be adjusted against compensation amounts due from the Contractor and following such adjustment the Contractor will be liable forthwith to top up the Rolling Advance.

- 37 -

PAKISTAN

In case the Contractor fails to pay the compensation amount claimed or fails to top up the Rolling Advance as set forth above. The method for calculation of compensation for dilution of bilateral traffic is provided hereunder:

i) In order to setup mechanism to safeguard against dilution of PTCL legal incoming traffic, such traffic growth statistics/statement and graphs for last five years with established compound annual growth (CAGR) are annexed as Schedule-III. The benchmark line so established would be the basis of control mechanism against dilution of legal traffic for the purpose of application of relevant clauses. The statistics and graph also include traffic variation patterns such as seasonal trends. Any variation of (-) 5% VoIP measured traffic from USA and Europe over the benchmark line (and established seasonal pattern) would be the basis of application of relevant clause for determining the dilution of legal traffic.

ii) To safeguard PTCL's aforesaid legal benchmark-line including growth, PTCL will provide monthly data in specified pattern to the Contractor for information about any variation. If the variations are within (-) 5% limit of VoIP traffic no compensation shall be payable by the Contractor.

iii) In case of variation over (-) 5% limit of the minimum guaranteed (three million) VoIP traffic INTER ALIA the following corrective and remedial measures would become necessary:

A. The Parties will analyze the reasons for variation and mutually agree on corrective measures within time limit of one week. If reasons of variation are due to seasonal or temporary in nature then no compensation shall be payable by the Contractor.

B. If the reasons for variation are found to be beyond the control of both the Parties, the Parties shall equally share the loss of traffic. For avoidance of doubt, Contractor's liability in this regard will be restricted to US Cents 4 per minute (that is: bilateral rate minus VoIP rate, which is US Cents 23 .00 minus US Cents 19.00 , equal to US Cents 4 ) until revision of US carrier settlement rate (bilateral carrier rate) of the diluted traffic.

C. In case of continuous variation over a period of three monthly the Parties may exercise their right of termination.

d) Charges & Conditions to terminate Incoming Traffic in VoIP Platform

i) Only traffic from USA/Europe shall be terminated through the VoIP Platform. Contractor hereby agrees to terminate 3 to 5 million minutes per month of VoIP Platform focusing on capturing of Illegal Traffic.

ii) Termination rate of US$ 0.19 (US cents nineteen) per minute will be applicable until revision of US carrier settlement rate (bilateral carrier rate) . Subsequent termination rate would be kept up to 15% below the US Carrier Settlement Rate (bilateral carrier rate) and the same shall be automatically revised inline with US Carrier Settlement Rate.

- 38 -

iii) The VoIP service shall be operated only for incoming international calls from the USA and Europe routed as per network topology agreed between the Parties.

The Contractor will ensure that only identified calling party is given access to VoIP Gateway. The CDR provided to PTCL as per Clause 11(ii) must also contain identity of calling party. Up to (twenty-five) 25% un-identified calling numbers will be accepted and no further investigation carried out.

- 39 -

PAKISTAN

Schedule-V

List of Incumbent Carriers in USA and Europe

USA

------------------------------------------------------
S No.    Country         Carrier
------------------------------------------------------
1        USA             Concert
------------------------------------------------------
2        USA             MCI World Com
------------------------------------------------------
3        USA             Sprint USA
------------------------------------------------------

Europe

------------------------------------------------------
S No.    Country         Carrier
------------------------------------------------------
1        Austria         Austria- (PTA)
------------------------------------------------------
2        Belgium         Belgacom
------------------------------------------------------
3        Cyprus          CTA
------------------------------------------------------
4        Germany         Deutsche Telecom
------------------------------------------------------
5        France          France Telecom
------------------------------------------------------
6        Greece          OTE
------------------------------------------------------
7        Italy           Telecom Italia
------------------------------------------------------
8        Norway          Tele nor
------------------------------------------------------
9        Spain           Telephonica
------------------------------------------------------
10       Netherlands     KPN
------------------------------------------------------
11       Switzerland     Swiss Com
------------------------------------------------------

12 United Kingdom Concert
13 United Kingdom C & WC

- 40 -

PAKISTAN

SCHEDULE VI
Programme of commitments (Milestones)
OPTION II

IMPLEMENTATION SCHEDULE FOR VOIP PROJECT THROUGH PAKISTAN INTERNET EXCHANGE

--------------------------------------------------------------------------------
   S.NO   Description of Task               Action to be      Responsibility
                                            completed by
--------------------------------------------------------------------------------
    1     Signing of the Agreement          1st Day           PTCL & Contractor
--------------------------------------------------------------------------------
    2     Submission of list,               7th Day           Contractor
          specification & site plan of
          the equipment
--------------------------------------------------------------------------------
    3     Equipment Approval                14th Day          PTCL
--------------------------------------------------------------------------------
    4     Availability of                   14th Day          PTCL
          Air-Conditioned space and
          commerical power supply in
          accordance with the site plane
--------------------------------------------------------------------------------
    5     Confirmed Deposit of Rolling      15th Day from     Contractor
          Advance                           the Effective
                                            Date
--------------------------------------------------------------------------------
    6     Provision of 8 E1s for            24th Day          PTCL
          connectivity between DTE and
          VoIP platform, 2.5 MB clear
          channel via PIE and Data fill
          in the DTE should be ready
          including software and
          hardware configerd 100%
          guranted to interconnect with
          Contractor VoIP platform
--------------------------------------------------------------------------------
    7     Equipment on site                 28th Day          Contractor
--------------------------------------------------------------------------------
    8     Equipment installation            30th Day          Contractor
          completed
--------------------------------------------------------------------------------
    9     Testing & commissioning           32nd Day          PTCL &
          completed                                           Contractor
--------------------------------------------------------------------------------
    10    Service commencement              35th Day          Contractor
--------------------------------------------------------------------------------
    11    Local Training                    60th Day          PTCL & Contractor
--------------------------------------------------------------------------------
    12    Foreign Training                  70th Day          Contractor
--------------------------------------------------------------------------------

- 41 -

PAKISTAN

IMPLEMENTATION SCHEDULE FOR VOIP PROJECT THROUGH IPLC EXCHANGE

--------------------------------------------------------------------------------
   S.NO   Description of Task               Action to be      Responsibility
                                            completed by
--------------------------------------------------------------------------------
    1     Signing of the Agreement          1st Day           PTCL & Contractor
--------------------------------------------------------------------------------
    2     Submission of list,               7th Day           Contractor
          specification & site plan of
          the equipment
--------------------------------------------------------------------------------
    3     Equipment Approval                14th Day          PTCL
--------------------------------------------------------------------------------
    4     Availability of                   14th Day          PTCL
          Air-Conditioned space and
          commerical power supply in
          accordance with the site plane
--------------------------------------------------------------------------------
    5     Confirmed Deposit of Rolling      15th Day from     Contractor
          Advance                           the Effective
                                            Date
--------------------------------------------------------------------------------
    6     Provision of 8 E1s for            24th Day          PTCL
          connectivity between DTE and
          VoIP platform, 2.5 MB clear
          channel via PIE and Data fill
          in the DTE should be ready
          including software and
          hardware configerd 100%
          guranted to interconnect with
          Contractor VoIP platform
--------------------------------------------------------------------------------
    7     Equipment on site                 28th Day          Contractor
--------------------------------------------------------------------------------
    8     Equipment installation            30th Day          Contractor
          completed
--------------------------------------------------------------------------------
    9     Testing & commissioning           32nd Day          PTCL & Contractor
          completed
--------------------------------------------------------------------------------
    10    Service commencement              35th Day          Contractor
--------------------------------------------------------------------------------
    11    Local Training                    60th Day          PTCL & Contractor
--------------------------------------------------------------------------------
    12    Foreign Training                  70th Day          Contractor
--------------------------------------------------------------------------------

TO BE CHANGED BY AMENDMENT

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EXHIBIT 10.5
JOINT VENTURE AGREEMENT

THIS JOINT VENTURE AGREEMENT (the "Agreement") is made and entered into as of the 12th day of December 2002, by and between Karamco, Inc. ("Karam") and Telecommunications Overseas Fusion Ltd ("TOFL") (collectively, the "Members").

The Members shall organize a joint venture, in the form of a FZ-LLC company ("FZ-LLC") in Dubai Technology, Electronic Commerce & Media Free Zone, Dubai, United Arab Emirates, to be known as Efonica FC-LLC, to be owned fifty and two tenths ( 50.2%) percent by TOFL and forty nine and eight tenths (49.8%) percent by Karam, in order to develop, provide and market certain telecommunications services and to engage in other activities as set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and other good and valuable consideration, the Members hereby agree as follows:

ARTICLE I
ESTABLISHMENT OF THE COMPANY

1.1 FORMATION. The Members hereby associate themselves as a FZ company (FZ-LLC) in Dubai Technology, Electronic Commerce & Media Free Zone to be known as Efonica FC-LLC for the purposes and upon the terms and conditions set forth in this Agreement. The Managers (as such term is defined in Section 6.1 of this Agreement) shall promptly take all actions necessary or appropriate to allow the Company to carry on its business in accordance with the terms of this Agreement, including, but not limited to executing and filing: (a) a Certificate of Formation in the form of Exhibit A hereto with Dubai Technology, Electronic Commerce and Media Free Zone, Dubai, United Arab Emirates; and (b) such other documents as Dubai Technology, Electronic Commerce and Media Free Zone, Dubai, United Arab Emirates may require for the formation, qualification and operation of the Company.

1.2 NAME. The name of the Company is Efonica FZ-LLC or such other name selected by the Managers as may be acceptable to the appropriate recording officials of Dubai Technology, Electronic Commerce and Media Free Zone, Dubai, United Arab Emirates. The Members agree that the Company's use of any trademark or name owned by either of the Members shall not create any trademark ownership or other right of the Company with respect to such trademark or name.

1.3 PURPOSE. The purpose of the Company is to jointly: (i) market, promote, distribute and provision PC to Phone services originated over a PC or other network-compatible hardware devices as mutually agreed upon; and pre- and post-paid card services as marketed to the Company's customers worldwide (hereinafter the "Services"); (ii) carry on all activities necessary

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or incidental to that purpose; and (iii) engage in all other lawful acts or activities for which FZ-LLC companies may be formed in Dubai, United Arab Emirates.

(a) EXCLUSIVE. During the Term of this Agreement, and with the exception of the market in India, relating to an existing agreement between Fusion and Estel Telecommunications, the Members agree to an exclusive marketing and service arrangement for the provision, sale and distribution of PC to Phone services. Any and all termination services will be provided exclusively through the TOFL, or any of its affiliates' network or through any such arrangements as the Managers may determine to be most efficient.

(b) NON-EXCLUSIVE. The Members agree that there shall not be exclusive marketing and service arrangements for the provision of (i) travel card services; (ii) corporate communications services; or (iii) telecommunications hardware.

1.4 POWERS. The Company shall have the power to do all things necessary or desirable in the conduct of its business to the fullest possible extent, including but not limited to the power to: (a) acquire, hold and dispose of any and all property, whether real, personal or mixed, and any interest therein or appurtenances thereto; (b) borrow money for Company purposes; if security is required therefore, to mortgage, pledge or subject to any security arrangement any and all property of the Company; (c) hold record title to assets of the Company for any purpose convenient or beneficial to the Company; (d) enter into any contract necessary and proper for the business of the Company or its property or for any purpose beneficial to the Company; (e) retain or employ from time to time, at the Company's expense, persons, firms or corporations, including professional advisors, whether or not affiliated with the Members or either of them for the operation, management and further development of the business of the Company; and (f) execute and deliver on behalf of the Company, notes, bonds or other evidences of indebtedness, security arrangements of any kind or nature, leases, contracts or agreements and any or all other documents or instruments necessary to effectuate the exercise of the foregoing powers and to guarantee the performance of any such instrument or agreement.

1.5 PRINCIPAL PLACE OF BUSINESS. The principal place of business of the Company in Dubai shall be Dubai Internet City, Bldg. 9, Offices G02 and G03, Dubai, UAE.

1.6 BUSINESS PLAN: The Managers shall adopt the business plan attached as Exhibit "C". ARTICLE II

MEMBERS

2.1 MEMBERS. The names and addresses of the Members are:

KARAMCO INC.
DOT LB Ctr., 9th Floor
Dekwaneh, Beirut - Lebanon
Telephone +9611 511811 / Facsimile +1-212-214-0642

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TELECOMMUNICATIONS OVERSEAS FUSION LTD
Suite 410
4th Floor
Barkly Wharf, Le Caudan Waterfront
Port Louis, Mauritius

2.2 INTERESTS. Each Member shall have a voting interest in the decisions of the Company equal to its pro rata equity ownership.

ARTICLE III
BOOKS AND RECORDS OF THE COMPANY

3.1 COMPANY ACCOUNTING.

(a) FINANCIALS: The Company will furnish the Members with an unaudited balance sheet, income statement, statement of cash flow and changes in Members' equity within 15 days after the end of each month. The Company shall establish and maintain financial accounting books and records in accordance with generally accepted accounting principles as applied in the United States ("GAAP"). At the end of each fiscal year of the Company, a firm of independent public accountants ("Accountants") selected by the Managers shall review the Company's income tax returns, and any other annual tax returns required to be filed. The Accountants shall also perform an audit of the Company's records and accounts for such fiscal year, and prepare a report, including their opinion, of the Company's financial statements and required footnote disclosures.

(b) BUDGET: An annual budget will be submitted to the Managers for review and approval. Actuals against budget will be monitored and variances reviewed by the Managers on a monthly basis. Non-Budgeted expenses will be subject to financial review and approved by the Managers in writing.

3.2 BOOKS AND RECORDS. The books and records of the Company shall at all times be maintained at the principal office of the Company and shall be open to inspection, examination, and copying by either of the Members or their duly authorized representatives during normal business hours. Upon written request of any Member, the Managers shall send full and exact copies of the books and records of the Company.

3.3 FISCAL YEAR. Unless otherwise agreed upon by the Members, the fiscal year of the Company shall be the same as its taxable year, which shall be the same as the calendar year.

3.4 TAX RETURNS. The Company shall make such tax elections and tax policy decisions as determined by the Managers. It is the intention of the Members that such elections and decisions shall not be influenced by the unique tax position of one Member absent the approval of the other Member. The Company shall cause to be prepared and timely filed any applicable income, franchise sales and use, property, payroll and other tax returns for the Company. Forms of

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such returns shall be submitted to the Members for review and final approval no later than 5 calendar days before their due date. Copies of final returns shall be sent to the Members promptly after filing. Each Member shall notify the Company and the other Member promptly upon receipt of any notice of any tax examination by any taxing authority pertaining to the Company or any of the Members. No settlement of any tax issue concerning the Company shall be made by any Member except after reasonable coordination with the Managers. The Members agree that TOFL shall serve as the Tax Matters Member.

ARTICLE IV
INITIAL CAPITAL CONTRIBUTIONS AND ADDITIONAL FUNDING

4.1 ADVANCES. TOFL shall make an initial advance to the Company in the amount of $70,000 for the first month of operation and up to $70,000 per month to cover any operating deficit for the following two months. As of the date of this Agreement, the Members acknowledge TOFL has already advanced $15,000. Out of the advance to Efonica, Roger Karam shall be authorized to get reimbursement for expenses already incurred by DOT-LB for Gitex and related expenses amounting to $29,947.56. Such advance is not to be considered a contribution to the capital of the Company but shall be treated as a loan. Such advance shall be repaid over the course of 24 months beginning the first month the Company generates a profit and taken from COLLECTED receipts prior to profit distribution or May 2003, whichever is sooner. In consideration for the advance by TOFL, the Company shall enter in a promissory note(s) and security agreement(s), securing the receivables of the Company. A copy of the promissory note and security agreement shall be attached as Exhibit "B". In addition to such advance, each Member may, but shall not be required to, advance funds to the Company. Any such advances shall not be considered contributions to the capital of the Company, unless pre-approved in writing by the Members, but shall be treated as loans thereto and shall be made under such terms as may be agreed upon by the Managers.

4.2 ADDITIONAL CONTRIBUTIONS. If the Managers jointly determine that
(i) additional funds are required to carry out the purposes of the Company, (ii) the contribution of such funds by the Members is commercially advisable, and
(iii) such funds are not obtainable from other sources on acceptable terms, then the Members shall consider in good faith the provision of such additional funding in proportion to each Member's respective Percentage Interest as defined in Section 5.2 below (such funding to be made in the form of capital contributions or as debt on such terms as are determined by the Managers). However, neither Member shall be required to make any additional capital contributions to the Company and in no event shall either Member contribute additional funds or compel the other Member to contribute additional funds to the Company unless mutually agreed by both Members.

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ARTICLE V
PROFIT AND LOSS/DISTRIBUTIONS

5.1 ALLOCATION OF PROFITS AND LOSSES. After deducting for any advances made to the Company and direct costs of the Company's operations, including any applicable taxes, and providing for a reasonable operating reserve, the Managers shall allocate profits and losses of the Company to the Members on an equal basis.

5.2 DISTRIBUTIONS. The profits, if any, of the Company shall be distributed to the Members on a quarterly basis. The amount of any such distributions shall be agreed upon by the Managers and shall be distributed 50% Karam and 50% TOFL.

5.3 TAX WITHHOLDING. The Company is authorized to and shall withhold and pay over all amounts required to be withheld pursuant to Dubai Technology, Electronic Commerce and Media Free Zone, Dubai, United Arab Emirates or pursuant to any provision of any state or local tax law with respect to any payment or distribution or any allocation of income to any Member. Such withheld amounts shall be treated as distributions to the Member in question for all purposes of this Agreement.

ARTICLE VI
MANAGEMENT OF THE COMPANY

6.1 APPOINTMENT OF BOARD OF MANAGERS. The Members shall jointly discuss and mutually determine the long-term goals, objectives and policies of the Company. The Members shall exercise control over the business affairs of The Company through three appointed managers (the "Managers"). The initial Managers shall be Matthew Rosen, Joel Maloff and Roger Karam. Initially and until his resignation, Matthew Rosen shall be the Chairman and Roger Karam shall be the President. The Managers shall have such powers and duties to manage and control the business and affairs of the Company as the Members shall assign to them. However, neither of the Members nor any officer, director, employee or agent of either Member (unless designated by the Member as the Manager) shall direct, supervise or take any action, in the name of or on behalf of the Company.

6.2 LIABILITIES OF THE MANAGERS; OTHER INTERESTS. The Managers and their agents shall not be liable to the Company or to any of the Members for any acts performed or omitted to be performed in good faith, for errors in judgment, or for other acts or omissions not amounting to fraud, gross negligence or willful misconduct. The Company shall fully indemnify and hold harmless the Managers and Members and their agents from any losses or liabilities resulting from acts or omissions taken by them on behalf of the Company and in furtherance of the Company's interests. Except as set forth in this Agreement, the Managers may engage in or possess interests in other business ventures of every nature and description, whether or not competitive with the

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business of the Company, independently or with others, and neither the Company nor any of its Members shall, by virtue of this Agreement, have any rights in such other ventures or the income or profits derived therefrom.

6.3 LIMITED LIABILITY OF THE MEMBERS. Notwithstanding any provision of this Agreement, the Members shall not be personally liable for any of the losses, debts or liabilities of the Company, except as otherwise expressly provided by law. Except as set forth in Section 4.2 no Member shall be required to make capital contributions to the Company to eliminate capital account deficits or for any other purpose, either upon dissolution of the Company or at any other time. Except as set forth in Article X, if applicable, the Members may engage in or possess interests in other business ventures of every nature and description, whether or not competitive with the business of the Company, independently or with others, and neither the Company nor any of its other Members shall, by virtue of this Agreement, have any rights in such other ventures or the income or profits derived therefrom.

6.4 AGREEMENTS WITH THE COMPANY. The Company shall not enter into any significant transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any entity in which either Member (or any affiliate of either Member) has any interest, except (i) on an arms-length basis, or (ii) as specifically approved by both Members. With respect to any agreement between the Company and one of the Members, termination of such agreement based upon a breach, default or other action, inaction or condition of such contracting Member shall be made in the sole determination, and with the sole approval, of the non-contracting Member.

In consideration for management services rendered to the JV, Roger Karam will receive minimum monthly compensation of 10% of monthly collected revenue, not to exceed $15,000 per month, paid monthly within 15 days of the month's close. Any deficiency in funds available for such payment will be made out of the combined budgetary allocation for third party distribution and direct sales bonuses and commissions.

6.5 DEADLOCK. In the event that the Managers are unable to agree on a particular course of action for the Company and become deadlocked, they shall immediately give notice of the deadlock to the Members. Within three business days of receiving notice of the deadlock, each Member shall appoint two other persons to serve as mediators to attempt to resolve the deadlock. If the mediators are unable to resolve the deadlock within 15 business days of their appointment, the Company shall proceed with dissolution pursuant to Section 8.3(c).

ARTICLE VII
WITHDRAWAL AND TRANSFER

7.1 RESTRICTIONS ON TRANSFERS. Neither Member shall transfer or encumber any Interest in the Company or any of such Member's rights under this Agreement without the approval of the other Member, except as expressly permitted by this Agreement. Any purported transfer to

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a third party of a Member's Interest not permitted by this Section 7 shall be void, and shall not be recognized by or effective against the Company or the other Member.

7.2 TRANSFERS TO AFFILIATES. Notwithstanding the provisions of Section 7.1 hereof, a Member may transfer all or part of its Interest in the Company to an Affiliate of such Member. For purposes of this Section 7.2, an Affiliate shall mean an entity that is controlled by, or under common control with, a Member. Prior to transferring any Interest to an Affiliate, the transferring Member shall notify the other Member in writing and, at the request of the other Member, shall require that such Affiliate become a party to this Agreement.

7.3 PERMITTED THIRD-PARTY TRANSFERS. No Member may transfer any part of its Interest in the Company unless the transfer is either: (a) a permitted transfer of all of the Member's Interest under Section 7.2 hereof; or (b) made to a Permitted Transferee subject to the Right of First Refusal provided in
Section 7.4 hereof. For purposes of this Agreement, a "Permitted Transferee" means an unaffiliated third party who is approved to become a member due to the other Member's decision not to exercise the right of first refusal granted in
Section 7.4 hereof.

7.4 RIGHT OF FIRST REFUSAL; DISAPPROVAL RIGHT. If a Member desires to transfer a portion or all of its Interest in the Company to a non-Affiliate, the Member must first comply with the Right of First Refusal provisions of this
Section 7.4.

(A) NOTICE OF OFFER. If a Member has received and wishes to accept a BONA FIDE offer for the purchase all or a portion of its Interest then such Member (the "Selling Member") shall first deliver written notice (the "Notice of Offer") of such intent to the other Member, including (1) the name and address of the proposed purchaser; (2) the price at which such Selling Member proposes to sell such Interest (the "Offer Price"); (3) the other terms of the proposed sale; and (4) that the prospective purchaser has offered to purchase the Interest for the Offer Price and on the stated terms. The Selling Member shall provide as promptly as practicable upon request any other information reasonably requested in order for the other Member to make an informed decision whether to exercise its purchase or sale rights described below. The Notice of Offer shall constitute an irrevocable offer by the Selling Member to either: (a) sell the Interest to the other Member; or (b) if requested by the other Member, to purchase all or a portion of the Interest of the other Member at the Offer Price.

(B) OTHER MEMBER ACCEPTANCE OR REJECTION. The other Member shall have the right for a period of 30 calendar days after receipt of the Notice of Offer to notify (a "Notice of Acceptance") the Selling Member that such other Member has determined to: (a) purchase all or less than all, of the Selling Member's Interest; (b) sell all or less than all, of its Interest to the Selling Member at the Offer Price; or (c) object to the proposed purchaser for any of the, in which case the non-Selling Member must provide written notice to the Selling Member specifying the reasons for such disapproval.

(C) FAILURE TO PROVIDE TIMELY NOTICE OF ACCEPTANCE OR REJECTION. If the non-Selling Member does not timely deliver a Notice of Acceptance or Rejection to the Selling Member within the period specified in Section 7.4(b) above, the Selling Member (1) shall be under no obligation

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to sell any of its Interest to the other Member, and (2) may, during a period of an additional 30 calendar days, transfer its Interest to the proposed purchaser specified in the Notice of Offer at a price not less than the Offer Price and on such other terms and conditions as are no more favorable to the proposed purchaser than those specified in the Notice of Offer. If the Selling Member does not consummate the sale of its Interest within such additional 60-day period, the restrictions against transfer provided in this Agreement shall again apply, and no sale by the Selling Member of any of its Interest shall be made other than in accordance with the terms of this Section 7.4. In the event of any permitted transfer to a Permitted Transferee pursuant to this Section 7.4, such purchaser must be required by the Selling Member, at the request of the other Member, to become a party to this Agreement before transfer of the Interest may occur.

ARTICLE VIII
TERM, TERMINATION AND DISSOLUTION

8.1 TERM. Unless terminated earlier pursuant to Section 8.2, the Company shall continue in existence for a period of five (5) years (the "Initial Term"). Following the Initial Term, the Company shall continue in existence for successive one year periods unless notice of non-renewal is given at least 180 days prior to the expiration of the applicable term. In the event that any Member gives notice of non-renewal pursuant to this section, the Company shall begin immediately to wind up its affairs in accordance with Section 8.3(c) hereof.

8.2 EARLY TERMINATION. The relationship between the Members reflected in this Agreement may be terminated, and the Company dissolved, prior to the term set forth in Section 8.1 hereof in the following circumstances:

(a) by the mutual written agreement of the Members;

(b) by the remaining Member upon the legally required withdrawal from the Company of the other Member;

(c) by the non-breaching Member upon the continuation of any material breach of this Agreement by the other Member for a period of 30 days after written notice of such breach is given by the non-breaching Member;

(d) by either Member upon the entering of any decree of any court of competent jurisdiction directing dissolution of the Company, in accordance with its terms;

(e) upon the happening of any other event which under law effects the dissolution of the Company or upon the bankruptcy of the Company; or

(f) automatically upon the purchase by one of the Members of all of the other's Interest pursuant to Section 7.4 hereof.

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Provided however, the Members shall not voluntarily terminate the existence of the Company until such time as the Promissory Note is paid in full.

8.3 EFFECTS OF TERMINATION.

(A) MUTUAL AGREEMENT. In the event of a termination by the mutual written agreement of the Members, the Members shall cease marketing to new customers the telecommunications services which are the subject of this Agreement. To the extent that the Company or either Member is a party to a service contract with a third party, and such contract requires the ongoing use of telecommunications services provided by the Company, the Company shall continue to provide the services necessary to fulfill the contract; provided, however, that the Company, or the Member that is the party to such a contract, shall immediately takes steps to identify an alternative source of those services and to provision the contract for its remaining term through such an alternative source as soon as possible.

(B) DEFAULT OF A MEMBER. In the event of any termination pursuant to Sections 8.2(b), (c), (d) or (e) hereof, the Member which has not (i) given notice of termination, (ii) dissolved, (iii) become bankrupt, (iv) breached or
(v) become disqualified, as the case may be (the "Passive Member"), shall be entitled, at its sole option, to elect by written notice to the other Member, given within 30 days after such termination, to purchase the Interest of the other Member at fair market value. The fair market value shall be agreed upon by the Managers. If the Managers are unable to agree upon the fair market value, the purchase price shall be established by an outside appraiser mutually selected by the Members.

(C) DISSOLUTION. In the event of a termination, if no Member gives notice within the relevant period for the exercise of the rights permitted by
Section 8.3(b), or if written notice is given by either Member demanding dissolution, then the Company shall be dissolved. Upon dissolution of the Company, the affairs of the Company shall be wound up and its assets liquidated as follows:

(i) The Company shall commence to wind up its business and affairs as soon as practicable thereafter. To the extent that the Company or either Member is a party to a service contract with a third party, and such contract requires the ongoing use of telecommunications services provided by the Company, the Company shall continue to provide the services necessary to fulfill the contract; provided, however, that the Company, or the Member that is the party to such a contract, shall immediately take steps to identify an alternative source of those services and to provision the contract for its remaining term through such an alternative source as soon as possible. The Company shall be dissolved only after its affairs have been wound up and its assets distributed in liquidation. Pending dissolution of the Company, this Agreement shall continue to govern the affairs of the Company and the Members shall continue to share profit and loss, and net cash flow distributions during the period of liquidation in the same manner as set forth in Sections 5.2 and 5.3 hereof.

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(ii) The Company shall use its best efforts to liquidate the assets and business as an entirety, but the Managers shall have the right to determine the manner and terms of liquidation of the Company's assets, having due regard for the realization of fair value from and the minimization of losses attendant upon such liquidation. The proceeds, if any, from such liquidation shall be applied and distributed in the following order of priority: (A) to the payment of all debts and liabilities of the Company and all expenses of liquidation. The Promissory Note shall have priority over payment of all other liabilities or debts; (B) to the establishment of such reserves as the Company (or other liquidating agent) may deem reasonably necessary to provide for contingent or unforeseen liabilities or obligations of the Company; and
(C) to the Members in accordance with their Percentage Interests;

(iii) Other than TOFL, pursuant to the Promissory Note and Security Agreement, no Member shall have any right to demand or receive property other than cash upon dissolution and termination of the Company. If any real property of the Company is to be distributed in kind, any Member entitled to any interest in such property shall receive its interest therein as a co-owner with all other Members so entitled. If the Members are unable to agree upon the gross fair market value of any assets to be distributed in kind, such gross fair market value shall be determined by an independent appraiser selected by the Members (or other liquidating agent), the fees and expenses for which shall be borne by the Company;

(iv) Within a reasonable time following completion of the liquidation of the Company's properties, the Company (or other liquidating agent) shall cause the Accountants to furnish to each of the Members an audited statement setting forth the assets and liabilities of the Company as of the date of complete liquidation, and each Member's portion of distributions made pursuant to this Section 8.3(c);

(v) At such time as the Company (or other liquidating agent) determines that the reserves for contingent or unforeseen liabilities or obligations of the Company are no longer necessary, any proceeds of liquidation held in such reserves shall be distributed in proportion to the Members' Percentage Interests immediately before the distribution described in Section 8.3(c)(ii) hereof;

(vi) Upon completion of the liquidation of the Company and the distribution of all Company funds, the Company shall dissolve and the Company Agreement shall terminate and the Members (or other liquidating agent) shall execute, acknowledge and record or file any required documents with the appropriate authorities as well as any and all other documents or instruments required to effectuate the dissolution and termination of the Company and the Company Agreement.

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ARTICLE IX
SUBSTITUTION; ADDITIONAL MEMBERS

9.1 ADMISSION OF SUBSTITUTED MEMBERS. The transferee of an Interest may not be admitted as a substituted Member unless and until all of the following conditions have been met:

(a) The transfer is made in accordance with Sections 7.3 and 7.4 hereof;

(b) There has been filed with the Managers a written instrument, executed by the transferor, in form and substance reasonably satisfactory to the Managers, transferring to the transferee all or part of the transferor's Interest;

(c) The transferee has confirmed, approved and adopted all of the terms and provisions of this Agreement, as the same may have been amended, which confirmation, approval and adoption may be evidenced by the execution by such transferee of a counterpart of this Agreement or in any other manner as is reasonably required by the Managers; and

(d) The transferee has paid or agreed to pay, as the Managers may determine, all reasonable expenses relating to such admission.

The time of admission of a transferee as a Member shall be the time when all of the conditions of this Section 9.1 have been satisfied.

9.2 ADDITIONAL MEMBERS. Upon the majority agreement of the Members, additional Interest may be issued and sold to any person, whether or not already a Member, for the fair market value thereof, as determined in good faith by the Managers and under such other terms and conditions as deemed advisable by the Managers, including but not limited to terms and conditions relating to the applicability of this Agreement to such additional Interest. Admission of any Member pursuant to this Section 9.2 shall not be a cause of dissolution.

ARTICLE X
SERVICES

10.1 SERVICES PROVIDED BY THE COMPANY. Subject to the Managers' review on a quarterly basis, the President of the Company will be responsible for the day-to-day business affairs of the Company and will set all rates and commissions. At such time as service is provided through the Company platform, TOFL, or any of its affiliates, will provide the Company with a current LCR and premium LCR from which to develop end user rates at a margin to be mutually agreed upon. The Company will be charged all network and switching charges at a minimum of $.0025 per minute not to exceed $.01 per minute. TOFL, or any of its affiliates, will be responsible for providing its global VoIP, TDM, and Frame Relay network infrastructure for the termination of

- 11 -

international traffic for Efonica. Efonica will be responsible for the costs associated with the prepaid PC-to-Phone specific equipment requirements. TOFL, or any of its affiliates, will work with Efonica to determine the most effective and cost efficient PC-to-Phone infrastructure solution. The Company will issue monthly sales and financial reports. TOFL, or any of its affiliates, will provide a statement of network and termination costs on a monthly basis. Actual performance against budget will be monitored and variances reviewed by the Board. Non-budgeted expenses will be subject to financial review and written approval by the Chairman of the Board. Back office support and sales will be provided at cost to the Company through a management agreement to be executed between the Company and Dot LB in Beirut, Lebanon. The Company intends, subject to national and international trademark availability, to brand as its servicemark or trademark "Efonica" and shall take all steps necessary to secure intellectual property protection.

ARTICLE XI
CONFIDENTIALITY/PROPRIETARY INFORMATION

11.1 CONFIDENTIALITY. Each of the Members recognizes that it may gain access to certain confidential, proprietary and trade secret information belonging to the other Member in the course of performing its duties under this Agreement. Each Member agrees to hold in strict confidence and not disclose to any other person any confidential information obtained from the other Member, except to the extent required by law or approved by the other Member. The obligations of the Members under this Section 11.1 will survive the expiration and termination of this Agreement. Upon termination of this Agreement, each Member agrees to return to the other Member any written materials obtained from the other which contain confidential or proprietary information belonging to the other Member.

ARTICLE XII
REPRESENTATIONS AND WARRANTIES

12.1 REPRESENTATIONS OF KARAM. Karam hereby represents and warrants as follows:

(a) Karam is a corporation duly organized, validly existing and in good standing under the laws of the Territory of the British Virgin Islands, and is duly qualified (or shall expeditiously take such action to cause it to be duly qualified) to do business in such jurisdictions as the Company business shall require, and has full power and authority to carry on its business as now conducted, and to own its assets, property and business.

(b) All proceedings required to be taken by or on behalf of Karam to authorize Karam to enter into and carry out this Agreement have been duly and properly taken, and this Agreement has been duly executed and delivered by Karam, and constitutes a legal, valid and binding agreement of Karam enforceable in accordance with its terms.

- 12 -

(c) Karam has full power, right and authority to enter into and perform this Agreement and the other agreements contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in a default under, or violate, any agreement to which Karam is a party or by which its property is bound or its Articles of Incorporation and By-laws.

12.2 REPRESENTATIONS OF TOFL. TOFL hereby represents and warrants as follows:

(a) TOFL is a corporation duly organized, validly existing and in good standing under the laws of the Republic of Mauritius , and is duly qualified (or shall expeditiously take such action to cause it to be duly qualified) to do business in such jurisdictions as the Company business shall require, and has full power and authority to carry on its business as now conducted, and to own its assets, property and business.

(b) All corporate and other proceedings required to be taken by or on behalf of TOFL to authorize TOFL to enter into and carry out this Agreement have been duly and properly taken, and this Agreement has been duly executed and delivered by TOFL, and constitutes a legal, valid and binding agreement of TOFL enforceable against TOFL in accordance with its terms.

(c) TOFL has full power, right and authority to enter into and perform this Agreement and the other agreements contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in a default under, or violate, any agreement to which TOFL is a party or by which its property is bound, or TOFL's Articles of Incorporation or By-Laws.

ARTICLE XIII
MISCELLANEOUS

13.1 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits attached hereto, constitutes the entire agreement between the parties with respect to the subject matter hereof, and any other promises, statements, representations or inducements shall be of no force or effect unless set forth herein.

13.2 AMENDMENTS. This Agreement may be amended from time to time upon the written consent of the Members.

13.3 NO ASSIGNMENT. Neither party may assign this Agreement, or any of its rights, duties or obligations hereunder, without the prior written consent of the other party.

13.4 NOTICES. All notices to The Company or any Member under this Agreement shall be in writing, duly signed by the party giving such notice, and transmitted personally or mailed postage prepaid by first class certified mail to such Member's address set forth below, or to any

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such other address as may hereafter be designated by a Member upon giving notice thereof to the Company and each other Member in accordance with this Section
13.4. All notices shall be deemed given when personally delivered or, if mailed, upon confirmation of return receipt.

Karam:   Roger Karam
         Karamco, Inc.
         DOT LB Ctr, 9th Floor
         Dekwaneh, Beirut - Lebanon
         Attention:  Mr. Roger Karam

TOFL:    Telecommunications overseas fusion ltd
         Suite 410
         4th Floor
         Barkly Wharf, Le Caudan Waterfront
         Port Louis, Mauritius

13.5 AGREEMENT MAY BE EXECUTED IN COUNTERPARTS. This Agreement and any consents required hereunder may be executed in counterparts, all of which, taken together, shall be deemed one original.

13.6 BINDING PROVISIONS. Except as herein otherwise provided to the contrary, this Agreement shall be binding upon and inure to the benefit of the parties hereto, their heirs, personal representatives, successors and permitted assigns.

13.7 GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the laws of the State of New York. Any action to enforce this Agreement, seeking damages or injunctive relief for breach of this Agreement, or otherwise asserting any claims relating to this Agreement shall be brought in the federal or state courts of New York, and the parties hereto agree to submit themselves to the exclusive jurisdiction of such courts.

13.8 RELATIONSHIP OF THE PARTIES. Karam and TOFL agree that each shall owe to the Company and to each other, as Members in the Company, a strict fiduciary duty of loyalty, diligence, good faith and fair dealing in all matters relating to the business of the Company. With respect to all other matters outside the business of the Company, Karam and TOFL are each free to pursue their own business opportunities without regard to the other, even if such opportunities place them in direct competition with each other.

13.9 COOPERATION OF THE PARTIES. The parties agree to cooperate in good faith, to execute and deliver such documents, and to perform such acts as are reasonably necessary to effectuate the intent of the parties as expressed in this Agreement. The parties further agree to cooperate in making any and all regulatory filings that may be required to conduct the business contemplated by this Agreement.

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IN WITNESS WHEREOF, the Members have hereunto set their hands as of the day and year first above written.

Karamco Inc.

By__________/s/_______________________
   Name:
   Title:

Telecommunications Overseas Fusion Ltd

By__________/s/_______________________
    Name:
    Title:

EXHIBIT A

Certificate of Formation

EXHIBIT B

Promissory Note and Security Agreement

EXHIBIT C

EXHIBIT 10.6
SHAREHOLDERS JOINT VENTURE AGREEMENT

This Agreement is made on this the 11th day of March 2000 between:

1. Communications Ventures India Pvt. Ltd., a Company organized and existing under the laws of India and having its registered office at B-115, Sarvodya Enclave, New Delhi - 110 017, India (the "HOLDING
COMPANY"):

2. and Fusion Telecommunications International Inc. a, corporation organized and existing under the laws of the State of Delaware, U.S.A and having its offices at 15 Exchange Place, Suite 530, Jersey City, NJ 07302, U.S.A. ("FUSION").

WHEREAS

A. Estel Communication Private Limited, a Company organized and existing under the laws of India and having its registered office at B-115, Sarvodya Enclave, New Delhi - 110017 (the ESTEL") is a wholly owned and subsidiary of the HOLDING COMPANY.

B. ESTEL has been granted by the Ministry of Communications Government of India, a licence No. 820-184/99-LR dated 9th June 1999 (the "Licence") to set up, establish and operate an ISP operation including Earth Stations and Gateways as set out in the Licence.

C. FUSION is engaged, inter alia, in the business of provision of independent facilities based internet services including establishment and operation of earth stations and gateways.

D. Parties have agreed to collaborate and to the participation of FUSION in ESTEL with a view to emerging as a competitive access and internet service provider in India.

         E.       Pursuant to the  foregoing  the Parties  wish to record  their
                  agreement  upon which ESTEL shall be managed and operated as a
                  jointly  owned company and the Parties  relationship  therein;
                  and matters incidental thereto.

1        DEFINITIONS

1.1      As used in this Agreement the following terms shall have the respective

meanings set forth below:

(a) "Affiliate" of a Party shall mean a person which

(i) owns or controls a Party (directly or indirectly)

(ii) which is owned or controlled by a Party (directly or indirectly)

(b) "Acquisition Project" means acquisition of business undertaking owned by any Person and engaged in business similar to that which ESTEL is authorized to undertake pursuant hereto or which the parties may otherwise agree in writing.

(d) "Auditor' means such firm of Chartered Accountants as are appointed statutory auditors of ESTEL for the time being.

(e) "Board" means the board of Directors of ESTEL.

(f) "Budget" means the annual operating budget of ESTEL as approved and/or modified from time to time by the Board.

(g) "Control" shall mean the power to elect a majority of the Board of Directors (or governing body) of a person or the direct or indirect ownership of more than half in nominal value of its voting or equity share capital.

(h) "Directors" means the directors of ESTEL for the time being and shall include their duly appointed alternates.

(i) "DOT" means Department of Telecommunications, Government of India.

(j) "Encumbrance" means any mortgage, charge, lien, hypothecation, pledge, or any other security interest or encumbrance.

(k) "Equity Capital" means the issued and paid up equity share capital of ESTEL.

(l) "FIPB" means the Foreign Investment promotion Board of the Government of India ("GOI").

(m) "Fair market Value" means in relation to any Shares of ESTEL, the fair market value thereof certified by the Independent Valuer (acting as expert and not arbitrator) on the following assumptions and basis:

(i) that such Shares are the subject of an arm's length sale between a willing vendor under no compulsion to sell and a willing purchaser under no compulsion to buy, each with full knowledge of all relevant facts and on the footing that the control of ESTEL is with the vendor;

(ii) that ESTEL shall at the time of such certification be carrying on business as a going concern and will continue to do so; and

(iii) that the available shares are capable of transfer without restriction;

If any difficulty shall arise in applying any of the foregoing assumptions or basis then such difficulty shall be resolved by the Independent Valuer in such manner as it may in its absolute discretion deem fit.

(n) "Shares" mean the equity shares in the Equity Capital of ESTEL

(o) "System" shall mean ISP Network for the licence granted, as described in recital (B) above.

1.2 Construction of certain references

Except as the context otherwise requires, references in this Agreement to:

(i) any document on terms mutually agreed shall be to a document in writing in the terms agreed between the Parties thereto and signed by them or on their behalf by their duly authorised representatives;

(ii) information means books, records or other information in any form including in writing on paper, electronically stored data, magnetic media, film and microfilm;

(iii) "this Agreement" shall be to this Agreement as from time to time amended, modified or superseded and shall include its Schedules.

(iv) a "Clause" or "Schedule" shall, unless otherwise stated, be to a Clause or (as the case may be) Schedule of this Agreement.

(v) a time of day shall be to Indian time;

(vi) the words denoting singular shall include plural and vice versa, and words denoting natural persons shall include firms, partnerships, companies and other bodies corporate and entities (whether or not having a separate legal entity);

(vii) any agreement, consent, approval, authorisation, notice, communication or information required under or pursuant to this Agreement from or by any Party to the other of them shall be valid and effectual only if it is in writing and under the hands of duly authorised representative of such Party and not otherwise; and

(viii) any reference to a statute or statutory provision shall include such statute or provision as is from time to time modified or re-enacted or consolidated so far as such modification or re-enactment or consolidation applies or is capable of applying to any transaction entered into hereunder or pursuant hereto.

(ix) Headings are for convenience of reference only and shall be ignored in the construction or interpretation of this Agreement.

2. SUBSCRIPTION OF SHARES

2.1 At the date hereof the authorised share capital of ESTEL is Rs.1,00,000 divided into 10,000 shares of 10 Rupees each, of which the 20 Founder Shares have been subscribed as under:

1. Mr. Raj Hajela 10 shares

2. Mrs. Suman Hajela 10 shares

Upon closing each Party shall subscribe up to a maximum of number of shares in ESTEL in cash indicated in the table below so that the percentage shareholding in ESTEL upon such subscription is as indicated:-

CAPITAL STRUCTURE FOR JOINT VENTURE - INVESTMENT AMOUNT

         Authorised Capital                                        Rs.60,000,000

         Paidup Capital                                            Rs.56,941,170

         Indian Holding Company       -     51%
         2,904,000 shares of Rs.10 each            Rs.29,040,000

o        Foreign Promoter (FUSION)    -     49%
         2,790,117 shares of Rs.10 each            Rs.27,901,170
         Share Premium     (WILL GO TO GENERAL     Rs.88,258,830
         RESERVE ACCOUNT OF ESTEL )
                                                   --------------
         Fusion's Contribution                     Rs.116,160,000
                                                   ==============
         Total Shareholder's Fund                                 Rs.145,200,000

2.2 FUSION will give an interest free loan of US Dollar one million to ESTEL and the same will be converted into Equity Capital of ESTEL at a future date when the capital of the Company is enhanced and FUSION is called upto pay their 49% pro-rata contribution of Equity; this Clause 2.2 requires further approval of FUSION.

2.3 Each Party may seek third Party financing for its required capital contributions provided that the Party retains "control" of the financing vehicle.

2.4 ESTEL shall have an authorised Share Capital of Rs.60 millions and a fully paid up share capital of Rs.56,941,170.

3. MEMORANDUM & ARTICLES OF ASSOCIATION OF ESTEL

Memorandum & Articles of Association of the ESTEL is currently in the form shown in Appendix-2 and the Parties shall procure that the same be amended as soon as possible after the date hereof to reflect the terms and provisions of this Agreement to the extent permissible under applicable Indian law. In the event of any conflict between the terms of this Agreement and the memorandum & Articles of Association, then the terms of this Agreement shall prevail as between the Parties and be binding on them.

4. MANAGEMENT OF ESTEL

4.1 ESTEL shall be managed by a Board of Directors appointed in accordance with this Clause, read with Section 255 and 260 of the Companies Act. The Board shall be responsible for the overall policy and the conduct of the business, affairs and operations of ESTEL except to the extent that applicable law, the Articles and this Agreement allocate responsibility over any particular matter to any of its members or officers or otherwise. The Board shall be entitled to delegate any of its powers and functions to such of its committees or directors or to such officers of ESTEL as may be deemed appropriate by the Board but subject always to applicable laws and regulations, the Articles and this Agreement. The number of Directors including the Chairman shall not exceed 9 and shall not be less than 3.

4.2(a) HOLDING COMPANY shall be entitled to nominate the Chairman of the Board and in addition 3 (three) Directors for a total of four (4). FUSION shall be entitled to nominate four (4) Directors on the Board. No Party other than HOLDING COMPANY and FUSION shall be entitled to nominate the Directors on the Board unless their shareholding exceeds 15%. The Board shall be entitled to appoint Additional Directors in accordance with
Section 260 of the Companies Act; provided that the respective votes of the Directors appointed by each Party shall be in the same percentages as that contemplated by the first sentence of this paragraph. Directors need not be citizens or residents of India.

(b) Unless otherwise mutually agreed by the Parties and so long as HOLDING COMANY and FUSION are Shareholders each together with its Affiliate and Investor Affiliates holding not less than 15% of the issued and paidup Equity Capital of ESTEL;

(i) each of them, shall be entitled to appoint one non-retiring Director each with right to remove and replace or fill any vacancy howsoever caused in their office by a communication in writing to ESTEL;

(ii) HOLDING COMANY and FUSION shall have the representation on the Board in equal proportion.

(c) In the event either of HOLDING COMPANY or FUSION ceasing to hold 15% or more of the issued and paidup Equity Capital of ESTEL, representation of HOLDING COMANY and FUSION on the Board shall, subject to provisions of Sub-Clause (d) below be in proportion to their respective share holding in the issued and paidup Equity Capital.

(d) For the purposes of this Agreement the Share holding of HOLDING COMANY or FUSION as the case may be shall mean the aggregate direct shareholding of HOLDING COMANY or FUSION, as the case may be together with the Share holding of its Affiliates and Investor Affiliate.

(e) In the event fractional entitlement under Sub-Clause (d) above if it is equal to or more than 0.5 (zero point five) it shall be rounded up to the nearest whole and if it is less than 0.5 (zero point five) it shall be rounded down to the nearest whole.

(f) The Chairman shall be ex-officio Chairman of general meetings of ESTEL in accordance with applicable provisions of the Act and the Articles of Association. At all Board meetings if the Chairman be present he shall preside, and in his absence the Managing Director shall be elected as Chairman for that meeting and shall preside and in the absence of the Managing Director, the Board may elect one of themselves to be the Chairman for that meeting.

4.3 Subject to the provision of Clause 5 all decisions of the Board shall be by majority vote.

4.4 SENIOR MANAGEMENT

(a) HOLDING COMPANY shall be entitled to nominate the Managing Director of ESTEL (the "MD") who shall be the Chief Executive Officer of ESTEL and be delegated with such powers of day-to day running of ESTEL as the Board may from time to time specify. FUSION shall be entitled to nominate the Deputy Managing Director and the Chief Financial Officer of ESTEL, who may at the option of FUSION be residents of India. The terms of employment of all such appointees shall be determined by mutual agreement of the HOLDING COMPANY and FUSION.

(b) Senior Managers and other direct reports of the MD in ESTEL ("Senior Managers") shall be selected by the Executive Committee out of panel of names proposed by the MD (minimum three) for each position.

(c) The MD shall be delegated by the Board adequate power and authority to undertake, conduct and carryon the day to day management, business and affairs of ESTEL and shall report to and function subject to the supervision, direction and control of the Board. The Parties shall procure that the Board delegates appropriate powers to the MD to discharge his functions and duties.

(d) Senior Managers selected by the Executive Committee shall be appointed by the MD and shall report to him. MD shall assign to the Senior Managers their duties and functions.

4.5 The Secretary

(a) ESTEL shall have a Secretary as defined in the Companies Act. The Executive Committee shall select the Secretary and recommend him to the Board for appointment. The Board may appoint the person so recommended as Secretary, if found suitable by it.

(b) The responsibilities of the Secretary shall include compliances and filings in accordance with the Companies Act and maintenance of statutory records as required by the Companies Act.

(c) If any Party is not satisfied with the performance of the Secretary, it shall be entitled to require his removal. On such requisition the Parties shall cause their respective nominees on the Board to vote and remove the Secretary from his office. In the event of such removal, such person's replacement shall be appointed in accordance with the procedure set out herein.

4.6 Nominee Director

(a) The right of nomination conferred on a Party hereunder shall include the right to require the other Party to procure that the Board and ESTEL shall remove at any time and from time to time from office such person nominated by that Party as a Director and the right of that Party at any time and from time to time to determine the period during which such person shall hold the office of Director.

(b) Whenever a person ceases to be a Director or any vacancy shall occur in his office for any reason whatsoever, the Party who had nominated him shall be entitled to nominate forthwith another person for appointment as Director in the vacancy so caused. The Parties shall procure the appointment of such nominee as a Director.

4.7 Alternate Director

(a) Alternate Directors to be appointed for any nominee Director (the "Original Director") of each Party shall be persons proposed by such Party only and on such nomination the Parties shall cause their respective nominee Directors to vote for and cause the Board to appoint him as alternate Director for such Original Director. Such alternate Director shall be entitled while holding office as such to receive notices of meetings of the Board or any committee of the Board to which such Director has been appointed and to attend and vote as a Director at any such meetings of the Board or subject to provisions of Clause 4.10 at

any such committee at which the Original Director is not present and generally to exercise all the powers, rights, duties and authorities and to perform all functions of the Original Director.

4.8 Sitting Fees

ESTEL may pay such sitting fees to Directors, not exceeding the maximum permissible under the Companies Act, as may be determined by the Board. In addition to or in substitution of the sitting fee Directors may be paid commission not exceeding the maximum permissible under the Companies Act. A Director shall in addition be entitled to receive such remuneration for services performed for ESTEL not exceeding the maximum permissible under the Companies Act.

4.9 Board Meetings and Resolutions

(a) The Board shall meet at such time or times and at such place or places as it may deem appropriate provided at least one meeting of the Board shall be held in each quarter.

(b) The Secretary shall as and when directed by the Chairman and/or the MD or any Director call a meeting of the Board. Any Director may also request the Chairman to call a meeting of the Board. Notice of every Board meeting whether first convened or adjourned shall be sent to each Director and his alternate so as to be received ordinarily not less than 7 (seven) days before the day such meeting is scheduled to take place unless such notice is waived.

(c) Except in emergent cases, (i) at least 7 (seven) days' written notice shall be given to all Directors for convening a Board meeting; and (ii) such notice shall be accompanied by an agenda of the matters to be discussed. In the event the Chairman, the MD or any Director (acting reasonably and in good faith) deems that circumstances exist which require a meeting to be convened at shorter notice, the Chairman on his own or at the request of such director direct the Secretary to call a meeting of the Board as aforesaid at shorter notice.

(d)      Subject  to the  provisions  of  the  Companies  Act  and  Clause  5, a
         resolution  signed by a majority  of the  Directors  for the time being
         shall be valid  and  effectual  as if it is a  resolution  passed  at a
         meeting of the Board of  Directors  duly  convened  and held.  Any such
         resolution  may be  contained  in a single  document  or may consist of
         several  documents,  all in like form.  For the purposes of this Clause
         "in writing" and "signed" shall include approval by facsimile.

4.10     Executive Committee

(a)      The Board shall constitute a 2 (two) member Executive  Committee of the
         Board comprising of one nominee Director each of the HOLDING COMANY and
         FUSION.  It is agreed that  normally  no  alternate  Director  shall be
         permitted to participate in Executive  Committee  Meetings.  However in
         unavoidable   circumstances  alternate  Directors  may  be  allowed  to
         participate  in place of  original  Directors  with the  consent of the
         Parties.

(b)      The  Chairman of the  Executive  Committee  will be on annual  rotation
         basis i.e. for first year HOLDING COMPANY nominee shall be the Chairman
         of the Executive  Committee and for following year FUSION nominee shall
         be its Chairman and so on. Any member of the  Executive  Committee  can
         request the Chairman of the Executive Committee to convene a meeting of
         Executive  Committee and the Chairman of the Executive  Committee shall
         promptly  convene a meeting but not later than 7 (seven)  business days
         of receipt of such request.

(c)      The   Executive   Committee   shall  be  generally   responsible   for,
         finalisation   of  business  plans  and  annual   budgets,   review  of
         operations,  review  of  performance  of  personnel  and  HRD  matters,
         approval of general  meeting  notices etc. It shall also be responsible
         for approval of appointment of the Secretary,  Head (Operations),  Head
         (Marketing) and of such by disciplines (by whatever name called) as the
         Parties may deem appropriate.

(d)      All matters to be put up to the Board and  specified in Clauses 5.2 and
         5.3  shall in the first  instance  be put up for  consideration  of the
         Executive Committee.  The Executive Committee shall also act as a forum
         for  inter-action  and  resolving  all  matters  inter se  between  the
         Parties.

(e)      All decisions of the Executive Committee shall be by unanimous vote. In
         the absence of  unanimity  in respect of any matter,  the same shall be
         referred to the Board for its decision.

(f)      The  Chairman of the  Executive  Committee  shall be entitled to invite
         such of the Senior Managers of ESTEL as he may determine.

4.11     Annual Budgets And Business Plans

         During each Financial  Year, the Board shall adopt an annual Budget for
         the next  Financial Year and a Business Plan for the succeeding two (2)
         Financial  Years.  Each such annual  Budget and Business  Plan shall be
         prepared under the direction and supervision of the MD and submitted to
         the  Executive  Committee  for its  consideration.  upon  the  approval
         thereof by the  Executive  Committee  or in the event of there being no
         unanimity at the Executive Committee in respect thereof, the same shall
         be submitted to the Board for its approval at least one (1) month prior
         to the end of each Financial Year.

4.12     ESTEL shall not, under any circumstances, purport to oblige director(s)
         of ESTEL to  guarantee  and/or  indemnify  any loan or other  financial
         facility of ESTEL which ESTEL seeks to obtain.

5. DECISIONS OF ESTEL

5.1 The following decisions of ESTEL shall require an affirmative vote of shareholders holding not less than 75% equity in aggregate of the share capital of ESTEL at a meeting at which a quorum of shareholders representing at least 75% of the shares of ESTEL and representatives of HOLDING COMPANY and FUSION are present:-

(a) Amendments to the Memorandum & Articles of Associations (including the issue of any new classes of shares or rights attaching to shares).

(b) Winding up or dissolution of ESTEL

(d) Any change in the authorised share capital of ESTEL or preferential issue of Shares to any party or person.

5.2 Without prejudice to the specific powers which may be delegated by the Board to the following decisions of ESTEL (the "Policy Matters") shall not be taken unless supported by an Affirmative vote of at least 1(one) nominee Director of HOLDING COMPANY and 1(one) nominee Director of FUSION:

(i) Any change or modification in the rights of the Shareholders;

(ii) Any amendment to the Memorandum and/or Articles of Association of ESTEL;

(iii) Any increase in authorized or issued Share capital of ESTEL;

(iv) Any consolidation of or reduction in the Share capital of ESTEL or creation of new classes of shares, whether voting or non-voting;

(v) Any issue of debentures, bonds or other instrument convertible into equity Shares by ESTEL;

(vi) Any proposal for placing of ESTEL in voluntary dissolution or winding up;

(vii) Any proposal for amalgamation or merger of ESTEL with any other company;

(viii) Any sale, lease or transfer of the whole or substantial part of the Undertaking or assets of ESTEL;

(ix) the giving of any guarantee, indemnity or security in respect of the obligations of any third party other than for the business of ESTEL;

(x) taking of any loan or other borrowing carrying right or option to convert whole or any part thereof or accrued interest thereon into shares of ESTEL or conversion of any debt or obligation of ESTEL into shares of ESTEL;

(xi) Any diversification or establishment of any subsidiary;

(xii) Investments in shares or securities of or loans or guarantees to other firms, companies and bodies corporate and other entities excluding guarantees to Governmental authorities for tax/levy purposes or for the business of ESTEL;

(xiii) the entering into of any profit sharing, share option or similar other scheme for the benefit of the officers or employees of ESTEL or any material variation of any such scheme;

(xiv) Grant of any option over any shares in the share capital of ESTEL;

(xv) Entering into of any Contract with a Party or Affiliate of a Party;

(xvi) the entering into, termination or variation of any contract or arrangement (whether legally binding or not) by ESTEL with a Party or any company which is a Affiliate of any Party;

(xvii) Agreements or material transactions between ESTEL and any Director or shareholder of ESTEL or an Affiliate of such shareholder or any service contracts with any Party or its Affiliate(s) for provision of any service or management support or consultancy to ESTEL;

(xviii) Creation of any Encumbrance on the assets or Undertaking of ESTEL in favour of any person other than banks and financial institutions lending moneys for the business of ESTEL;

(xix) any material change in the nature of ESTEL's business as carried on from time to time by ESTEL;

(xx) Change in the name of ESTEL;

(xxi) Sale or any disposition surrender or licensing or acquisition (whether by purchase or licence) of any trade mark(s) or brand names(s).

(xxii) appointing any Committee of Directors for any purpose;

(xxiii) Delegation by the Board of power to any Committee of the Board or to any person in respect of any matter falling within the scope of Clause 5.2.

(xxiv) The making of appropriations out of profits including the distribution of dividends of ESTEL.

(xxv) The acquisition by ESTEL of more than 20% of the share capital of any OTHER company.

(xxvi) Entering into any joint venture or partnership by ESTEL.

(xxvii) The providing of loan facilities or financial guarantees to other companies.

(xxviii) Any material change in ESTEL's business.

(xxix) Induction of any new partner into ESTEL.

(xxx) Any grant of any general increase in rates of pay or any increase in total compensation (including bonuses) or other remuneration to the Management staff of ESTEL .

5.3 No action or decision in respect of any of the following matters ("Special Matters") shall be valid and effective unless part of or contemplated by an annual Budget or Business Plan or approved by a resolution passed by the Board or any Committee thereof by majority of the entire Board or Committee.

(i) entering into of any material contract (over a value of US$ 150,000 or equivalent sum Indian Rupees) outside the ordinary course of its business;

(ii) the incurring of any material expenditure or liability of a capital or operating nature exceeding in aggregate US$_150,000 or equivalent sum in Indian Rupees outside the annual Budget (including for this purpose the acquisition of any asset under lease or hire purchase);

(iii) Borrowings and creation of charge on the assets of ESTEL in favour of lenders;

(iv) Any proposal to confess any judgment of a value in excess of US$_150,000 or equivalent sum in Indian Rupees against ESTEL;

(v) approval of transfer of shares.

(vi) consenting to the assignment of, or the granting of options over any debentures or other securities (other shares in the capital) of ESTEL;

(vii) any delegation by the Board of any of its powers to a committee of the Board or to any other person whatsoever save except as otherwise expressly provided in this Agreement;

(viii) Approval of annual budgets and business plans;

(ix) commencement of any material (US$ 150,000 or equivalent sum in Indian Rupees) legal or arbitration proceedings (other than routine debt collection or claims of ESTEL against any vendor or purchaser of goods from ESTEL);

(x) remuneration and terms of employment of Senior Managers.

5.4 In the event that any resolution proposed at a meeting of the Board or any Committee thereof is not passed as a result of the operation of the provisions of Clause 5.2, the matter shall be referred to ESTEL in general meting and if passed as a special resolution, the same shall be binding and effective notwithstanding anything to the contrary contained herein.

5.5 Resolution by Circulation

Except as otherwise required by this Agreement, the Articles, or the Companies Act, all resolutions and decisions of Directors shall be by vote of a majority of the Directors at a duly convened meeting may also be taken by a resolution by circulation signed by all or a

majority of the Directors. Subject to the provisions of Clause 5.4, Policy Matters set forth in Clause 5.2 above can be approved only by the Board with the affirmative vote of at least one nominee Director each of HOLDING COMANY and FUSION. No Director shall have a second or a casting vote.

6. Any Party may if it so desires waive in part or in whole its right to nominate a Director on the Board and the Board shall be deemed to be properly constituted notwithstanding such non-nominations.

7. No business shall be transacted at any Board meeting unless a quorum is present at the meeting. In the first instance the quorum for meetings of the Board shall be at least one third of the Board including at least one Director each nominated by the Parties hereto. A Director represented by his alternate shall be deemed to be present for the purpose of determining quorum. If within half an hour from the time appointed for a meeting a quorum as aforesaid is not present, the meeting shall stand adjourned to the same day in the next week at the same time and place or to such other later day and at such other time and place as the Directors may determine. If at such adjourned meeting also, a quorum is not present, the meeting shall stand adjourned for further half an hour and if the quorum as aforesaid is still not present but the Directors present are at least one third of the Board, they shall constitute a quorum Provided however, no matter referred to in Clause 5.2 shall be considered at such adjourned meeting and the business at such adjourned meeting shall be confined only to the remaining items as specified in the agenda for such meeting and no matter not forming part of the agenda circulated for the meeting shall be considered at such adjourned Board meeting.

8. ISSUE OF SHARE CAPITAL / FINANCING

8.1 In the event of any issue of share capital consequent upon an increase of the authorised share capital of ESTEL the Board of Directors shall notify HOLDING COMPANY and FUSION in writing and they shall have the right to subscribe to the new shares in the proportion of their respective shareholdings in ESTEL provided however that if one Parties not exercise its right to subscribe for further share capital then the other Party will have the right to subscribe for the shortfall in accordance with Clause 8.3 below.

8.2. Rights Issue

Subject to the provisions of Clause 8.3:

8.2.1    In case of a  Rights  Issue  of  Shares  ("Rights  Issue")  in
         accordance  with this  Agreement,  ESTEL shall offer Shares in
         Rights   Issue  (the   "Rights   Shares")   to  the   existing
         shareholders  in proportion to their existing share holding in
         ESTEL. A Party shall be entitled to subscribe either itself to
         its  entitlement of such Rights shares or to renounce in favor
         of its affiliates or Investor Affiliate as defined hereinafter
         (who  agree  to be  bound  in  writing  by the  terms  of this
         Agreement)  or to any of the other Parties to subscribe to its
         entitlement of such Rights Shares.

8.2.2    If a Party  desires to get its  entitlement  of Rights  Shares
         (the "non-subscribing party") funded, it may renounce in favor
         of any  Banks,  mutual  funds  and any other  financiers  (the
         "Investor  Affiliate")  to  subscribe  to its  entitlement  of
         Rights Shares (the "Loan  Shares")  provided (i) such Investor
         Affiliate  and the  Non-Subscribing  Party shall have  entered
         into  a  firm   buy-back   agreement   whereby  the   Investor
         Affiliate(s) has agreed to sell and the Non-Subscribing  Party
         has  agreed to buy back such Loan  Shares  within a period not
         exceeding 3 (three)  years from the date of  allotment  of the
         Loan Shares to such  Investor  Affiliate(s)  by ESTEL (ii) the
         Investor  Affiliate(s) shall have executed a Deed of Adherence
         in  the  form  at  Schedule   "one"  and  (iii)  the  Investor
         Affiliate(s) shall not be entitled to transfer,

assign, sell or otherwise encumber or dispose off or transfer such Loan Shares in any manner whatsoever during the said 3
(three) year period without giving to the other Parties the right of first refusal in accordance with Clause 10 below. During the said 3 (three) year period for so long as the Investor Affiliate(s) holds the Loan Shares, for the purposes of determining the rights of the Non-Subscribing Party under this Agreement, the aggregate of the Shareholding of such Non-Subscribing Party and Investor Affiliate(s) shall be deemed to be the Share holding of such Non-Subscribing Party.

8.2 Should the Non-Subscribing Party fail to acquire the Loan Shares within the 3 (three) year period referred to in Clause 1.2 above, unless otherwise mutually agreed between the Parties, the Investor Affiliate(s) shall be entitled to retain such Loan Shares in its own right but subject always to the provisions of this Agreement including Clause 8.4 below, and in such an event the Agreed Proportion shall be adjusted by deduction of the Loan Shares so retained or sold to a person other than the Non-Subscribing Party, and the rights of the parties under this Agreement shall be adjusted accordingly.

8.3 Subscription to Additional Shares in Rights Issue. Notwithstanding anything to the contrary contained in Clause 8.2 above if any of the Parties shall fail to subscribe and pay or cause their Investor Affiliate or Affiliates to subscribe and pay for any of the Rights Shares offered to it in accordance with this Agreement (the "Rejected Shares") within such period not being less than 60 (sixty) days from the date of offer of Rights Shares by ESTEL as the Board may determine, the following shall apply to the disposal of such Rejected Shares:

8.3.1    The Board  shall  offer the  Rejected  Shares to all the other
         Shareholders (the "Other Shareholders") in proportion to their
         respective  Shareholding in ESTEL and such Shareholders  shall
         be entitled to subscribe to such Rejected  Shares  themselves,
         or if such Shareholder is a Party to this Agreement,  to cause
         its  Affiliates and Investor  Affiliate(s),  nominated in this
         behalf by it and who agree(s) in writing to be

         bound by the terms of this Agreement, to subscribe to the same
         within the period prescribed in this behalf by the Board.

8.3.2    The Other  Shareholders  receiving an offer pursuant to Clause
         8.3.1 above shall be entitled to apply for issue and allotment
         of  additional  shares i.e. for more Shares than the number of
         Shares it is  entitled  in a Rights  Issue on the basis of its
         existing Share holding.  In case of any Rejected  Shares being
         available after issue and allotment to the Other  Shareholders
         in proportion to their respective Share holding in ESTEL as on
         the date of offer of  Rejected  Shares to them  (the  "Surplus
         Shares"),  such Surplus Shares shall be issued and allotted to
         such of the Other  Shareholders who had applied for additional
         Shares in proportion to their existing Share holding as on the
         date of offer pursuant to Clause 8.3.1.

8.3.3    Any Rejected Shares,  not accepted by any Share holders and/or
         their respective Investor Affiliate and/or Affiliates,  may be
         offered by the Board to any third party or parties on terms no
         more  favorable  than those offered to the other  Shareholders
         or, in the alternative, the Board may in its discretion decide
         to seek  listing  of  Shares  of  ESTEL  on one or more  Stock
         exchanges  in  India  and/or  abroad.  In  such an  event  the
         provisions of Clause 8B shall apply.

8.3.4    For the  purposes of Clauses  8.2,8.3 and 8.4 any offer to the
         Shareholders  to  subscribe  to any  Shares  must  be  made in
         writing by the Board.  Any Party or its Investor  Affiliate(s)
         and/or  Affiliates,  nominated  in this  behalf by such Party,
         wishing  to accept  such  offer  from the Board  must do so by
         giving  notice in writing and which notice must be received by
         the Board no later  than 30  (thirty)  days after the date the
         offer was made by the Board.

8.4 Additional Issue in Agreed Proportions. Unless otherwise agreed by the Parties in writing, any additional issue of Shares by ESTEL in its Equity Capital (other than a Rights Issue) shall be offered and issued to the Parties in proportion to their shareholding (the "Agreed Proportions").

8A.      Acquisitions

8A.1     Acquisition Funding and Shareholder Loan Ratios

         8A.1.1   Any Shareholder  loans by any Party to ESTEL will,  except for
                  loans by FUSION  alone in  respect of  Acquisition  Project in
                  cases where HOLDING COMANY elects not to invest and FUSION has
                  lent to ESTEL such loan,  rank  pari-passu  with the equity in
                  the event of insolvency  of ESTEL;  provided that FUSION loans
                  have a  higher  priority  than  the  equity  in the  event  of
                  insolvency of ESTEL.  In case of  Shareholder  loans by FUSION
                  alone in respect of any  Acquisition  Projects,  repayment  of
                  such FUSION loan and interest  and other  outgoings in respect
                  thereof  shall be by ESTEL alone and  HOLDING  COMANY or other
                  Shareholders  shall have no liability or obligation in respect
                  thereof.

         8A.1.2   In case of any opportunity for acquisitions of any Acquisition
                  Project the  provisions  of Clause 8A.4 shall apply.  Upon the
                  Board deciding to proceed with any  Acquisition  Project,  the
                  Board  shall   determine  the   investment   amount  for  such
                  acquisition  (the  "Investment  Amount").  For  this  purpose,
                  unless  HOLDING  COMANY  electing  not to  participate  in any
                  particular  Acquisition Project,  investments and specifically
                  designated  loans will be made to ESTEL by FUSION and  HOLDING
                  COMANY in the ratio of their respective  Shareholding.  In the
                  event of  ESTEL  proceeding  with a  Acquisition  Project  and
                  HOLDING  COMANY   electing  not  to  invest  in  a  particular
                  Acquisition  Project,  FUSION and the  HOLDING  COMANY will be
                  entitled  to invest  and  provide  Shareholder  Loans  bearing
                  interest  at the rates not  exceeding  the State Bank of India
                  Prime Lending Rate then  prevailing in India.  In the event of
                  HOLDING  COMANY not investing in the Shares issued for funding
                  any Acquisition Project, the provisions of Clauses 8.2 and 8.3
                  shall apply.

8A.2     Except  as may  otherwise  expressly  provided  in this  Agreement,  no
         Shareholder  shall be obliged to  subscribe  for  additional  Shares or
         provide Shareholder Loans to ESTEL in excess of the Investment Amount.

8A.3     The Parties acknowledge that it is neither necessary nor incumbent upon
         them to agree on participation in any Acquisition project.

8A.4     The  following  shall  apply for  participation  of the  parties in any
         Acquisition Project:

         (i)      Whichever  Party has identified any  Acquisition  Project,  it
                  shall submit details of such Acquisition Project together with
                  the amount of  investment  estimated to be required to be made
                  by ESTEL for its participation in the Acquisition  Project and
                  shall  furnish  to  the  other  parties  all  such  reasonable
                  clarifications as it may require;

         (ii)     The  Parties  shall  within  60  days  of the  receipt  of the
                  details/information   pursuant  to  sub-paragraph  (i)  above,
                  communicate  to ESTEL and to each other about their  intent to
                  participate in the Acquisition Project.

         (iii)    If all  the  Parties  decide  to  participate  in  Acquisition
                  Project,  the Board shall determine and approve the Investment
                  Amount,  and  Parties  shall  invest in Share  capital  and if
                  required  provide  the  Shareholders  Loans to ESTEL  for such
                  acquisition in agreed proportions.

         (iv)     If any of the Parties  decide not to participate in and invest
                  in any  Acquisition  Project and the other  parties  decide to
                  participate  and  invest  in  such  Acquisition  Project,  the
                  funding  for the  investment  by  ESTEL  in  such  Acquisition
                  Project  shall be  provided by such  parties to ESTEL  through
                  additional  investment in Shares and provision of  Shareholder
                  Loans and in such an event Parties not  participating  in such
                  Acquisition  Project  may  be  diluted  to the  extent  of non
                  subscription by it.

8A.5     Parties agree to contribute the Investment  Amount for the  Acquisition
         Project(s) through ESTEL if they have agreed for participation,  in the
         agreed proportions.

8A.6     To the extent that  raising any debt  determined  to be  necessary  for
         funding any investment by ESTEL in any Acquisition  Project,  which the
         Parties have agreed to fund or FUSION alone is funding, as the case may
         be, requires guarantees of or other security from the Shareholders, the
         same shall severally provided by the Parties where all of them are

         participating,  and by FUSION only in case of Acquisition Project where
         FUSION alone is  participating,  as the case may be. Prior to approving
         or authorizing  any debt or equity  financing by ESTEL shall provide to
         the  Shareholders  with all relevant  documentation  in respect of such
         financing so that each of them may approve of the terms thereof.

8B.      Listing of Shares on Stock Exchanges

8B.1     Circumstances for Listing
         In the event of

         8B.1.1   the Parties agreeing and the Board deciding in accordance with
                  the  provisions of Clause 8.3 to seek listing of the shares on
                  one or more Stock Exchanges in India or listing abroad.

         the provisions of Clause 8B.2 shall apply.

8B.2     Effect of decision to List the Shares In the event:

         8B.2.1   The Parties  mutually  agree to seek listing of Shares for any
                  reason  other  than those  setforth  in  Clauses  8B.1.2,  and
                  8B.1.3,  the Parties shall cause ESTEL to issue and offer such
                  number of  additional  shares as may be  necessary to list the
                  Shares of ESTEL on one or more Stock Exchanges in India and/or
                  abroad in accordance  with applicable laws and regulations and
                  to make public offer thereof for  subscription  at Fair Market
                  value  determined by a Independent  Valuer selected jointly by
                  HOLDING COMANY and FUSION.

         8B.2.2   In the event of the Shares being required to be listed for the
                  reason setforth in Clause 8B.1.2 above, the Shares held by the
                  Selling Member not being less than the minimum number required
                  for securing  listing on a Stock  Exchange shall be offered by
                  such  Selling  Member to public  for sale at such value as the
                  Selling Member may determine.

8B.2.3 In the event of the Shares being required by the Board to be listed for the reason setforth in Clause 8B.1.3, the Board shall offer the Shares available pursuant to Clause 8.3 above for subscription to public provided the number of Shares so available are sufficient to meet the minimum number required under applicable laws and regulation to secure listing of the Shares on one or more Stock Exchanges in India and/or abroad.

8B.2.4 The Board shall determine the Stock Exchange or Exchanges on which shall seek listing of its shares and shall offer the shares, required to be offered for securing such listing, to public through prospectus in accordance with the procedure prescribed, and the applicable laws and regulations, for cash at par or such premium as the Board may in its sole discretion determine save and except in case of offer for the reason setforth in Clause 8B.1.2 above, in which case, subject to

                  applicable regulations, the offer price shall be as determined
                  by the Selling Party.

         8B.2.5   Costs of all public  offer of Shares  pursuant  to this Clause
                  8B.2 shall be met and be borne by ESTEL

8B.3     Book Building for Listing

         For the  purposes of seeking  listing of Shares of ESTEL on one or more
         Stock  Exchange(s)  pursuant to this  Agreement,  the Parties  agree to
         cause (subject to it being feasible under  applicable  regulations) the
         Board and ESTEL to undertake the same through book building  process in
         accordance  with the  applicable  regulations  and to seek  listing  of
         Shares  through  such book  building  process  not later than 3 (three)
         months from the date the Board  determines  or the  parties  agree or a
         Party  requires  listing,  as the case may be, in  accordance  with the
         provisions of this Agreement.

8B.4     Amendment to the Articles for Listing

         The  Parties  agree and  covenant  that in the event of shares of ESTEL
         being required to be listed in one or more Stock Exchanges  pursuant to
         any provision of this Agreement, the Parties shall cause ESTEL to amend
         its Articles to the extent  necessary and required to permit listing of
         the shares of ESTEL and to facilitate offer of Shares to public for the
         said purpose.  Parties  agree to do all such acts,  deeds and things as
         may be necessary or required or incidental to secure  listing of shares
         of  ESTEL  on one or  more  Stock  Exchanges  in  India  and/or  abroad
         including for offer of shares to public for the purpose.

9.       NON-COMPETITION

9.1      Each Party undertakes that so long as this agreement subsists they will
         not enter into any  business  directly  competing  with the business of
         ESTEL.

9.2      HAJELA is trying to develop a project for Domestic  Long  Distance High
         Speed  Digital  Optical  Fibre  Backbone  and over a period of time may
         develop other  Telecommunication  Service  Projects.  During the period
         that FUSION or its designee continues to hold at least 25% shareholding
         in ESTEL  HAJELA  shall  offer  FUSION a right  of first  refusal  with
         respect to such license or  telecommunications  opportunity in India on
         mutually agreed terms.

10.      TRANSFER OF SHARES

10.1(a) No Party shall nor permit its Affiliates and Investor Affiliate to sell, transfer, assign, gift or otherwise dispose of its shareholding in ESTEL except in accordance with the provisions of this clause 10 or as may otherwise be expressly provided elsewhere in this Agreement.

(b) A party and its Affiliate and Investor Affiliates may assign, or create any Encumbrance on all or any of the Shares held by it/them in favor of any financial institution or other lenders (the "Encumbrance Holder") provided it is a term of such Encumbrance that the

Encumbrance Holder thereof shall be bound by the terms of this Agreement and in the event of any sale of any of the Shares which are subject to any Encumbrance (the "Encumbered Shares") by such encumbrance Holder, the same shall be deemed to be a sale by the Party or its Affiliate or Investor Affiliate, as the case may be, who has created such Encumbrance and shall always be subject to the right of first refusal of the Remaining party under and in accordance with Clauses 6.3 and 6.4.

(c) Parties covenant that they shall abide by the provisions of this Agreement and agree and undertake that they shall cause ESTEL to not register any transfer of Shares in contravention of any provision of this Agreement.

10.2 Right of First Refusal.

subject to Clause 10.4 below, in the event of any Party or their respective Investor Affiliate(s) or Affiliates holding Shares in the Equity Capital desiring to sell or dispose of its/their share holding in ESTEL, it shall give to the other of them the right of first refusal in the manner as provided in Clause 10.3 hereinafter. If on account of applicable laws or regulations any Party or its Affiliate are unable to acquire shares so offered to it, such Party will be entitled to designate a person of its choice to whom the shares in whole or in part shall be transferred.

10.3 procedure for Exercise of Right of First Refusal.

(a) Subject to Clauses 10.1(b) and 10.4 neither FUSION and/or its Investor Affiliate and/or Affiliates nor HOLDING COMANY and/or its Affiliates and/or Investor Affiliate (the "Selling Member") shall sell, transfer, gift, or otherwise dispose of in any way or manner any of its Shares until (i) it has delivered to ESTEL and to the other of them (the "Remaining Parties") an irrevocable written offer to sell all or part of its share holding (the "offer") in ESTEL ("Sale Shares") at a price (the "Offer Price") stated in the offer and (ii) the Remaining Parties shall have failed to accept the offer for all of the Sale Shares within 90 (ninety) days after the receipt

of the offer. The Remaining Parties or such of them as accept the offer as the case may be, (the "Remaining Party") shall convey its acceptance, if any, to the Selling Member within 90 (ninety) days of receipt of the offer by it. If the Remaining Party accepts the offer but does not agree to the Offer Price and the Selling Member and the Remaining Party are unable to mutually agree on the sale price within 60 (sixty) days of the date of acceptance of the Offer by the Remaining Party, the Selling Member shall be obliged to sell all the Sale shares to a third Party selected by the Remaining Party at the Offer Price and if the Remaining Party shall fail to procure any third party to purchase the Sale Shares within 30 (thirty) days of its failure to accept the Offer Price or to mutually agree on the sale price with the Selling member, which ever is later, the Selling Member shall be entitled to sell the Sale Shares (i) to any third party at price and on terms not more favorable than those setforth in the offer, or (ii) in its discretion, sell on a Stock Exchange in India or abroad the Sale Shares together with such further Shares from its Share holding in ESTEL as is necessary or required to secure listing of ESTEL's Shares on Stock Exchange(s) in India or abroad or such additional Shares from its Share holding as the Selling Member may deem appropriate. If the Selling Member shall fail to sell the Sale Shares to a third party within 90 days of the Remaining Party's failure to procure any third party to purchase the Sale Shares, the Selling Member shall not be entitled to sell the Sale Shares to any third party without first offering the Sale Shares again to the Remaining Member and following the procedure seforth in this clause 10.3(a). In the event of the Selling Member deciding to sell the Sale Shares on the Stock Exchange as setforth in the immediately preceding sentence, the parties shall cause ESTEL to do all such acts, deeds and things as are necessary under applicable regulations including amendments to the articles to enable such sale on the Stock Exchange(s) and the listing of the Shares thereon. In case both the Remaining Parties shall accept the Offer, they shall entitled to purchase the Sale Shares in proportion to their Existing Shareholding and to exercise the rights conferred by this Clause 10.3 in respect of such Sales Shares to which they are entitled,

provided however if one of the Remaining parties accepts the offer but does not agree on the Offer Price and the other of them accepts the Offer Price, then in that event the Sale Shares to which the Remaining Party accepting the Offer but not accepting the Offer Price is entitled shall be offered to the Remaining Party which has accepted the Offer Price, notwithstanding anything to the contrary contained hereinabove.

(b) In the event of Selling Member exercising pursuant to sub-clause (a) above the option to sell the whole or any part of its Share holding on Stock Exchange and provided the Shares proposed to be offered for sale to public by the Selling Member are sufficient in number to secure listing of ESTEL's Shares on Stock Exchange(s), the provisions of clause 5 shall apply.

(c) Parties shall cause ESTEL to take all procedural steps necessary for making such sale by public offer on Stock Exchange(s) pursuant to and in accordance with Clause 10.3(a) read with Clause 5 expeditiously.

(d) On acceptance of the Offer, within 60 days thereof the sale and purchase of the Sale Shares shall take place (the "Completion"). At the Completion the Remaining Party shall pay or cause the person or persons nominated by it to purchase and pay the Offer Price for the Sale Shares in full in cash against delivery of the Sale Shares together with such number of duly executed share transfer deeds (with name of the Transferee left blank) as the Remaining Member or its such nominee may require.

(e) if the transfer of the Sale Shares requires any consent or approval or notice, the period prescribed for Closing under sub-clause (d) above shall be extended to the earlier of (i) the date when the requisite consents/approvals are obtained and/or expiry of the notice period, or (ii) the end of the 3
(three) calendar months immediately following the month in which the Remaining Member conveyed its

                  irrevocable written acceptance of the offer in accordance with
                  sub-clause  (a)  above.  If within  the said 3  (three)  month
                  period  described in the  immediately  preceding  sentence the
                  Selling Member or the Remaining Member, as the case may be, is
                  unable to obtain any requisite  consent/approval  for transfer
                  or purchase of the Sale Shares and provided notice period,  if
                  any, prescribed under any applicable  regulations has expired,
                  the Selling  Member's  irrevocable  written  offer to sell the
                  Sale Shares shall,  unless extended by mutual agreement of the
                  Parties,  be deemed to have  expired  and the  Selling  Member
                  shall not be  entitled  to  transfer  the Shares to any person
                  except by again making an irrevocable  written offer under and
                  in accordance with sub-clause (a) above.

10.4     Consequences of Sale Shares in contravention of the Agreement.

         If any person  purports to acquire any of the Shares,  or any  interest
         therein, in a manner not specifically  permitted by this Agreement (the
         "Default  Shares"),  whether by operation of law or by voluntary act or
         otherwise,  the  Remaining  Party  or any  person(s)  nominated  by the
         Remaining  Party  shall  have the  right,  but not the  obligation,  to
         purchase any or all of the Default  Shares  purported to have been thus
         acquired,  at lower of (i) the Fair Market Value minus 20% thereof,  or
         (ii) the apparent consideration paid therefor,  However, the failure of
         the Remaining Party to purchase the Default Shares at lower of the Fair
         Market  Value  minus 20%  thereof or the  apparent  consideration  paid
         therefor  shall not be deemed or construed  to validate  the  purported
         transfer of the Default  Shares in violation of this  Agreement,  which
         purported transfer shall be null and void. As used in this Clause 10.4,
         "Fair  Market  Value"  shall  mean fair  value of  Shares  in  question
         determined by an Independent  Valuer selected by the Board. Fair Market
         Value so determined shall be final,  conclusive,  and binding on ESTEL,
         the Parties and the  person(s)  purporting to have acquired the Default
         Shares in violation of this Agreement,  and their respective successors
         in interest.

10.5 Transfer to Affiliate etc.

Provisions of Clauses 10.1,10.2,10.3 and 10.4 above shall not apply to any transfer of Shares inter-se between a Party and its Affiliate and/or Investor Affiliates or inter se between its Affiliate and/or between Investor Affiliates and Affiliate who have agreed to be bound by the terms of this Agreement and the same shall not be subject to the right of preemption and first refusal contained therein and no such transfer shall be deemed to be nor shall it constitute a breach of this Agreement. Notwithstanding anything in Clause 10 above the Parties

         shall  have the right to  transfer  its  shares  to a company  which is
         majority controlled by such Party ("Controlled  Transferee") subject to
         the prior written consent of the other Party. Such consent shall not be
         unreasonably  withheld subject to the conditions that prior to any such
         transfer  the  controlled  Transferee  shall  agree  to be bound by the
         provisions of this  agreement  and the  Controlled  Transferee  and the
         Original  Party  shall  enter into a covenant  with ESTEL and the other
         Parties  under  which  the  shares  in  ESTEL  held  by the  Controlled
         Transferee shall  automatically by re-transferred to the Original Party
         if the Controlled  Transferee  ceases to be majority  controlled by the
         Original Party.

10.6     Consequences of Sales of Affiliate etc. holding Shares

         Notwithstanding  anything to the contrary contained in this Agreement a
         party shall,  before  transferring to any third party its Share holding
         or control in an Affiliate holding any Shares,  cause such Affiliate to
         transfer  or  otherwise  assign its right,  title and  interest  in the
         shares to itself or to any other  Affiliate who agrees in writing to be
         bound  by the  terms  of  this  Agreement.  In  the  event  of a  Party
         transferring  to any third  party its share  holding or control in such
         Affiliate in contravention  of this clause 10.6 and such  contravention
         is not remedied by such defaulting  Party within 30 days of the date of
         receipt of notice in this  behalf  from any of the other  parties,  the
         provision  of Clause  10.4  shall  apply to the shares of ESTEL held by
         such Affiliate.

10.7     Where FUSION exercises its rights pursuant to this clause,  the payment
         for and  transfer  of  shares  in ESTEL  shall be made  only  after all
         necessary  Government  approvals are obtained and HOLDING  COMPANY will
         render all necessary  assistance required for obtaining such approvals.
         No  transfer  of shares in ESTEL by any Party  shall take place  unless
         proper  procedure  as per  investment  approval  procedure or under the
         Licence has been fully complied with. Subject to this, the full payment
         must be made  within  30 days of  receipt  of the  aforesaid  approvals
         (unless the Parties agree otherwise).

10.8     No Party shall acquire through market  purchases  (whether  directly or
         indirectly  through a company  controlled  by such Party) any shares in
         ESTEL which may be listed in the Stock Exchange.

10.9     Notwithstanding  the mutual right of disinvestment  defined here above,
         in the event of HOLDING COMPANY  wishing to disinvest,  FUSION together
         with  HOLDING  COMPANY may jointly find a buyer(s) or go public for the
         entire shareholding of the two partners.

10.10    All the  provisions  regarding  transfer  of  shares  will  subject  to
         applicable law and  regulations  continue to be applicable in the event
         of ESTEL becoming a public company quoted on the stock exchanges

11.      ARMS LENGTH TRANSACTIONS

11.1     It is the intention of the Parties that they shall have a  preferential
         opportunity to enter into  contracts with ESTEL to provide  services or
         material  including expert and technical advice, in connection with the
         deployment  and  operation of the business in  accordance  with ESTEL's
         needs.  Notwithstanding  anything to the contrary in this Agreement all
         contracts  between ESTEL and the Parties and their  Affiliates shall be
         conducted  on an arms  length  basis on  normal  commercial  terms  and
         prices.

11.2     The Parties  acknowledge that their respective rights in ESTEL shall be
         regulated by this Agreement and the Articles and agree and undertake to
         be bound by and comply with the  provisions  of this  Agreement and the
         Articles.  The Parties shall procure that ESTEL acts in accordance with
         this  Agreement  and the  Articles  and that the  business  of ESTEL is
         confined to the  Business in  accordance  with the  Business  Plans and
         Budgets.

11.3     The  Parties  shall at all times  respectively  endeavor to the best of
         their ability to promote the Business of ESTEL.

11.4     The  Business  of ESTEL shall at all times be  conducted  independently
         from the business of the Parties,  but subject thereto ESTEL may in its
         discretion  transact  business  with any of the Parties,  including the
         purchase of goods and/or  provision of services  supplied by any of the
         Parties  provided such goods or services are supplied on terms mutually
         agreed between the HOLDING COMPANY and FUSION and are competitive.

11.5     Except as Parties may  otherwise  agree in writing or save as otherwise
         provided or  contemplated  in this  Agreement or in the  Business  Plan
         and/or  Budget,  Parties  shall  exercise  their  rights  and powers in
         relation to ESTEL so as to ensure and procure that:

         (a)      ESTEL  carries on and  conducts  its Business and affairs in a
                  proper and  efficient  manner and for its own  benefit  and in
                  accordance with the Business Plan and Budget;

         (b)      save as may be agreed between the HOLDING  COMPANY and FUSION,
                  shall not enter into any  agreement  or  arrangement  with any
                  Party or its Affiliate  restricting its competitive freedom to
                  take goods and  services  by such means and from such  persons
                  and on such terms as it may think fit;

         (c)      the Business of ESTEL shall be carried on pursuant to policies
                  laid down from time to time by the Board;

         (d)      ESTEL  shall  maintain  adequate  insurance  against all risks
                  usually  insured  against  by  companies  carrying  on same or
                  similar  business and (without  prejudice to the generality of
                  the foregoing) for the full replacement or reinstatement value
                  of all its assets of an insurable value;

         (e)      ESTEL shall keep proper books of account and therein make true
                  and fair entries of all its dealings and  transactions  of and
                  in relation  to its  business so as to give true and fair view
                  of the business and affairs of ESTEL;

         (f)      ESTEL shall adopt such accounting policies consistent with the
                  Companies Act as may from time to time be generally acceptable
                  in India;

         (g)      ESTEL  will  provide  to the  Parties  or to their  respective
                  designated  nominees on the Board within 4 weeks after the end
                  of each  month with  unaudited  management  accounts  for such
                  month,  and such  other  data and  information  regarding  its
                  business  and  operations  as may  reasonably  be requested by
                  them;

         (h)      ESTEL  shall   prepare  such   accounts  in  respect  of  each
                  accounting reference period and Financial year as are required
                  by statute and  applicable  regulations  and procure that such
                  accounts are audited as soon as  practicable  and in any event
                  not  later  than  the  period  permitted  under  the  relevant
                  statute; and

         (i)      ESTEL will use its best  endeavors  to  maintain  in force and
                  effect  the  Operating  Licences  and  such  other  approvals,
                  consents or licenses  as may be required  for  carrying on its
                  business.

11.6     Furnishing of Financial Guarantees to DOT. The Parties agree to provide
         to ESTEL all information and documentation reasonably necessary for the
         preparation  and submission of  applications as required to the DOT for
         grant of such other and  further  licences as ESTEL may require for its
         business. Parties agree that if ESTEL is required to provide to the DOT
         or any other GOI agency for grant of such  licenses  any  financial  or
         bank guarantees, they shall endeavour that ESTEL provides the same from
         its own  resources

provided however if ESTEL be not in a position to provide the same, the Parties shall provide to ESTEL guarantees of payment to the extent of each Party's proportionate economic interest in ESTEL so as to enable it to provide the required financial or bank guarantees to DOT.

12. CO-OPERATION & AGREEMENTS WITH SHAREHOLDERS

12.1     Each of the Parties agree with to co-operate  and exercise their rights
         and do everything  within their powers,  including giving directions to
         their  appointed  Directors and voting at general  meetings of ESTEL to
         procure that full effect to the spirit and intent of this  Agreement is
         given and to  co-operate  with each other to develop  and  promote  the
         business, of ESTEL.

12.2     Unless  otherwise agreed to by HOLDING COMPANY and FUSION in writing in
         each instance,  HOLDING  COMPANY and FUSION  respectively  shall not be
         obliged to  contribute  any  additional  equity or provide  any loan or
         credit facility in ESTEL. If any additional capital is required HOLDING
         COMPANY and FUSION will mutually decide to invite Additional Partner(s)
         in terms of the provision of clause 5.2 (k) of this agreement.

12.3     The Parties agree that ESTEL's books and records shall be maintained as
         per accounting  standard  prescribed  under Indian Laws.  Such accounts
         shall also  separately be reconciled to Generally  Accepted  Accounting
         Principles  in the  United  States  and  the  Regulations  of the  U.S.
         Securities  and  Exchange  Commission  to the  extent  consistent  with
         applicable Indian laws.

12.4     The auditors  ESTEL shall be Price  Waterhouse  Coopers or,  Deloitte &
         Touche (or another  internationally  recognized  auditing firm mutually
         agreed by  HOLDING  COMPANY  and  FUSION),  and an Indian  audit  firm,
         recommended by HOLDING  COMPANY,  will also be taken as the co-auditors
         of the Joint Venture.

13. CONFIDENTIALITY

13.1     The  Parties  agree that all  information,  data and  material  whether
         relating  to the  financial,  technical,  marketing  or  other  matters
         disclosed by any Party to any other Party ("Confidential  information")
         whether pursuant to this Agreement or otherwise is  confidential.  Such
         information,  data or other  material  shall  not be  utilised  for any
         purpose  save for which it was  disclosed  except  with  prior  written
         consent  of  the  disclosing   Party  and  after  complying  with  such
         conditions as the disclosing Party may require in relation thereto.

13.2     The Parties  shall keep the  existence  and contents of this  Agreement
         confidential  except to their  employees,  directors  and  professional
         advisors and those of their and those of their  Affiliates and Investor
         Affiliate  who have a need to know or  except  as may be  necessary  to
         select and secure the  participation of other Parties,  to professional
         advisors or for performance or exercise of any of their  obligations or
         rights  hereunder  or  for  enforcement  of  this  Agreement  or as may
         otherwise be required by law.

13.3     Each  Party  shall  ensure  that its  employees  and all other  persons
         involved  in the  application  shall  comply  with the  confidentiality
         obligations contained in this clause.

13.4     The confidentiality  obligations  contained in this clause will survive
         termination of this agreement.

13.5     Notwithstanding  anything to the contrary,  this clause shall not apply
         to information:-

         (a)      Which is in the  public  domain or  becomes  public  knowledge
                  without the default of the receiving Party; or

         (b)      Was already known by the receiving  Party prior to the date of
                  its receipt from the disclosing Party; or

         (c)      Is obtained by the receiving Party from a bonafide third Party
                  having free right of disposal of such information.

13.6     A Director shall be entitled to inform the Party  appointing him of all
         matters  concerning  ESTEL  affairs.   Each  Director  and  each  Party
         receiving confidential or proprietary information regarding the affairs
         of  ESTEL,  or  any  other   shareholders,   undertakes  to  keep  such
         information confidential and shall not use or disclose any confidential
         information belonging to ESTEL to another shareholder or person for any
         unauthorised purpose and shall take all reasonable  precautions for the
         safe custody of such  confidential  information for so long as it shall
         remain confidential or proprietary.

14.      TERMINATION  AND  REMEDIES  FOR  BREACH

14.1     This  agreement  may  be terminated

         (a)      If so agreed in writing by all of the Parties  hereto;  or

         (b)      by a Party hereto if the other party (the "Defaulting Party"):

                  (i)      shall  fail to  observe or perform or is in breach of
                           any of its material obligations under this agreement,
                           and  fails  to  remedy  the  same  within  60 days of
                           receipt of written  notification  in respect  thereof
                           from the non-defaulting Party; or

                  (ii)     is ordered to be  wound-up  or files for  composition
                           with  its  creditors  or  seeks  its  dissolution  or
                           windingup, other than for merger or amalgamation.

14.2     Upon  termination of this  Agreement or in accordance  with Clause 14.1
         (b) the  following  shall  apply:-

(a) The defaulting Party shall be liable to compensate ESTEL and the non-defaulting Parties for any and all damage incurred by them as a result of such default and/or such termination. The defaulting Party shall not be entitled to dispose of its shares save as in accordance with the provision of this agreement.

(b) Notwithstanding such termination of this agreement, the defaulting Party shall not be discharged from any antecedent obligations or liabilities to the other Party and/or ESTEL under this agreement unless otherwise agreed to by such other Party or ESTEL, as the case may be in writing.

14A. DURATION

14A.1 Consequences if Minimum Shareholding falls below 10%. In case the voting Share holding of HOLDING COMANY or FUSION, as the case may be, falls below 10% of the voting share capital of ESTEL, then such party shall only have the right to appoint Directors on the Board of ESTEL in proportion to its share holding but shall, cease to have any other right or privilege whatsoever under this Agreement including right of nomination of a member to the Executive Committee or affirmative vote right under Clause 5.2 above.

14A.2 Consequences if Minimum Shareholding falls below 7.5%. In case the voting share holding of HOLDING COMANY or FUSION, as the case may be, falls below 7.5% of the voting share capital of ESTEL, then either of them shall have the right to terminate this Agreement by communication in writing to the other Party provided however the obligation under provisions of Clause 5 shall survive such termination. Further in such an event such Party will procure its nominee Directors to tender their resignations from their respective offices as Directors of ESTEL forthwith without any claim for compensation for loss of office or otherwise except for salary (if any) and any other entitlements which may have accrued upto the date of their resignation.

14A.3    Computation  of  Shareholding.  For the purposes of this Clause 14A the
         Share holding of a party shall be determined in accordance  with Clause
         9.3(c) above.

14B.     Tag along rights

14B.1    Tag-Along Sales.

         (a)      Subject  to Clause  14B.2,  in the event  that a party  hereto
                  directly  or  indirectly  at any  time or from  time to  time,
                  enters into an agreement (whether oral or written) to transfer
                  Shares  (the  "Existing  party")  to any  Person  other than a
                  stockholder  of ESTEL  (a  "Third  Party")  which  when  taken
                  together with all prior  transfers of Shares  exceeds 5% (five
                  percent) of the then outstanding  Shares (a "Tag-Along Sale"),
                  then the other  remaining party (the "Other Party') shall have
                  the right,  but not the  obligation,  to  participate  in such
                  Tag-Along Sale.

(b) Existing Party shall not consummate a Tag-Along Sale unless:

(i) it shall have given to the Other Party ("Tag Along Shareholders") an opportunity to exercise the right of first refusal described in Clause 10; and

(ii) the terms of such Tag Along-Sale shall include an offer by the prospective purchaser or Existing party to all Tag-Along Shareholders to purchase the Shares held by such Tag- Along Shareholders at the same price, and on the same terms and conditions offered to Existing Party. The Third Party shall offer to purchase from Tag - Along Shareholders the number of Shares owned by such Tag-Along Shareholders equaling the number derived by multiplying the total number of Shares to be purchased by the Third Party by a fraction, the numerator of which is the total number of Shares in the issued and subscribed Equity Capital of ESTEL owned by the Tag-Along Shareholders that such Tag-Along Shareholders desire to require the Third Party to purchase and the denominator of which is the total number of ESTEL Shares then outstanding.

(i) At the time the Existing Party proposes to transfer any Shares in a Tag-Along Sale subject to this Section, it shall notify, or cause to be notified, all Tag-Along Shareholders in writing of each such proposed transfer. Such notice shall set forth: (i) the name and address of the Third Party and the number of ESTEL Shares proposed to be transferred,
(ii) the proposed amount and form of consideration and terms and conditions of payment offered by the Third Party (the "Third Party Terms") and (iii) that the Third Party has been informed of the tag-along right provided for in this Clause 14B, and has agreed to, purchase Shares in accordance with the terms of this Clause 14B; and

(ii) The tag-along right may be exercised by the Tag-Along Shareholders by delivery of a written notice to the Existing Party proposing the Tag-Along Sale (the "Tag-Along Notice") within thirty (30) days following receipt of the notice specified in the preceding clause. The Tag-Along Notice shall state the number of ESTEL Shares that the Tag-Along Shareholders collectively wish to include in such transfer to the Third Party, which number may exceed the total number of shares proposed to be transferred but which may not exceed the total number of shares owned by the Tag-Along Shareholders.

(d) Subject to Sub-Clause (b) above limiting the number of Shares the Third Party is required to purchase, upon the giving of a Tag-Along Notice, each Tag-Along Shareholder shall be entitled and obligated to sell the number of Shares set forth in the Tag-Along Notice to the Third Party on the Third Party Terms. After expiration of the 30-day period referred to above, if the provisions of this Clause 14B Section have been complied with in all respects, the Existing party shall have the right for a 120 day period to transfer ESTEL Shares to the Third Party on the Third Party Terms without further notice to the Tag-Along Shareholders who have not given a Tag-Along Notice, but after such 120 day period, no such transfer may be made without again giving notice to all Tag-Along Shareholders of the proposed transfer and complying with the requirements of this Clause 14B.1

(e) At the closing of the Tag-Along Sale to any Third Party (of which the Existing party shall give the Tag-Along Shareholders who have exercised tag-along rights at least ten business days' prior written notice), the Third Party or the Existing Party shall remit to each such Tag-Along Shareholder the consideration (including a certified check for the cash portion of such consideration) subject applicable Indian regulations and grant of requisite approvals if any required from concerned Indian authorities for the sales price of the Shares of such Tag-Along Shareholders sold pursuant hereto, against delivery by such Tag-Along Shareholders of certificates for such shares together with duly executed share transfer deeds and the compliance by such Tag-Along Shareholders with any other conditions to closing generally applicable to the Existing party and/or such sale.

15. The Parties agreed that Mr. Virendra Hajela, the first Chairman of ESTEL and Mr. Raj Hajela, the Managing Director of ESTEL will be included in the Employees Stock Option Plan of FUSION.

16. INDUCTION OF NEW PARTY

The Parties recognise the possibility of inviting other Parties to join this Joint Venture. The induction of any Party to the Joint Venture shall always require unanimous written consent by HOLDING COMPANY and FUSION, as long as the aggregate shareholding of HOLDING COMPANY and FUSION is more than 51%.

The newly inducted Joint Venture partner shall always be bound by the terms and conditions of this Agreement. The new proposed Party(s) (if inducted) would be entitled to nominate its Directors to the Board of ESTEL only in the event its shareholding in ESTEL exceeds 15%.

17. PUBLICITY

The Parties shall not issue any information, document or article for publication in any news or communications media or make any public statement in relation to this agreement without the prior written consent of the other Parties unless required to do so by law or to comply with the rules of a recognised stock exchange. Without prejudice to the foregoing any information which is intended to be issued to the media shall be coordinated between the Parties and through prior consultation.

18. AMENDMENT

No modification, variation or amendment of this agreement shall be of any force unless it is in writing and has been signed by all the Parties.

19. ENTIRE AGREEMENT

This agreement comprises the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior representations, negotiations, writings, memorandum and agreements with respect thereto and including without limitation the Memorandum of Understanding between HAJELA and FUSION dated 24th August 1999.

20. NO ASSIGNMENT / NO PARTNERSHIP

20.1     No Party shall assign or agree to assign this  agreement in whole or in
         part without the prior written consent of all the other Parties.

20.2     No Party shall have the right or  authority  to bind any other Party or
         to act as agent of any other Party.

21. GOVERNING LAW & ARBITRATION

21.1     This  agreement  shall be governed by and construed in accordance  with
         the laws of England.

21.2     All disputes arising in connection with the present  agreement shall be
         finally  settled under the rules of  Conciliation  & Arbitration of the
         Singapore  Center for  International  Arbitration by a Sole  Arbitrator
         appointed in accordance with the said Rules.

         The venue of such arbitration  shall be Singapore.  The language of the
         arbitration shall be English. The law applicable will be English Law.

22.      FORCE MAJEURE

22.1     No Party  shall be  liable  to any other for  failure  to  perform  any
         obligations hereunder to the extent and for such period as such failure
         is due to reasons  outside that Party's  reasonable  control  including
         fire,  flood  or  other  natural   catastrophe,   war,  riot  or  civil
         disturbance  or  governmental  action,  order or  decree.  The Party so
         affected shall continue to take all actions reasonably within its power
         to comply as far as possible with its  obligations.  The affected Party
         shall  promptly  notify the other  Party  after the  occurrence  of the
         relevant  event and shall use every  reasonable  effort to minimise the
         effects of such event.

22.2     Nothing in this agreement shall require any Party to perform any act in
         violation of any law or government regulation of any country.

23. NOTICES

23.1     Any notice,  request,  consent or other  communication to be given by a
         Party under this agreement shall be in the English  language in writing
         addressed in accordance  with the  particulars for that Party appearing
         in the  statement  of the names of the Party at the  beginning  of this
         agreement  or to such other  address  for a Party as may be notified in
         writing by that Party to the other Party. All important  notices should
         be dispatched by such means where receipt is evidenced.

24.      COUNTERPARTS

         This agreement shall be executed in any number of counterparts, each of
         which shall be deemed an original but all of which shall constitute one
         and the same instrument.

25.      EFFECTIVE DATE

         The effective date of this agreement shall be the date forementioned.

26.      WAIVER

         No waiver  by any  Party at any time of any  breach of any of the terms
         and conditions of this agreement  shall be  incorporated as a waiver of
         any  subsequent  breach,  whether  of the same or any  other  terms and
         conditions of this Agreement.

27.      SEVERABILITY

         In the event any provision of this Agreement  shall be determined to be
         invalid or  unenforceable  under  applicable law, all other  provisions
         shall continue to be in full force and effect,  unless such  invalidity
         or  enforceability  causes  substantial  deviation  from the underlying
         intent of the Parties expressed in this Agreement.

28.      EFFECTIVENESS

         This agreement shall be effective subject to the approval of Government
         of India and its various concerned departments.

IN WITNESS WHEREOF the authorised representatives of the Parties have hereunto duly executed and delivered this agreement the day and year first above written.

Signed                                  )       .../s/..........................

for and on behalf of                    )       Duly authorised

HOLDING COMPANY                         )       Raj Hajela

Signed                                  )       .../s/..........................

for and on behalf of                    )       Duly authorised

FUSION                                  )       Eric D. Ram

EXHIBIT 10.8

Lease made as of the day of 2000, between SLG Graybar Sublease LLC, a New York limited liability company having an office at 420 Lexington Avenue, New York, New York 10170 Hereinunder referred to as "Landlord" or "Lessor," and Fusion Telecommunications International, Inc. a corporation having an office at 15 Exchange Place, Jersey City, New Jersey, 07302. hereinafter referred to as "Tenant" or "Lessee."

Withnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from Landlord Rooms 518-25 on the fifth (5th) floor of the Building approximately as indicated in the plan attached hereto and made a part thereof (said space is hereinafter called the "Premises") in the building known as The Graybar Building, 420 Lexington Avenue (the "Building") In the County of New York , City of New York, for a term of ten (10) years to commence on: See Article 55, or until such term shall sooner end as in Article 12 and elsewhere herein provided, both dates inclusive, at a fixed annual rental (subject to Articles 23{REMOVED} and 40) at the annual rate of: See rent schedule attached hereto and made a part hereof as Exhibit A payable in equal monthly installments in advance on the first (1st) day of each moth, except that the first installment of rent due under this Lease shall be paid by Tenant upon its execution of this Lease, unless this Lease be a renewal.

Landlord and Tenant covenant and agree:

PURPOSE.

1. Tenant shall use and occupy the Premises only for offices relating to Tenant's business, and for no other purpose.

RENT AND ADDITIONAL RENT.

2. Tenant agrees to pay rent as herein provided at the office of Landlord or such other place as Landlord may designate, payable in United States legal tender, by cash, or by good and sufficient check drawn on a New York City Clearing House Bank, and without any set off or deduction whatsoever except as otherwise set forth herein. Any sum other than fixed rent payable hereunder shall be deemed additional rent and due on demand.

ASSIGNMENT.

3. Neither Tenant nor Tenant's legal representatives or successors in interest by operation of law or otherwise, shall assign, mortgage or otherwise encumber this Lease, or sublet or permit all or part of the Premises to be used by others, without the prior written consent of Landlord in each instance. The transfer of a majority of the issued and outstanding capital stock of any corporate tenant or sublessee of this Lease or a majority of the total interest in any partnership Tenant or sublessee, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions, and the conversion of a tenant or sublessee entity to either a limited liability company or a limited liability partnership shall be deemed as assignment of this Lease or of such sublease. The merger or consolidation of a corporate tenant or sublessee where the net worth of the resulting corporation is less than the net worth of the Tenant or sublessee immediately prior to such merger or consolidation shall be deemed an assignment of this Lease or of such sublease. If without Landlord's written consent this Lease is assigned, or the Premises are sublet or occupied by anyone other than the Tenant, Landlord may accept the rent from such assignee, subtenant or occupant, and apply the net amount thereof to the rent herein reserved, but no such assignment, subletting, occupancy or acceptance of rent shall be deemed a waiver of this covenant. Consent by Landlord to an assignment or subletting shall not relieve Tenant from the obligation to obtain Landlord's written consent to any further assignment or subletting. In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Landlord's prior written consent in each instance. A modification, amendment or extension of a sublease shall be deemed a sublease.

DEFAULT

4. Landlord may terminate this Lease on five (5) days' notice: (a) if rent or additional rent is not paid within five (5) days after written notice from Landlord; or (b) if Tenant shall have failed to cure a default in the performance of any covenant of this Lease (except the payment of rent), or any rule or regulation hereinafter set forth, within thirty (30) days after written notice thereof from Landlord, or if default cannot be completely cured in such time, if Tenant shall not promptly proceed to cure such default within said thirty (30) days, or shall not complete the curing of such default with due diligence; or (c) when and to the extent permitted by law, if a petition in bankruptcy shall be filed by or against Tenant or if Tenant shall make a general assignment for the benefit of creditors, or receive the benefit of any insolvency or reorganization act; or (d) if a receiver or trustee is appointed for any portion of Tenant's property and such appointment is not vacated within
(30) days; or (e) if an execution or attachment shall be issued under which the Premises shall be taken or occupied or attempted to be taken or occupied by anyone other than Tenant; or (f) if the Premises become abandoned; or (g) if Tenant shall default beyond any grace period under any other lease between Tenant and Landlord.

At the expiration of the five (5) day notice period, this Lease and any rights or renewal or extension thereof shall terminate as completely as if that were the date originally fixed for the expiration of the term of this Lease, but Tenant shall remain liable as hereinafter provided.

RELETTING, ETC.

5. If Landlord shall re-enter the Premises on the default of Tenant, after notice and beyond the expiration of any applicable cure period set forth herein, by summary proceeding or otherwise: (a) Landlord may re-let the Premises or any part thereof as Tenant's agent, in the name of Landlord, or otherwise, for a term shorter or longer than the balance of the term of this Lease, and may grant concession of free rent. (b) Tenant shall pay Landlord any deficiency between the rent hereby reserved and the net amount of any rents collected by Landlord for the remaining term of this Lease, through such re-letting. Such deficiency shall become due and payable monthly, as it is determined. Landlord shall have no obligation to re-let the Premises, and its failure or refusal to do so, or failure to collect rent on re-letting, shall not affect Tenant's liability hereunder. In computing the net amount of rents collected through such re-letting, Landlord may deduct all expenses incurred in obtaining possession or re-letting the Premises, including legal expenses and fees, brokerage fees, the cost of restoring the Premises to good order, and the cost of all alterations and decorations deemed necessary by Landlord to affect re-letting. In no event shall Tenant be entitled to a credit or repayment for re-rental income which exceeds the sums payable by Tenant hereunder or which covers a period after the original term of this Lease. (c) Tenant hereby expressly waives any right of redemption granted by any present or future law. "Re-enter" and "re-entry" as used in this Lease are not restricted to their technical legal meaning. In the event of a breach or threatened breach of any of the covenants or provisions hereof, Landlord shall have the right of injunction. Mention herein of any particular remedy shall not preclude Landlord form any other available remedy.
(d) Landlord shall recover as liquidated damages, in addition to accrued rent and other charges, if Landlords' re-entry is the result of Tenant's bankruptcy, insolvency, or reorganization, the full rental for the maximum period allowed by any act relating to bankruptcy, insolvency or reorganization.

If Landlord re-enters the Premises for any cause, or if Tenant abandons or vacates the Premises, and after the expiration of the term of this Lease, any property left in the Premises by Tenant shall be deemed to have been abandoned by Tenant, and Landlord shall have the right to retain or dispose of such property in any manner without any obligation to account therefor to Tenant. If Tenant shall at any time default hereunder, after notice and beyond the expiration of any applicable cure period set forth herein, and if Landlord shall institute an action or summary proceedings against Tenant based upon such default, the Tenant will reimburse Landlord for the reasonable legal expenses and fees thereby incurred by Landlord.

LANDLORD MAY CURE DEFAULTS.

6. If Tenant shall default in performing any covenant or condition of this Lease, after notice and beyond the expiration of any applicable cure period, Landlord may perform the same for the account of Tenant, and if Landlord, in connection therewith, or in connection with any default by Tenant, after notice and beyond the expiration of any applicable cure period, makes any expenditures or incurs any obligations for the payment of money, including but not limited to reasonable attorney's fees, such sums so paid or obligations incurred shall be deemed to be additional rent

hereunder, and shall be paid by Tenant to Landlord within ten (10) days of rendition of any bill or statement therefor, and if Tenant's Lease term shall have expired at the time of the making of such expenditures or incurring of such obligations, such sums shall be recoverable by Landlord as damages.

ALTERATIONS.

7. Tenant shall make no decoration, alteration, addition or improvement in the Premises, without the prior written consent of Landlord, and then only by contractors or mechanics and in such manner and with such materials as shall be approved by Landlord which shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, however, Landlord's prior negative experience with, concerns regarding the financial stability or, and any criminal proceedings pending against, any such contractor or mechanic shall be deemed to be a reasonable basis upon which for Landlord to refuse to grant its approval. All alterations, additions or improvements to the Premises, including window and central air conditioning equipment and duct work, except movable office furniture and equipment installed at the expense of Tenant, shall, unless Landlord elects otherwise in writing, become the property of Landlord, and shall be surrendered with Premises at the expiration or sooner termination of the term of this Lease. Any such alterations, additions and improvements which Landlord shall designate, shall be removed by Tenant and any damage repaired, at Tenant's expense, prior to the expiration of the term of this Lease. Notwithstanding anything to the contrary set forth above, Landlord agrees that it shall not require Tenant to remove any alterations, additions or improvements made in/or to the Premises other than (i) those which are not customarily found in the Premises used for the purposes permitted under this Lease and those which are not of a building standard nature, (ii) those which would require extraordinary effort for Landlord to remove (iii) those raises computer floors, internal staircase, dumbwaiters, pneumatic tubes, vertical and horizontal transportation systems, vaults, safes, and medical installations, if any, and any alterations, additions or improvements made specifically in connection with any food service and/or food preparation facilities installed by Tenant (e.g., without limitation, vents, hoods, grease traps, sinks, etc.) in the Premises (collectively "Special Alterations"), and (iv) those which are installed or performed without the prior written consent of Landlord where same is required by the terms of this Lease. In any of the foregoing events, Tenant shall remove the foregoing from the Premises at Tenant's expense prior to the expiration or sooner termination of this Lease. Upon such removal, Tenant shall immediately and at its expense, repair and restore the Premises to the condition existing prior to such alternation, addition or improvement and repair any and all damage to the Premises or the Building due to such removal.

LIENS.

8. Prior to commencement of its work in the demised Premises, Tenant shall obtain and deliver to Landlord a written letter of authorization, in form satisfactory to Landlord's counsel, signed by architects, engineers and designers to become involved in such work, which shall confirm that any of their drawings or plans are to be removed from any filing with governmental authorities, on request of Landlord, in the event that said architect, engineer, or designer thereafter no longer is providing services with respect to the demised Premises. With respect to contractors, subcontractors, materialmen and laborers, and architects, engineers and designers, for all work or materials to be furnished to Tenant at the Premises, Tenant agrees to obtain and deliver to Landlord written and unconditional waiver of mechanics liens upon the Premises or the Building, after payments to the contractors, etc., subject to any then applicable provisions on the Lien law. Notwithstanding the foregoing, Tenant at its expense shall cause any lien filed against the Premises or the Building, for work or materials claimed to have been furnished to Tenant, to be discharged of record within twenty (20) days after notice thereof.

REPAIRS.

9. Tenant shall take good care of the Premises and the fixtures and appurtenances therein, and shall make all repairs necessary to keep them in good working order and condition, including structural repairs when those are necessitated by the act, omission or negligence of Tenant or its agents, employees or invitees other than due to a casualty covered by Landlord's insurance. During the term of this Lease, Tenant may have the use of any air conditioning equipment located in the Premises, and Tenant, at its own cost and expense, shall maintain and repair such equipment and shall reimburse Landlord, in accordance with Article 40 of this Lease, for electricity consumed by the equipment. The exterior walls of the Building, the windows and the portions of all window sills outside same and areas above any hung ceiling are not part of the Premises demised by this Lease, and Landlord hereby reserves all rights to such parts of the Building. Landlord agrees that during the term of this Lease, it shall be responsible for the maintenance and repair of the common areas of the Building and those portions of Building-wide systems not located within the Premises, provided same does not in any way modify or reduce Landlord's obligations with respect to the air conditioning equipment and facilities servicing the Premises, as expressly set forth in Article 45 hereof.

DESTRUCTION.

10. If the Premises shall be partially damaged by fire or other casualty, the damage to the Building and to the core and shell of the Premises (excluding the Tenant improvements and betterments and Tenant's personal property) shall be repaired at the expense of Landlord, but without prejudice to the rights of subrogation, if any, of Landlord's insurer. Landlord shall not be required to repair or restore any of Tenant's property or any alteration or leasehold improvement made by or for Tenant at Tenant's expense. The rent shall abate in proportion to the portion of the Premises not usable by Tenant or, if elevator access to the Premises is unavailable and renders the Premises inaccessible, fixed annual rent and additional rent shall abate until the Premises becomes accessible, Landlord shall not be liable to Tenant for any delay in restoring the Premises, Tenant's sole remedy being the right to an abatement or rent, as above provided. If the Premises are rendered wholly untenantable by fire or other casualty and if Landlord shall decide not to restore the Premises, or if the Building shall be so damaged that Landlord shall decide core and shell of the Premises (excluding the Tenant improvements and betterments and Tenant's personal property) to demolish it or to rebuild it (whether or not the Premises have been damaged), Landlord may within sixty (60) days after such fire or other cause give written notice to Tenant of its election that the term of this Lease shall automatically expire no less than fifteen (15) days after such notice is given. If the Premises are rendered wholly untenantable due to fire or other casualty and Landlord has not substantially restored the core and shell of the Premises or elevator access thereto within one hundred and eighty (1800 days of such fire or casualty, then, and in such event, Tenant may elect to cancel this Lease upon giving written notice to Landlord within thirty (30) days after the end of such one hundred and eighty (180) day period and the term of this Lease shall expire on the date set forth therein which shall be not less than thirty
(30) days after the date such notice is given (the "Cancellation Date") provided that Landlord does not substantially restore the core and shell of the Premises prior to the Cancellation Date. Notwithstanding the foregoing, Landlord and Tenant acknowledge and agree in the event that the Premises are rendered wholly untenantable or Landlord is unable to provide elevator access thereto, and as a result Tenant cannot and does not use the entire Premises, due to fire or other casualty during the last six (6) months of the term of the Lease, Tenant may elect to cancel this Lease upon giving ten (10) days' written notice to Landlord that the term of this Lease shall expire on the date set forth therein which shall be not less than ten (10) days after the date such notice is given. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Landlord and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogation or otherwise. The foregoing release and waiver shall be in force only if both releasers' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance and also, provided that such a policy can be obtained without additional premiums, but if an additional premium is required, Landlord or Tenant, as the case may be, shall be entitled to pay same if it so desires. Tenant hereby expressly waives the provisions of
Section 227 of the Real Property law and agrees that the foregoing provisions of this Article shall govern and control in lieu thereof.

END OF TERM.

11. Tenant shall surrender the Premises to Landlord at the expiration or sooner termination of this Lease in good order and condition, except for reasonable wear and tear and damage by fire or other casualty, and Tenant shall remove all of its property. Tenant agrees it shall indemnify and save Landlord harmless against all costs, claims, loss or liability resulting from delay by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenant founded on such delay. Additionally, the parties recognize and agree that other damage to Landlord resulting from any failure by Tenant timely to surrender the Premises will be substantial, will exceed the amount of monthly rent theretofore payable hereunder, and will be impossible of accurate measurement. Tenant therefore agrees that if possession of the Premises is not surrendered to Landlord within one (1) day after the date of the expiration or sooner termination of the term of this Lease, then Tenant will pay Landlord as liquidated damages for each month and for each portion of any month during which Tenant holds over in the Premises after expiration or termination of the term of this Lease, a sum equal to two (2) times the average rent and additional rent which was payable per month under this Lease during the last six (6) months of the term thereof. The aforesaid obligations shall survive the expiration or sooner termination of the term of this Lease. At any time during the term of this Lease upon prior reasonable notice to Tenant, during business hours and provided Tenant has an opportunity to have a representative present, Landlord may exhibit the Premises to prospective purchasers or mortgagees of Landlord's interest therein. During the last year of the term of this Lease, Landlord may exhibit the Premises to prospective Tenants upon prior reasonable notice to Tenant, during business hours and provided Tenant has an opportunity to have a representative present.

SUBORDINATION AND ESTOPPEL, ETC.

12. Tenant has been informed and understands that Landlord is the subtenant under a lease of the land and entire Building of which the Premises form a part (hereinafter called the "Master Lease"). This Lease is and shall be subject and subordinate to the Master Lease and all other ground and underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which the Premises form a part, and to all renewals, modifications, consolidations, replacements and extensions thereof. This Article shall be self-operative and no further instruments of subordination shall be necessary. In confirmation of such subordination, Tenant shall execute promptly any certificate that Landlord

may request. Tenant hereby appoints Landlord as Tenant's irrevocable attorney-in-fact to execute any document of subordination on behalf of Tenant, provided that Tenant fails to execute and return to Landlord any such document within twenty-one (21) days of its receipt of same. In the event the Master Lease or any other ground or underlying Lease is terminated or any mortgage foreclosed, this Lease shall not terminate or be terminable by Tenant (except as hereinafter provided as to Master Lease expiration of term) unless Tenant was specifically names in any termination of foreclosure judgment or final order. In the event that the Master Lease or any other ground or underlying Lease is terminated as aforesaid, or expires (as hereinafter provided), or if the interests of Landlord under this Lease are transferred by reason of or assigned in lieu of foreclosure or other proceedings for enforcement of any mortgage, or if the holder of any mortgage acquires a lease in substitution therefor, then Tenant will, at the option to be exercised in writing by Landlord under the Master Lease or such purchaser, assignee or lessee, as the cause may be, (i) attorn to it and will perform for its benefit all the terms, covenants and conditions of this Lease on the Tenant's part to be performed with the same force and effect as if said Landlord or such purchaser, assignee or lessee, were the landlord originally named in this Lease or (ii) enter into a new lease with said lessor or such purchaser, assignee or lessee, as landlord, for the remaining term of this Lease and otherwise on the same terms, conditions and rentals as herein provided. If the current term of the Master Lease shall expire prior to the date set forth herein for the expiration of this Lease, then, unless Landlord, at its sole option, shall have elected to extend or renew the term of the Master Lease, or unless the lessor under the Master Lease elects that the Tenant attorn or enter into a new lease as aforesaid, the term of this Lease shall expire on the date of expiration of the Master Lease, notwithstanding the later expiration date hereinabove set forth. If the Master Lease is renewed, then the term of this Lease shall expire as hereinabove set forth. From time to time, Tenant, on at least ten (10) days' prior written request by Landlord will deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modification) and the dates to which the rent and other charges have been paid and stating whether or not the Landlord is in default in performance of any covenant, agreement, or condition contained in this Lease and, if so, specifying each such default of which Tenant may have knowledge. Landlord represents that the term of the Master Lease is scheduled to expire after the term of this Lease is set to expire, that the execution of this Lease does not violate any provision of the Master Lease, and that Landlord's execution of this Lease is not prohibited by the terms of the Master Lease.

CONDEMNATION.

13. If the whole or any substantial part (substantial being any such portion that prevents Tenant from operating its business in the Premises for the uses permitted hereunder) of the Premises shall be condemned by eminent domain or acquired by private purchase in lieu thereof for any public or quasi-public purpose, this Lease shall terminate on the date of the vesting of title through such proceeding or purchase, and Tenant shall have no claim against Landlord for the value of any unexpired portion of the term of this lese, nor shall Tenant be entitled to any part of the condemnation award or private purchase price. If less than a substantial part of the Premises is condemned, this Lease shall not terminate, but rent shall abate in proportion to the portion of the Premises condemned.

REQUIREMENTS OF LAW.

14. (a) Tenant at is expense shall comply with all laws, orders and regulations of any governmental authority having or asserting jurisdiction over the Premises, which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Premises or the use or occupancy thereof including, without limitation, compliance in the Premises with all City, State and Federal laws, rules and regulations on the disabled or handicapped, on fire safety and on hazardous materials. The foregoing shall not require Tenant to do structural work. Landlord shall use reasonable efforts, at its sole cost and expense, to cure within thirty (30) days after the commence net of the term of this Lease, any New York City Building Department violations pertaining to the Premises which are a matter of public record as of the commencement of the term of this Lease. In connection with the foregoing, Landlord shall use reasonable efforts to minimize interference with Tenant's business, provided, however, that Tenant acknowledges and agrees that all such efforts shall be performed on normal business days during normal business hours.

(b) Tenant shall require every person engaged by him to clean any window in the remises from the outside, to use the equipment and safety devices required by Section 202 of the labor law and the rules of any governmental authority having or asserting jurisdiction.

(c) Tenant at its expense shall comply with all requirements of the New York Board of Fire Underwriters, or any other similar body affecting the Premises and shall not use the Premises in a manner which shall increase the rate of fire insurance of Landlord or of any other tenant, over that in effect prior to this Lease. If Tenant's use of the Premises increases the fire insurance rate, Tenant shall reimburse Landlord for all such increased costs. That the Premises are being used for the purpose set forth in Article 1 hereof shall not relieve Tenant from the foregoing duties, obligations and expenses.

CERTIFICATION OF OCCUPANCY.

15. Tenant will at not time use or occupy the Premises in violation of the certificate of occupancy issued for the Building. The statement in this Lease of the nature of the business to be conducted by Tenant shall not be deemed to constitute a representation or guaranty by Landlord that such use is lawful or permissible in the Premises under the certificate of occupancy for the Building.

POSSESSION.

16. If Landlord shall be unable to give possession of the Premises on the Commencement Date of the term because of the retention of possession of any occupant thereof alteration or construction work, or for any other reason except as hereinafter provided, Landlord shall not be subject to any liability for such failure. In such event, this Lease shall stay in full force and effect, without extension of its term. However, the rent hereunder shall not commence until the Premises are available for occupancy by Tenant. If delay in possession is due to work, changes or decorations being made by or for Tenant, or is otherwise caused by Tenant, there shall be no rent abatement and the rent shall commence on the date specified in this Lease. If permission is given to Tenant to occupy the demised Premises or other premises prior to the date specified as the commencement of the term, such occupancy shall be deemed to be pursuant to the terms of this Lease, except that the parties shall separately agree as to the obligation of Tenant to pay rent for such occupancy. The provisions of this Article are intended to constitute an "express provision to the contrary" within the meaning of Section 223(a), New York Real Property Law.

QUIET ENJOYMENT.

17. Landlord covenants that if Tenant pays the rent and performs all of Tenant's other obligations under this Lease, prior to expiration of any applicable notice and beyond the cure period set forth therein, Tenant may peaceably and quietly enjoy the demised Premises, subject to the terms, covenants and conditions of this Lease and to the ground leases, underlying leases and mortgages hereinbefore mentioned.

RIGHT OF ENTRY.

18. Tenant shall permit Landlord to erect and maintain pipes and conduits in and through the Premises provided that they are concealed, erected along perimeter walls wherever possible and are installed in a manner which does not interfere with Tenant's use of the Premises. Landlord or its agents shall have the right to enter or pass through the Premises at all times, by master key upon reasonable oral prior notice to Tenant at reasonable times and by reasonable force in the event of an Emergency Situation without notice to Tenant, to examine the same, and to make such repairs, alterations or additions as it may deem necessary or desirable to the Premises or the Building, and to take all material into and upon the Premises that may be required therefor. Such entry and work shall not constitute an eviction of Tenant in whole or in part, shall not be grounds for any abatement of rent, and shall impose no liability on Landlord by reason of inconvenience or injury to Tenant's business. Landlord shall have the right at any time, without the same constituting an actual or constructive eviction, and without incurring any liability to Tenant, to change the arrangement and/or location of entrances or passageways, windows, corridors, elevators, stairs, toilets, or other public parts of the Building, and to change the name or number by which the Building is known. Landlord shall exercise due diligence to prosecute to completion any repairs which it is obligated or permitted to make pursuant to this Lease and when performing such repairs shall do so in a good and workmanlike manner using new, equal or better quality materials to those then existing in the Premises in accordance with all applicable laws and shall use reasonable efforts to minimize interference with Tenant's permitted use of the Premises, provided, however, that Tenant acknowledges and agrees that all such efforts shall be performed on normal business days during normal business hours.

VAULT SPACE.

19. Anything contained in any plan or blueprint to the contrary notwithstanding, no vault or other space not within the Building property line is demised hereunder. Any use of such space by Tenant shall be deemed to be pursuant to a license, revocable at will by Landlord, without diminution of the rent payable hereunder. If Tenant shall use such vault space, the percentage (hereinafter defined) of any fees, taxes or charges made by any governmental authority for such space shall be aid by Tenant.

INDEMNITY.

20. Tenant shall indemnity, defend and save Landlord harmless from and against any liability or reasonable expense arising from the use or occupation of the Premises by Tenant, or anyone on the Premises with Tenant's permission or from any breach of this Lease beyond notice and the expiration of any applicable cure periods set forth therein.

LANDLORD'S LIABILITY.

21. This Lease and the obligations of Tenant hereunder shall, except as otherwise set forth herein, in no way be affected because Landlord is unable to fulfill any of its obligations or to supply any service, by reason of strike or other cause not within Landlord's control. Landlord shall have the right, without incurring any liability to Tenant, to stop any service because of accident or emergency, or for repairs, alterations or improvements, necessary or desirable in the judgment of Landlord, until such repairs, alterations or improvements shall have been completed. Landlord shall not be liable to Tenant or anyone else, for any loss or damage to person,

property or business, unless due to the negligence or willful misconduct of Landlord nor shall Landlord be liable for any latent defect the Premises or the Building. Tenant, during the term of this Lease, shall carry public liability and property damage insurance, from a company authorized to do business in New York, with limitations acceptable to Landlord, which policy or policies shall name the Landlord and its designees as additional insureds. Evidence of the policies, and of their timely renewal, shall be delivered to Landlord. All such insurance shall contain an agreement by the insurance company that the policy or policies will not be cancelled or the coverage changed, without thirty (30) days' prior written notice to the Landlord. Tenant agrees to look solely to Landlord's estate and interest in the land and Building, or the Lease of the Building or of the land and Building, and the demised Premises, including rentals, refinancing proceeds, condemnation awards and insurance proceeds, for the satisfaction of any right or remedy of Tenant for the collection of a judgment (or other judicial process) requiring he payment of money by Landlord, in the event of any liability by Landlord, and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereinunder, or Tenant's use and occupancy of the demised Premises or any other liability of Landlord to Tenant (except for negligence).

CONDITION OF PREMISES.

22. Tenant acknowledges that Landlord has made no representation or promise, except as herein expressly set forth. Tenant agrees to accept the Premises "as is," except for any work which Landlord has expressly agreed in writing to perform. Landlord shall be responsible for compliance will all applicable laws, rules and regulations (including, without limitation, environmental laws and the American with Disabilities Act) in the common areas of the Building.

TAX ESCALATION.

23. Tenant shall pay to Landlord, as additional rent, tax escalation in accordance with this Article:

(a) For purposes of this Lease the rentable square foot area of the presently demised Premises shall be deemed to be eight thousand sixty-four (8,064) square feet.

(b) Definitions: For the purpose of this Article, the following definitions shall apply:

(i) The term "base tax year" as hereinafter set forth for the determination of real estate tax escalation, shall mean the New York City real estate tax year commencing July 1, 1999 and ending June 30, 2000.

(ii) The term "The Percentage," for purposes of computing tax escalation, shall mean point seven two five (.725%) percent. The Percentage has been computed on the basis of a fraction, the numerator of which is the rentable square foot area of the demised Premises and the denominator of which is the total rentable square foot area of the office and commercial space in the building project. The parties acknowledge and agree that the total rentable square foot area of the office and commercial space in the building project shall be deemed to be one million one hundred twelve thousand four hundred twenty-four (1,112,424) square feet.

(iii) the term "the building project" shall mean the aggregate combined parcel of land on a portion of which are the improvements of which the demised Premises form a part, with all the improvements thereon, said improvements being a part of the block and lot for tax purposes which are applicable to the aforesaid land.

(iv) The term "comparative year" shall mean the twelve (12) months following the base tax year, and each subsequent Period of twelve (12) months (or such other Period of twelve (12) months occurring during the term of this Lease as hereafter may be duly adopted as the tax year for real estate tax purposes by the City of New York).

(v) The term "real estate taxes" shall mean the total of all taxes and special or other assessments levied, assessed or imposed at any time by any governmental authority upon or against the building project, and also any tax assessment levied, assessed or imposed at any time by any governmental authority in connection with the receipt of income or rents from said building project to the extent that same shall be in lieu of all or a portion of any of the aforesaid taxes or assessments, or additions or increases thereof, upon or against said building project. If, due to a future change in the method of taxation or in the taxing authority, or for any other reason, a franchise, income, transit, profit or other tax or governmental imposition, however designated, shall be levied against Landlord in substitution in whole or in part for real estate taxes, or in lieu of additions to or increases of said real estate taxes, then such franchise, income, transit, profit or other tax or governmental imposition shall be deemed to be included within the definition of "real estate taxes" for the purposes hereof. As to special assessments which are payable over a period of time extending beyond the terms of this Lease, only a pro rata portion thereof covering the portion of the term of this Lease unexpired at the time of the imposition of such assessment, shall be included in "real estate taxes." If by law, any assessment may be paid in installments, then, for the purposes hereof (a) such assessment shall be deemed to have been payable in the maximum number of installments permitted by law and (b) there shall be included in real estate taxes, for each comparative year in which such installments may be paid, the installments of such assessment to becoming payable during such comparative year, together with interest payable during such comparative year. Notwithstanding anything contained herein to the contrary, real estate taxes shall not, for purposes of this Lease, be deemed to include franchise taxes, excise taxes, gift taxes, capital stock taxes, inheritance taxes or real estate taxes. In addition, Tenant shall have no obligation to pay any interest or penalties on real estate taxes imposed on Landlord as a result of late payments by Landlord (unless resulting from a late payment by Tenant).

(vi) Where more than one assessment is imposed by the City of New York for any tax year, whether denominated an "actual assessment" or a "transitional assessment" or otherwise, then the phrases herein "assessed value" and "assessments" shall mean whichever of the actual, transitional or other assessment is designated by the City of New York as the taxable assessment for that tax year.

(c) 1. In the event that the real estate taxes payable for any comparative year shall exceed the amount of the real estate taxes payable during the base tax year, Tenant shall pay to Landlord, as additional rent for such comparative year, an amount equal to The Percentage of this excess. Before or after the start of each comparative year, Landlord shall furnish to Tenant a statement of the real estate taxes payable for such comparative year, and a statement of the real estate taxes payable during the base tax year. If the real estate taxes payable for such comparative year exceed the real estate taxes payable during the base tax year, additional rent for such comparative year, in an amount equal to The Percentage of the excess, shall be due from Tenant to Landlord, and such additional rent shall be payable by Tenant to Landlord within ten (10) days after receipt of the aforesaid statement. The benefit of any discount for any earlier payment or prepayment of real estate taxes shall accrue solely to the benefit of Landlord, and such discount shall not be subtracted from the real estate taxes payable for any comparative year.

Additionally, Tenant shall pay to Landlord, on demand, a sum equal to The Percentage of any business improvement district assessment payable by the building project.

2. Should the real estate taxes payable during the base tax year be reduced by final determination of legal proceedings, settlement or otherwise, then the real estate taxes payable during the base tax year shall be correspondingly revised, the additional rent theretofore paid or payable hereunder for all comparative years shall be recomputed on the basis of such reduction, and Tenant shall pay to Landlord as additional rent, within ten (10) days after being billed therefor, any deficiency between the amount of such additional rent as theretofore computed and the amount thereof due as the result of such recomputations. Should the real estate taxes payable during the base tax year be increased by such final determination of legal proceedings, settlement or otherwise, then appropriate recomputation and adjustment also shall be made.

3. If after Tenant shall have made a payment of additional rent under this subdivision (c), Landlord shall receive a refund of any portion of the real estate taxes payable for any comparative year after the base tax year on which such payment of additional rent shall have been based, as a result of a reduction of such real estate taxes by final determination of legal proceedings, settlement or otherwise, Landlord shall within ten (10) days after receiving the refund pay to Tenant The Percentage of the refund.

4. The statements of the real estate taxes to be furnished by Landlord as provided above shall be certified by Landlord and shall constitute a final determination as between Landlord and Tenant of the real estate taxes for the periods represented, thereby, unless Tenant within ninety (90) days after they are furnished shall give a written notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate. If Tenant shall so dispute said settlement then, pending the resolution of such dispute, Tenant shall pay the additional rent to Landlord in accordance with the statement furnished by Landlord.

5. In no event shall the fixed annual rent under this Lease (exclusive of the additional rents under this Article) be reduced by virtue of this Article.

6. If the Commencement Date of the term of this Lease is not the first day of the first comparative year, then the additional rent due hereunder for such first comparative year shall be a proportionate share of said additional rent for the entire comparative year, said proportionate share to be based upon the length of time that the Lease term will be in existence during such first comparative year. Upon the date of any expiration or termination of this Lease (except termination because of Tenant's default) whether the same be the date hereinabove set forth for the expiration of the term or any prior or subsequent date, a proportionate share of said additional rent for the comparative year during which such expiration or termination occurs shall immediately become due and payable by Tenant to Landlord, if it was not theretofore already billed and paid. The said proportionate share shall be based upon the length of time that this Lease shall have been in existence during such comparative year. Landlord shall promptly cause statements of said additional rent for that comparative year to be prepared and furnished to lessee. Landlord and Tenant shall thereupon make appropriate adjustments or amounts then owing.

7. Landlord's and Tenant's obligations to make the adjustments referred to in subdivision (6) above shall survive any expiration or termination of this Lease.

8. Any delay or failure of lessor in billing any tax escalation hereinabove provided shall not constitute a waiver of or in any way impair the continuing obligation of lessee or pay such tax escalation hereunder (provided such statement is rendered within two (2) years of the expiration of the term of this Lease).

9. In addition to all fixed annual rent and additional rent payable pursuant to the terms of this Lease and this Article, Tenant shall pay to Landlord, as additional rent, within ten (10) days after Landlord shall have delivered to Tenant a statement therefor, the Percentage of all out-of-pocket expenses incurred by Landlord in reviewing or contesting the validity or amount of any Real Estate Taxes, including without limitation, the reasonable attorneys' fees and fees and disbursements of attorneys, third-party consultants, experts and others.

SERVICES.

24. Tenant acknowledges that it has been advised that the cleaning contractor for the Building may be a division or affiliate of Landlord. Subject to Article 31 hereof, Tenant agrees to employ said contractor, or such other contractor as Landlord shall from time to time designate, for any waxing, polishing and other maintenance work of the demised Premises and of the Tenant's furniture, fixtures and equipment, provided that the prices charged by said contractor are comparable to prices charged by other contractors for the same work. Tenant agrees that it shall not employ any other cleaning and maintenance contractor, nor any individual, firm or organization for such purpose. If Landlord and Tenant cannot agree on whether the prices being charged by the contractor designated by the Landlord are comparable to those charged by other contractors, Landlord and Tenant shall each obtain two bona fide bids for such work from reputable contractors, and the average of the four bids thus obtained shall be the standard for comparison.

JURY WAIVER.

25. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim involving any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant. Tenant's use or occupancy of the Premises (except for personal injury or property damage) or involving the right to any statutory relief or remedy. Tenant will not interpose any counterclaim of any nature in any summary proceedings, except for compulsory counterclaims.

NO WAIVER, ETC.

26. No act or omission of Landlord or its agents shall constitute an actual or constructive eviction, unless Landlord shall have first received written notice of Tenant's claim and shall have had reasonable opportunity to meet such claim. In the event that any payment herein provided for by Tenant to Landlord shall become overdue for a period in excess of ten (10) days, then at Landlord's option a "late charge" shall become due and payable to Landlord, as additional rent, from the date it was due until payment is made at the following rates: for individual and partnership Tenants, said late charge shall be computed at the maximum legal rate of interest; for corporate or governmental entity Tenants, the late charge shall be computed at two (2%) percent per month unless there is an applicable maximum legal rate of interest which then shall be used. No act or omission of Landlord or its agents shall constitute an acceptance of a surrender of the Premises, except a writing signed by Landlord. The delivery of keys to Landlord or its agents shall not constitute a termination of this Lease or a surrender of the Premises. Acceptance by Landlord of less than the rent herein provided shall at Landlord's option be deemed on account of earliest rent remaining unpaid. No endorsement on any check, or letter accompanying rent, shall be deemed an accord and satisfaction, and such check may be cashed without prejudice to Landlord. No waiver of any provision of this Lease shall be effective unless such waiver be in writing signed by Landlord. This Lease contains the entire agreement between the parties, and no modification thereof shall be binding unless in writing and signed by the party concerned. Tenant shall comply with the rules and regulations printed in this Lease, and any reasonable modifications thereof or additions therefore. Landlord shall not be liable to Tenant for the violation of such rules and regulations by any other tenant. Failure of Landlord to enforce any provision of this Lease, or any rule or regulation, shall not be construed as the waiver of any subsequent violation of a provision of this Lease, or any rule or regulation. This Lease shall not be affected by nor shall Landlord in any way be liable for the closing, darkening or bricking up of windows in the Premises, for any reason, including as the result of construction on any property of which the Premises are not a part or by Landlord's own acts. Notwithstanding anything contained herein to the contrary, Landlord and Tenant agree that if seventy (70%) percent or more of the windows located in the Premises are brickened up in excess of thirty (30) days, then, and in such event, Tenant may elect to cancel this Lease upon giving written notice to Landlord within fifteen (15) days after the end of such thirty
(30) day period and the term of this Lease shall expire on the date set forth herein which shall be not less than fifteen (15) days after the date such notice is given (the "Cancellation Date") provided that Landlord does not substantially restore such brickening prior to the Cancellation Date.

OCCUPANCY AND SUE BY TENANT.

27. If Tenant breaches the covenants in subdivision (A) above (?A - REMOVED?), and this Lease be terminated because of such default, then, in addition to Landlord's rights of re-entry, restoration, preparation for and re-rental, and anything elsewhere in this Lease to be contrary notwithstanding, Landlord shall retain its right to judgment on and collection of Tenant's aforesaid obligation to make a single payment to Landlord of a sum equal to the total of all rent and additional rent reserved for the remainder of the original term of the Lease, subject to future credit or repayment to Tenant in the event of any re-renting of the Premises by Landlord, after first deducting from re-rental income all expenses incurred by Landlord in reducing to judgment or otherwise collecting Tenant's aforesaid obligation, and in obtaining possession of restoring, preparing for and re-letting the Premises. In no event shall Tenant be entitled to a credit or repayment for re-rental income which exceeds the sums payable by Tenant hereunder or which covers a period after the original term of this Lease.

NOTICES.

28. Any bill, notice or demand from Landlord to Tenant, may be delivered personally at the Premises or sent by registered or certified mail or by Federal Express or other reputable overnight courier. Such bill, notice or demand shall be deemed to have been given at the time of delivery or three (3) days after mailing. Any notice from Tenant to Landlord must be sent by registered or certified mail to the last address designated in writing by Landlord.

WATER.

29. Tenant shall pay the amount of Landlord's cost for all water used by Tenant for any purpose other than ordinary lavatory and pantry uses, and any sewer rent or tax based thereon. Landlord may install a water meter to measure Tenant's water consumption for all purposes and Tenant agrees to pay for installation and maintenance thereof, and for water consumed as shown on said meter. If water is made available to Tenant in the Building or the demised Premises through a meter which also supplies other premises, or without a meter, then Tenant shall pay to Landlord $ per month for water.

SPRINKLER SYSTEM.

30. If there shall be a "sprinkler system" in the demised Premises for any period during this Lease, Tenant shall pay $ per month, for sprinkler supervisory service. If such sprinkler system is damaged by any act or omission of Tenant or its agents, employees, licensees or visitors, Tenant shall restore the system to good working condition at its own expense. If the New York Board of Fire Underwriters, the New York Fire Insurance Exchange, the Insurance Services Office or any governmental authority requires the installation or any alteration to a sprinkler system by reason of Tenant's occupancy or use of the Premises, including any alteration necessary to obtain in the full allowance for a sprinkler system in the fire insurance rate of Landlord, or for any other reason, Tenant shall make such installation or alteration promptly, and at its own expense.

HEAT, ELEVATOR, ETC.

31. Landlord shall provide a minimum of one (1) passenger elevator twenty-four (24) hours a day seven (7) days a week and provide elevator service during all usual business hours, including Saturdays until 1 P.M., except on Sundays, State holidays, Federal holidays, or Building Service Employees Union Contract holidays. Landlord shall furnish heat to the Premises during the same hours on the same days in the cold season in each year. Landlord shall cause the Premises to be kept clean in accordance with Landlord's customary standards for the Building, provided they are kept in order by Tenant. Landlord, its cleaning contractor and their employees shall have after hours access to the demised Premises and the use of Tenant's light, power and water in the demised Premises as may be reasonably required for the purpose of cleaning the demised Premises. Landlord may remove Tenant's extraordinary refuse from the Building and Tenant shall pay the cost thereof. If the elevators in the Building are manually operated, Landlord may convert to automatic elevators at any time, without in any way affecting Tenant's obligations hereunder.

SECURITY DEPOSIT.

32. Tenant has deposited with Landlord the sum of $120,885.20 as security for the performance by Tenant of the terms of this Lease. Landlord may use any part of the Security to satisfy any default of Tenant, which is not cured after notice and beyond the expiration of any applicable cure period set forth herein and any reasonable expenses arising from such default, which was not so cured within any applicable cure period, including but not limited to any damages or rent deficiency before or after re-entry by Landlord. Tenant shall, upon demand, deposit with Landlord the full amount to be used, in order that Landlord shall have the full security deposit on hand at all times during the terms of this Lease. If Tenant shall comply fully with the terms of this Lease, the security shall be returned to Tenant within thirty (30) days after the date fixed as the end of the Lease. In the event of a sale or Lease of the Building containing the Premises, Landlord may transfer the security to the purchaser or tenant, and Landlord shall thereupon, provided any such transferee assumes in writing all obligations of Landlord under this Lease, be released from all liability for the return of the security. This provision shall apply to every transfer or assignment of the security to a new Landlord. Tenant shall have no legal power to assign or encumber the security herein described.

ELECTRICITY.

33. Terms and conditions with respect to electricity rent inclusion, or with respect to sub-metering, as the case may be, and general conditions with respect to either, are set forth in Article 40 in the Rider annexed to and made part of this Lease.

RENT CONTROL.

34. In the event the fixed annual rent or additional rent or any part thereof provided to be paid by Tenant under the provisions of this Lease during the demised term shall become uncollectible or shall be reduced or required to be reduced or refunded by virtue of any Federal, State or County or City law, order or regulation, or by any direction of a public officer or body pursuant to law, or the orders, rules code or regulations of any organization or entity formed pursuant to law, whether such organization or entity be public or private, then Landlord, at its option, may at any time thereafter terminate this Lease, by not less than thirty (30) days' written notice to Tenant, on a date set forth in said notice, in which event this Lease and the term hereof shall terminate and come to an end on the date fixed in said notice as if the said date were the date originally fixed herein for the termination of the demised term. Landlord shall not have the right so to terminate this Lease if Tenant within such period of thirty (30) days shall in writing lawfully agree that the rentals herein reserved are a reasonable rental and agree to continue to pay said rentals, and if such agreement by Tenant shall then be legally enforceable by Landlord.

SHORING.

35. Tenant shall permit any person authorized to make an excavation on land adjacent to the Building containing the Premises to do any work within the Premises necessary to preserve the wall of the Building from injury or damage, and Tenant shall have no claim against Landlord for damages or abatement of rent by reason thereof.

EFFECT OF CONVEYANCE, ETC.

36. If the Building containing the Premises shall be sold, transferred or leased, or the Lease thereof transferred or sold, Landlord shall be relieved of all future obligations and liabilities hereunder and the purchaser, transferee or Tenant of the Building shall be deemed to have assumed and agreed to perform all such obligations and liabilities for Landlord hereunder. In the event of such sale, transfer or lease, Landlord shall also be relieved of all existing obligations and liabilities hereunder, provided that the purchaser, transferee or tenant of the Building assumes in writing such obligations and liabilities.

RIGHTS OF SUCCESSORS AND ASSIGNS.

37. This Lease shall bind and inure to the benefit of the heirs, executors, administrators, successors, and, except as otherwise provided herein, the assigns of the parties hereto. In any provision of any Article of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of that Article, or the application of such provision or persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each provision of said Article and of this Lease shall be valid and be enforced to the fullest extent permitted by law.

CAPTIONS.

38. The captions herein are inserted only for convenience, and are in no way to be construed as a part of this Lease or as a limitation of the scope of any provision of this Lease.

LEASE SUBMISSION.

39. Landlord and Tenant agree that this Lease is submitted to Tenant on the understanding that it shall not be considered an offer and shall not bind Landlord in any way unless and until (i) Tenant has duly executed and delivered duplicate originals thereof to Landlord and (ii) Landlord has executed and delivered one (1) of said originals to Tenant.

SEE RIDER(S) ANNEXED HERETO AND MADE A PART HEREOF consisting of pages 1 through 35, containing rules and regulations, Articles 40 through 60, a location plan, cleaning specifications and Exhibit A.

In Witness Whereof, Landlord and Tenant have executed this Lease as of the day and year first above written.

SLG Graybar Sublease LLC, a New York                              Fusion Telecommunications International, Inc.
------------------------------------------------------            ------------------------------------------------------
limited liability company

By:  SLG Graybar Sublease Corp, A New York                        By:
------------------------------------------------------            ------------------------------------------------------
corporation, its Managing Member


By:                                                               By:
    --------------------------------------------------                --------------------------------------------------
      (Name)                             (Title)                        (Name)                             (Title)

ACKNOWLEDGEMENTS

                                                                       State of New Jersey  )
                                                                                            ss.:
                                                                       County of Hudson     )
                                                                       On the day of                       , 20    , before me
State of New York   )                                                  personally came
                     ss.:                                              to me known, who being by me duly sworn, did depose and
County of New York  )                                                  say that he resides at No.
On the   day of                     , 20    , before me                that he is the                      of
personally came                                                        the corporation described in, and which executed, the
to me known and known to me to be the individual described in,         foregoing instrument; and that he signed h  name thereto
and who executed, the foregoing instrument, and acknowledged           by authority of the Board of Directors of said corporation.
to me that he executed the same.

                 ---------------------------------------------                       ----------------------------------------------
                                                 Notary Public                                                        Notary Public

IN WITNESS WHEREOF, the undersigned has     set      hand and seal this         day of  20



                                                                                                                             (L.S.)
--------------------------------------------------------------         ------------------------------------------------------------


                                                                                                                             (L.S.)
--------------------------------------------------------------         ------------------------------------------------------------
                                                                       To me known and kwon to me to  be the  individual  described
                                                                       in, and who executed the foregoing Guaranty and acknowledged
                                                                       to me that he executed the same

State of New York )

                  Ss:

County of New York)

On the   day of           , 20     , before me personally came


                                                                                     ----------------------------------------------
                                                                                                                      Notary Public

EXHIBIT A

Upon the occurrence of the Commencement Date (as defined in Article 55 hereof), Tenant shall pay fixed annual rent to Landlord, subject to provisions of Article 53 hereof, at the annual rate of (i) $298,368.00 per annum beginning on the Commencement Date through the last day of the month immediately preceding the second (2nd) anniversary of the Commencement Date of the Lease; (ii) $314,496.00 per annum for the period commencing on the second (2nd) anniversary of the Commencement Date of the Lease through the last day of the month immediately preceding the fifth (5th) anniversary of the Commencement Date of the Lease; and
(iii) $330,624.00 per annum commencing on the fifth (5th) anniversary of the Commencement Date of the Lease through the expiration of the term of this Lease.

RIDER ANNEXED TO AND MADE A PART OF THE LEASE BETWEEN
SLG GRAYBAR SUBLEASE LLC LANDLORD AND FUSION TELECOMMUNICATIONS INTERNATIONAL, INC. TENANT

RULES AND REGULATIONS REFERRED TO IN THIS LEASE

1. No animals, birds, bicycles or vehicles shall be brought into or kept in the Premises. The Premises shall not be used for manufacturing or commercial repairing or for sale or display of merchandise or as a lodging place, or for any immoral or illegal purpose, nor shall the Premises be used for a public stenographer or typist; barber or beauty shop, telephone, secretarial or messenger service; employment, travel or tourist agency; school or classroom; commercial document reproduction; or for any business other than specifically provided for in the Tenant's lease. Tenant shall not cause or permit in the Premises any disturbing noises which may interfere with occupants of this neighboring buildings, any cooking or objectionable odors, or any nuisance of any kind, or any inflammable or explosive fluid, chemical or substance. Canvassing, soliciting and peddling in the Building are prohibited, and each Tenant shall cooperate so as to prevent the same.

2. The toilet rooms and other water apparatus shall not be used for any purposes other than those for which they were constructed, and no sweepings, rags, ink, chemicals or other unsuitable substances shall be thrown therein. Tenant shall not throw anything out of doors, windows of skylights, or into hallways, stairways or elevators, nor place foot or objects on outside window sills. Tenant shall not obstruct or cover the halls, stairways and elevators, or use them for any purpose other than ingress and egress to or from Tenant's Premises, nor shall skylights, windows, doors and transoms that reflect or admit light into the Building be covered or obstructed in any way.

3. Tenant shall not place a load upon any floor of the Premises in excess of the load per square foot which such floor was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes in the Premises. Business machines and mechanical equipment shall be placed and maintained by Tenant, at Tenant's expense, only with Landlord's consent which consent Landlord shall not unreasonably withhold, condition or delay and in settings approved by Landlord which approval shall not be unreasonably withheld to control weight, vibration, noise and annoyance. Smoking or carrying lighted cigars, pipes or cigarettes in the elevators of the Building is prohibited. If the Premises are on the ground floor of the Building, the Tenant thereof at its expense shall keep the sidewalks and curb in front of the Premises clean and free from ice, snow, dirt and rubbish.

4. Tenant shall not move any heavy or bulky materials into or out of the Building without Landlord's prior written consent which consent Landlord shall not unreasonably withhold, condition or delay and then only during such manner as Landlord shall approve which consent Landlord shall not be unreasonably withheld. If any material or equipment requires special handling, Tenant shall employ only persons holding a Master Rigger's License to do such work, and all such work shall comply with all legal requirements. Landlord reserves the right to inspect all freight to be brought into the Building, and to exclude any freight which violates any rule, regulation or other provision of this Lease.

5. No sign, advertisement, notice or thing shall be inscribed, painted or affixed on any part of the Building, without the prior written consent of Landlord which consent Landlord shall not unreasonable withhold, condition or delay. Landlord may remove anything installed in violation of this provision and Tenant shall pay the cost of such removal. Interior signs on doors and directories shall be inscribed or affixed by Landlord at Tenant's reasonable expense. Landlord shall control the color, size, style and location of all signs, advertisements and notices. No advertising of any kind by Tenant shall refer to the Building (other than its address) unless first approved in writing by Landlord.

6. No article shall be fastened to, or holes drilled or nails or screws driven into, the ceilings, walls, doors or other portions of the Premises, nor shall any part of the Premises be painted, papered or otherwise covered, or in any way marked or broken, without the prior written consent of Landlord, which consent Landlord shall not unreasonably withhold, condition or delay.

7. No existing locks shall be changed, nor shall any additional locks or bolts of any kind be placed upon any door or window by Tenant, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, provided that a copy of all such keys are delivered simultaneously to Landlord. At the termination of this Lease, Tenant shall deliver to Landlord all keys for any portion of the Premises or Building. Before leaving the Premises at any time, Tenant shall close all windows and close and lock all doors.

8. No Tenant shall purchase or obtain for use in the Premises any spring water, ice, towels, food, boot blacking, barbering or other such service furnished by any company or person not approved by Landlord. Any necessary exterminating work in the Premises shall be done at Tenant's expense, at such times, in such manner and by such company as Landlord shall require. Landlord reserves the right to exclude from the Building, from 6:00 p.m. to 8:00 a.m., and at all hours on Sunday and legal holidays, all persons who do not present a pass to the Building signed by Landlord. Landlord will furnish passes to all persons reasonably designated by Tenant. Tenant shall be responsible for the acts of all persons to whom passes are issued at Tenant's request.

9. Whenever Tenant shall submit to Landlord any plan, agreement or other document for Landlord's consent or approval, Tenant agrees to pay Landlord as additional rent, on demand, an administrative fee equal to the sum of the reasonable fees of any architect, engineer or attorney employed by Landlord to review said plan, agreement or document and Landlord's administrative costs for same.

10. The use in the demised Premises of auxiliary heating devices, such as portable electric heaters, heat lamps or other devices whose principal function at the time of operation is to produce space heating, is prohibited.

11. Tenant shall keep all doors from the hallway to the Premises closed at all times except for use during ingress to and egress from the Premises. Tenant acknowledges that a violation of the terms of this paragraph may also constitute a violation of codes, rules or regulations of governmental authorities having or asserting jurisdiction over the Premises, and Tenant agrees to indemnify lessor for many fines, penalties, claims, action or increase in fire insurance rates which might result from Tenant's violation of the terms of this paragraph.

12. Tenant shall be permitted to maintain an "in-house" messenger or delivery service within the Premises, provided that Tenant shall require that any messengers in its employ affix identification to the breast pocket of their outer garment, which shall bear the following information: name of Tenant, name of employee and photograph of the employee. Messengers in Tenant's employ shall display such identification at all time. In the event that Tenant or any agent, servant or employee of Tenant violates the terms of this paragraph, Landlord shall be entitled to terminate Tenant's permission to maintain within the Premises in-house messenger or delivery service upon written notice to Tenant.

13. Tenant will be entitled to five (5) listings on the Building lobby directory board, and the directory board on the floor of the Building on which the Premises is located, without charge. Any additional directory listing (if space is available), or any change in a prior listing, with the exception of a deletion, will be subject to a fourteen ($14.00) dollar service charge, payable as additional rent.

In case of any conflict or inconsistency between any provisions of this Lease and any of the rules and regulations originally or as hereafter adopted, the provisions of this Lease shall control.

ELECTRICITY.

40. Tenant agrees that Landlord may, subject to the provisions of this Article, furnish electricity to Tenant on a "sub-metering" basis or an a "rent inclusion basis." Electricity and electric service, as used herein, shall mean any element affecting the generation, transmission, and/or distribution or redistribution of electricity, including but not limited to services which facilitate the distribution of service. Landlord covenants that it shall not alter the method by which it presently furnishes electricity to the Premises for Tenant's use therein from a "rent inclusion" basis to a "sub-metering" basis unless it alters the method by which it furnishes electricity from a "rent inclusion" basis to a "sub-metering" basis for Tenant's leasing fifty (50%) percent or more of the rentable space in the Building.

A. Sub-metering: If and so long as Landlord provides electricity to the demised Premises on a sub-metering basis, Tenant covenants and agrees to purchase the same from Landlord or Landlord's designated agent at charges, terms and rates set, from time to time, during the term of this Lease by Landlord but not more than those specified in the service classification in effect on January 1, 1970 pursuant to which Landlord then purchased electric current from the public utility corporation serving the part of the city where the Building is located; provided however, said charges shall be increased in the same percentage as any percentage increase in the billing to Landlord for electricity for the entire Building, by reason of increase in Landlord's electric rates or service classifications, subsequent to January 1, 1970, and so as to reflect any increase in Landlord's electric charges, including changes in market prices for electricity from utilities and/or other providers, in fuel adjustments or by taxes or charges of any kind imposed on Landlord's electricity purchases or redistribution, or for any other such reason, subsequent to said date. Any such percentage increase in Landlord's billing for electricity due to changes in rates, service classifications or market prices, shall be computed by the application of the average consumption (energy and demand) of electricity for the entire Building for the twelve (12) full months immediately prior to the rate and/or service classification change, or any changed methods of or rules on billing for same, applied on a consistent basis to the new rate and/or service classification or market price, and to the classification and rate in effect on January 1, 1970. If the average consumption of electricity for the entire Building for said prior twelve (12) months cannot reasonably be applied and used with respect to changed methods of or rules on billing, then the percentage shall be computed by the use of the average consumption (energy and demand) for the entire Building for the first three (3) months after such change, projected to a full twelve (12) months, so as to reflect the different seasons; and that same consumption, so projected, shall be applied to the service classification and rate in effect on January 1, 1970. Where more than one meter measures the service of Tenant in the Building, the service rendered through each meter may be computed and billed separately in accordance with the rates herein specified. Bills, therefore, shall be rendered at such times as Landlord may elect and the amount, as computed from a meter, shall be deemed to be, and be paid as, additional rent. In the event that such bills are not paid within thirty (30) days after the same are rendered, Landlord may, without further notice, discontinue the service of electric current to the demised Premises without releasing Tenant from any liability under this Lease and without Landlord or Landlord's agent incurring any liability for any damage or loss sustained by Tenant by such discontinuance of service. If any tax is imposed upon Landlord's receipt from the sale, resale or redistribution of electricity or gas or telephone service to Tenant by any Federal, State or Municipal authority, Tenant covenants and agrees that where permitted by law, Tenant's pro-rata share of such taxes shall be passed on to and included in the bill of, and paid by, Tenant to Landlord.

B. Rent Inclusion: If and so long as Landlord provides electricity to the demised Premises on a rent inclusion basis, Tenant agrees that the fixed annual rent shall be increased by the amount of the Electricity Rent Inclusion Factor ("ERIF"), as hereinafter defined. Tenant acknowledges and agrees (i) that the fixed annual rent hereinabove set forth in this Lease does not yet, but is to include an ERIF of three ($3.00) dollars per rentable square foot to compensate Landlord for electrical wiring and other installations necessary for, and for its obtaining and making available to Tenant the redistribution of electric current as an additional service; and (ii) that said ERIF, which shall be subject to periodic adjustments as hereinafter provided, has been partially based upon an estimate of the Tenant's connected electrical load, in whatever manner delivered to Tenant, which shall be deemed to be the demand (KW),

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and hours of use thereof, which shall be deemed to be the energy (KWH), for ordinary lighting and light office equipment and the operation of the usual small business machines, including facsimile machines, desktop personal computers and printers, desktop document scanners, Xerox or other copying machines (such lighting and equipment are hereinafter called "Ordinary Equipment") during ordinary business hours ("ordinary business hours") shall be deemed to mean fifty (50) hours per week, with Landlord providing an average connected load of four and a half (4 1/2) watts of electricity for all purposes per rentable square foot. Any installation and use of equipment other than Ordinary Equipment and/or any connected load and/or energy usage by Tenant in excess of the foregoing shall result in adjustment of the ERIF as hereinafter provided. For purposes of this Lease, the rentable square foot area of the presently demised Premises shall be deemed to be eight thousand sixty-four (8,064) square feet.

If the cost to Landlord of electricity shall have been, or shall be, increased or decreased subsequent to May 1, 1996 (whether such change occurs prior to or during the term of this Lease), by change in Landlord's electric rates or service classifications, or electricity charges, including changes in market prices or by an increase, subsequent to the last such electric rate or service classification change or market price change, in fuel adjustments or charges of any kind, or by taxes, imposed on Landlord's electricity purchases or on Landlord's redistribution, or for any other such reason, then the aforesaid ERIF portion of the fixed annual rent shall be changed in the same percentage as any such change in cost due to changes in electric rates, service classifications or market prices, and, also Tenant's payment obligation, for electricity redistribution, shall change from time to time so as to reflect any such increase in fuel adjustments or charges, and such taxes. Any such percentage change in Landlord's cost due to change in Landlord's electric rate or service classifications or market prices, shall be computed on the basis of the average consumption of electricity for the Building for the twelve (12) full months immediately prior to the rate change or other such changes in cost, energy and demand, and any changed methods of or rules on billing for same, applied on a consistent basis to the new electric rate or service classification or market price and to the immediately prior exiting electric rate or service classification or market price. If the average consumption (energy and demand) for the entire Building for said prior twelve (12) months cannot reasonably be applied and used with respect to changed methods of or rules on billing, then the percentage increase shall be computed by the use of the average consumption (energy and demand) for the entire Building for the first three (3) months after such change, projected to a fill twelve (12) months, so as to reflect the different seasons; and that same consumption, so projected, shall be applied to the rate and/or service classification or market price which existed immediately prior to the change. The parties agree that a reputable, independent electrical consultant firm, selected by Landlord, ("Landlord's electrical consultant") shall determine the percentage change for the changes in ERIF due to Landlord's changed costs, and that Landlord's electrical consultant may from time to time make surveys in the demised Premises at Landlord's sole cost and expense of the electrical equipment and fixtures and use of current, except in the event that any such survey is made at Tenant's request, in which event, Tenant shall pay on demand as additional rent hereunder the cost of any such survey. (i) If such survey shall reflect an adjusted demand electrical load in the demised Premises in excess of four and a half (4 1/2) watts of electricity for all purposes per rentable square foot and/or energy usage in excess of ordinary business hours (each such excess hereinafter called "excess electricity") then the adjusted demand electrical load and/or the hours of use portion(s) of the then existing ERIF shall be increased by an amount which is equal to a fraction of the then existing ERIF, the numerator of which is the excess electricity (i.e., excess adjusted demand load and/or excess usage) and the denominator of which is the adjusted demand load and/or the energy usage which was the basis of the then existing ERIF. Such fractions shall be determined by Landlord's electrical consultant. The fixed annual rent shall then be appropriately adjusted, effective as of the date of any such change in adjusted demand load and/or usage, as disclosed by said survey. (ii) If such survey shall disclose installation and use of other than Ordinary Equipment, then effective as of the date of said survey, there shall be added to the ERIF portion of fixed annual rent (computed and fixed as hereinbefore described) an additional amount equal to what would be paid under the SC-4 Rate I Service Classification in effect on May 1, 1999 (and not the time of day rate schedule) or the comparable rate schedule (and not the time of day rate schedule) of any utility other than Con Ed then providing electrical service to the Building as same shall be in effect on the date of such survey for such load and usage of electricity, with the connected electrical load deemed to be the demand (KW) and the

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hours of use thereof deemed to be the energy (KWH), as hereinbefore provided (which addition to the ERIF shall be increased or decreased by all electricity cost changes of Landlord, as hereinabove provided, from May 1, 1999 through the date of billing).

In no event, whether because of surveys, rates or cost changes, or for any reason, is the originally specified three ($3.00) dollars per rentable square foot ERIF portion of the fixed annual rent to be reduced.

C. General Conditions: The determination by Landlord's electrical consultant shall be binding and conclusive on Landlord and Tenant from and after the delivery of copies of such determinations to Landlord and Tenant, unless, within thirty (30) days after delivery thereof, Tenant disputes such determination. If Tenant so disputes the determination, it shall, at its own expense, obtain from a reputable, independent electrical consultant its own determinations in accordance with the provisions of this Article. Tenant's consultant and Landlord's consultant then shall seek to agree. If they cannot agree within thirty (30) days, they shall choose a third reputable electrical consultant, whose cost shall be shared equally by the parties, to make similar determinations which shall be controlling. (If they cannot agree on such third consultant within ten (10) days, then either party may apply to the Supreme Court in the County of New York for such appointment.) However, pending such controlling determinations, Tenant shall pay to Landlord the amount of additional rent or ERIF in accordance with the determinations of Landlord's electrical consultant. If the controlling determinations differ from Landlord's electrical consultant, then the parties shall promptly make adjustment for any deficiency owed by Tenant or overage paid by Tenant.

Supplementing Article 34 hereof, if all or part of the sub-metering additional rent or the ERIF payable in accordance with Subdivision (A) or (B) of this Article becomes uncollectible or reduced or refunded by virtue of any law, order or regulations, the parties agree that, at Landlord's option, in lieu of sub-metering, additional rent or ERIF, and in consideration of Tenant's use of the Building's electrical distribution system and receipt of redistributed electricity and payment by Landlord of consultant's fees and other redistribution costs, the fixed annual rental rate(s) to be paid under this Lease shall be increased by an "alternative charge" which shall be a sum equal to three ($3.00) dollars per year per rentable square foot of the demised Premises, changed in the same percentage as any increase in the cost to Landlord for electricity for the entire Building subsequent to May 1, 1999, because of electric rate, service classification or market price changes, such percentage change to be computed as in Subdivision (B) provided.

Landlord shall not be liable to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant's requirements, unless caused by the negligence or willful misconduct of Landlord. Notwithstanding the foregoing, in no event shall Landlord be liable to Tenant, or anyone claiming through Tenant, for consequential damages. Tenant covenants and agrees that at all times its use of electric current shall never exceed the capacity of existing feeders to the Building or wiring installation. Tenant agrees not to connect any additional electrical equipment to the Building electric distribution system, other than lamps, typewriters, facsimile machines, desktop personal computers and printers, desktop document scanners and other small office machines which consume comparable amounts of electricity, without Landlord's prior written consent, which consent shall not be unreasonably withheld. Any riser or risers to supply Tenant's electrical requirements, upon written request of Tenant, will be installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's sole judgment, the same are necessary and will not cause permanent damage or injury to the Building or demised Premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants or occupants. In addition to the installation of such riser or risers, Landlord will also at the sole cost and expense of Tenant, install all other equipment proper and necessary in connection therewith subject to the aforesaid terms and conditions. The parties acknowledge that they understand that it is anticipated that electric rates, charges, etc., may be changed by virtue of time of day rates or changes in other methods of billing and/or electricity purchases and the

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redistribution thereof, and fluctuation in the market price of electricity, and that the references in the foregoing paragraphs to changes in methods of or rules on billing are intended to include any such changes. Anything hereinabove to the contrary notwithstanding, in no event is the sub-metering additional rent or ERIF, or any "alternative charge," to be less than an amount equal to the total Landlord's payments to public utilities and/or other providers for the electricity consumed by Tenant (and any taxes thereon or on redistribution of same) plus five (5%) percent thereof for transmission line loss, plus fifteen (15%) percent thereof for other redistribution costs. The Landlord reserves, subject to the introductory paragraph of this Article 40, the right, at any time upon thirty (30) days written notice, to change its furnishing of electricity to Tenant from a rent inclusion basis to a sub-metering basis, or vice versa, or to change to the distribution of less than all the components of the existing service to Tenant. The Landlord reserves the right to terminate the furnishing of electricity on a rent inclusion, sub-metering, or any other basis at any time, upon sixty (60) days written notice to the Tenant, provided the foregoing change (i) is required by law, (ii) is required by the public utility company supplying electricity to the Building or (iii) applies to fifty (50%) percent or more of the office tenants in the Building, in which event the Tenant may make application directly to the public utility and/or other providers for the Tenant's entire separate supply of electric current and Landlord shall permit its wires and conduits, to the extent available and safely capable, to be used for such purpose, but only to the extent of Tenant's then authorized load. Any meters, risers, or other equipment or connections necessary to furnish electricity on an sub-metering basis or to enable Tenant to obtain electric current directly from such utility and/or other providers shall be installed at Landlord's sole cost and expense. Only rigid conduit or electricity metal tubing
(EMT) will be allowed. The Landlord, upon expiration of the aforesaid sixty (60)
days' written notice to the Tenant may discontinue furnishing the electric current but this Lease shall otherwise remain in full force and effect, provided such direct service is available to Tenant. If Tenant was provided electricity on a rent inclusion basis when it was so discontinued, then commencing when Tenant receives such direct service and as long as Tenant shall continue to receive such service, the fixed annual rent payable under this Lease shall be reduced by the amount of the ERIF which was payable immediately prior to such discontinuance of electricity on a rent inclusion basis.

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DEFAULT

41. Supplementing Article 4 hereof:

A. In the event that Tenant is in arrears for rent or any item of additional rent, after notice and beyond the expiration of any applicable cure period set forth herein, Tenant waives its rights, if any, to designate the items against which payments made by Tenant are to be credited and Landlord may apply any payments made by Tenant to any items due hereunder which Landlord in its sole discretion may elect irrespective of any designation by Tenant as to the items against which any such payment should be credited.

B. If Landlord, as a result of any default by Tenant in its performance of any of the terms, covenants, conditions and provisions of this Lease, which default continues after applicable notice and the expiration of any applicable cure period, makes any expenditures or incurs any obligations for the payment of money including, without limitation, attorneys' fees, then any such cost, expense or disbursement shall be deemed to be additional rent hereunder and paid by Tenant to Landlord upon demand and, if Tenant's Lease terms shall have expired after such expenditures or obligations have been incurred, such sums shall be recoverable from Tenant as damages.

C. Tenant shall not seek to remove and/or consolidate any summary proceeding brought by Landlord with any action commenced by Tenant in connection with this Lease or Tenant's use and/or occupancy of the Premises.

D. In the event of a default by Landlord hereunder, no property or assets of Landlord, or any principal, shareholders, officers, or directors of Landlord, whether disclosed or undisclosed, other than the Building in which the Premises are located and the land upon which the Building is situated, and any refinancing proceeds, insurance proceeds, condemnation awards and rents relating to the land and/or the Building shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder or Tenant's use and occupancy of the Premises.

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DESTRUCTION

42. Supplementing Article 10 hereof:

In no event that the Premises or portion thereof are damaged by fire or other casualty and Landlord has elected not to terminate this Lease, Tenant shall cooperate with Landlord in the restoration of the Premises and shall remove from the Premises as promptly as reasonably possible all of Tenant's salvageable inventory, movable equipment, furniture and other property. Tenant's liability for rent shall resume sixty (60) days after written notice from Landlord that Landlord's restoration work to the core and shell of the Premises and Landlord's restoration to all components of work in the Premises performed by Landlord prior to its delivery of possession to Tenant on the Commencement Date shall have been substantially completed.

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INSURANCE

43. A. Tenant shall not violate, or permit the violation of, any condition imposed by the standard fire insurance policy then issued for office buildings in the Borough of Manhattan, City of New York, and shall not do, or permit anything to be done, or keep or permit anything to be kept in the Premises which would subject Lessor to any liability or responsibility for personal injury or death or property damage, or which would increase the fire or other casualty insurance rate on the Building or the property therein over the rate which would otherwise then be in effect (unless Tenant pays the resulting premium as provided in Section C hereof) or which would result in insurance companies of good standing refusing to insure the Building or any of such property in amount reasonably satisfactory to Lessor.

B. Tenant covenants to provide on or before the earlier to occur of (i) the Commencement Date, and (ii) ten (10) days from the date of this Lease, and to keep in force during the term hereof the following insurance coverage which coverage shall be effective on the Commencement Date:

(a) A comprehensive policy of liability insurance naming Landlord as an additional insured protecting Landlord and Tenant against any liability whatsoever occasioned by accident on or about the Premises or any appurtenances thereto. Such policy shall have limits of liability of not less than three million ($3,000,000.00) dollars combined single limit coverage on a per occurrence basis, including property damage. Such insurance may be carried under a blanket policy covering the Premises and other locations of Tenant, if any, provided such a policy contains an endorsement (i) naming Landlord as an additional insured, (ii) specifically referencing the Premises; and (iii) guaranteeing a minimum limit available for the Premises equal to the limits of liability required under this Lease;

(b) Fire and Extended coverage in an amount adequate to cover the cost of replacement of all personal property, fixtures, furnishings and equipment, including Tenant's Alteration Work, located in the Premises.

All such policies shall be issued by companies of recognized responsibility licensed to do business in New York State and rated by Best's Insurance Reports or any successor publication of comparable standing and carrying a rating of A- VIII or better or the then equivalent of such rating, and all such policies shall contain a provision whereby the same cannot be canceled or modified unless Landlord and any additional insured are given at least thirty (30) days' prior written notice of such cancellation or modification.

Prior to the time such insurance is first required to be carried by Tenant, and thereafter, at least fifteen (15) days prior to the expiration of any such policies, Tenant shall deliver to Landlord either duplicate originals of the aforesaid policies or certificates evidencing such insurance, together with evidence of payment for the policy. If Tenant delivers certificates as aforesaid Tenant, upon reasonable prior notice from Landlord, shall make available to Landlord, at the Premises, duplicate originals of such policies from which Landlord may make copies thereof, at Landlord's cost. Tenant's failure to provide and keep in force the aforementioned insurance shall be regarded as a material default hereunder, entitling Landlord to exercise any or all of the remedies as provided in this Lease in the event of Tenant's default. In addition, in the event Tenant fails to provide and keep in force the insurance required by this Lease, at the times and for the durations as specified in this Lease, Landlord shall have the right, but not the obligation, at any time and from time to time, and without notice, to procure such insurance and/or pay the premiums for such insurance in which event Tenant shall repay Landlord within five (5) days after demand by Landlord, as additional rent, all sums so paid by Landlord and any costs or expenses incurred by Landlord in connection therewith without prejudice to any other rights and remedies of Landlord under this Lease.

C. Landlord and Tenant shall each endeavor to secure an appropriate clause in, or an endorsement upon, each fire or extended coverage policy obtained by it and covering the Building, the

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Premises or the personal property, fixtures and equipment located therein or thereon, pursuant to which the respective insurance companies waive subrogation or permit the insured, prior to any loss, to agree with a third party to waive any claim it might have against said third party. The waiver of subrogation or permission for waiver of any claim hereinbefore referred to shall extend to the agents of each party and its employees and, in the case of Tenant, shall also extend to all other persons and entities occupying or using the Premises in accordance with the terms of this Lease. If and to the extent that such waiver or permission can be obtained only upon payment of an additional charge then, except as provided in the following two paragraphs, the party benefiting from the waiver or permission shall pay such charge upon demand, or shall be deemed to have agreed that the party obtaining the insurance coverage in question shall be free of any further obligations under the provisions hereof relating to such waiver of permission.

In the event that Landlord shall be unable at any time to obtain one of the provisions referred to above in any of its insurance policies, at Tenant's options, Landlord shall cause Tenant to be named in such policy or policies as one of the insureds, but if any additional premium shall be imposed for the inclusion of Tenant as such as insured, Tenant shall pay such additional premium upon demand. In the event that Tenant shall have been named as one of the insureds in any of the Landlord's policies in accordance with the foregoing, Tenant shall endorse promptly to the order of Landlord, without recourse, any check, draft or order for the payment of money representing the proceeds of nay such policy or any other payment growing out of or connected with said policy and Tenant hereby irrevocably waives any and all right in and to such proceeds and payments.

In the event that Tenant shall be unable at any time to obtain one of the provisions referred to above in any of its insurance policies, Tenant shall cause Landlord to be named in such policy or policies as one of the insureds, but if any additional premium shall be imposed for the inclusion of Landlord as such an assured, Landlord shall pay such additional premium upon demand or Tenant shall be excused from its obligations under this paragraph with respect to the insurance policy or policies for which such additional premiums would be imposed. In the event that Landlord shall have been named as one of the insureds in any of Tenant's policies in accordance with this foregoing, Landlord shall endorse promptly to the order of Tenant, without recourse, any check, draft or order for the payment of money representing the proceeds of any such policy or any other payment growing out of or connected with said policy and Landlord hereby irrevocably waives any and all rights in and to such proceeds and payments.

Subject to the foregoing provisions of this Section C, and insofar as may be permitted by the terms of the insurance policies carried by it, each party hereby releases the other with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damages or destruction with respect to its property by fire or other casualty (including rental value or business interruption, as the case may be) occurring during the term of this Lease.

D. If, by reason of a failure of Tenant to comply with the provisions of Article 14 or Section A above, the rate of fire insurance with extended coverage on the Building or equipment or other property of Landlord shall be higher than it otherwise would be, Tenant shall reimburse Landlord, on demand, for that part of the premiums for fire insurance and extended coverage paid by Landlord because of such failure on the part of Tenant.

E. Landlord may, from time to time, require that the amount of the insurance to be provide and maintained by Tenant under Section B hereof be increased so that the amount thereof adequately protects Landlord's interest, but in no event in excess of the amount that would be required by other tenants in other similar office buildings in the Borough of Manhattan. Notwithstanding the foregoing, Landlord and Tenant acknowledge and agree that in no event shall the amount of insurance to be provided and maintained by Tenant under the terms of this Article be increased prior to the first anniversary of the commencement of the term of this Lease and in no event shall the amount of said insurance provided and maintained by Tenant during the term of this Lease be greater than the sum of five million ($5,000,000.00) dollars.

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F. A schedule or make up of rates for the Building or the Premises, as the case may be, issued by the New York Fire Insurance Rating Organization or other similar body making rates for fire insurance and extended coverage for the Premises concerned, shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rate with extended coverage then applicable to such Premises.

G. Each policy evidencing the insurance to be carried by Tenant under this Lease shall contain a clause that such policy and the coverage evidenced thereby shall be primary with respect to any policies carried by Landlord, and that any coverage carried by Landlord shall be excess insurance.

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SUBORDINATION

44. Supplementing the provisions of Article 12 hereof:

A. This Lease is and shall be subject and subordinate to all present and future ground leases, underlying leases and to all subleases of the entire Premises demised by that certain ground lease (hereinafter referred to as the "Mense Lease") dated December 30, 1957 and recorded in the office of the Register of the City of New York in the County of New York on December 31, 1957, in Liber 5024 of Conveyances, Page 430 of which the Premises hereby demised form a part (the Mense Lease and any or all present and future ground leases underlying leases and subleases of the entire Premises demised by the Mense Lease are hereunder referred to as the "ground lease" and the lessors and lessees thereunder are hereinafter referred to respectively as the "ground lessors" and "ground lessees") and to all renewals, modifications, replacements and extensions of the ground leases, and to all present and future mortgages affecting such ground leases (such mortgages are hereinafter referred to as the "mortgages" and the mortgagees thereunder are hereinafter referred to as the "the mortgagees") including, without limitation, that certain Amended and Restated Indenture of Leasehold Mortgage, Security Agreement, Financing Statement, Fixture Filing and Assignment of leases, Rents and Security Deposits, dated as of May 21, 1999 by and between SLG Graybar Mense Lease LLC and SLG Graybar Sublease LLC, a mortgagor, and German American Capital Corporation, as mortgagee, and to all renewals, modifications, replacements and extensions of the mortgages. Landlord represents that the Mense Lease is in full force and effect and that the term thereof is scheduled to expire after the term of this Lease is scheduled to expire.

B. Notwithstanding the subordination of this Lease to all ground leases and mortgages, this Lease shall not terminate or be terminable by Tenant by reason of the expiration or earlier termination or cancellation of any ground lease in accordance with its terms or by reason of the foreclosures of any mortgage, except that this Lease may be terminated if Tenant is named as a party and served with process in a summary or other proceeding brought by the lessor under the Mense Lease (hereinafter referred to as the "Mense Lessor") for the possession of the Premises demised by the Mense Lease or the space occupied by Tenant, or in such proceeding brought with the written consent of the Mense Lessor delivered to Tenant, and a final order or judgment is entered, and a warrant for possession of such space issued and executed against the defendants or respondents in such proceedings.

C. Tenant agrees that if this Lease terminates, expires or is canceled for any reason or by any means whatsoever (other than by a summary or other proceeding brought by the Mense Lessor or with the Mense Lessor's written consent delivered to Tenant, in which summary or other proceeding Tenant is made a party and in which a final order or judgment is entered and warrant for possession is issued and executed against Tenant) and Mense Lessor or a ground lessor so elects by written notice to Tenant, this Lease shall automatically be reinstated for the balance of the term which would have remained but for such termination, expiration or cancellation, at the same rental, and upon the same agreements, covenants, conditions, restrictions and provisions herein contained, with the same rental, and upon the same agreements, covenants, conditions, restrictions and provisions herein contained, with the same force and effect as if no such termination, expiration or cancellation had taken place. Tenant covenants to execute and deliver any instrument required to confirm the validity of the foregoing. Anything herein contained to the contrary notwithstanding, this Lease shall not be deemed to be automatically reinstated as aforesaid, nor shall Tenant be obligated to execute and deliver any instrument confirming such reinstatement, if Tenant has delivered to the Mense Lessor and any ground lessor so electing a notice that in Tenant's option this Lease has so terminated, expired or been canceled, and neither the Mense Lessor nor such other ground lessor has, within thirty (30) days after receipt of such notice from Tenant, delivered notice to Tenant of its election automatically to reinstate this Lease.

D. Tenant hereby consents to any and all assignment of Landlord's interest in this Lease to any ground lessor or mortgagee as collateral security for the payment of the ground rent or monies due under any mortgage. Tenant agrees to attorn to and pay rent to any such ground lessor's or mortgagee in

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accordance with the provisions of any such assignment provided such rental payments shall be applied against rent due hereunder.

E. Tenant agrees that no act, or failure to act, on the part of Landlord, which would entitle Tenant under the terms of this Lease, or by law to be relived of Tenant's obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or termination of this Lease unless (i) Tenant shall have first given written notice of Landlord's act or failure to act to the ground lessors under all then existing ground leases, to all then existing mortgages who have requested such notice from Tenant, and to German American Capital Corporation, as mortgagee, at (i) 31 West 52nd Street, New York, New York 10019, Attn.: General Counsel, and at (ii) Skadden, Arps, Slate, Meagher & Flom, LLP, 919 Third Avenue, New York, New York 10022, Attn.: Harvey Uris, Esq., specifying the act or failure to act on the part of Landlord which could or would given basis to Tenant's rights and (ii) the ground lessors and such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter but nothing herein contained shall be deemed to impose any obligation on any ground lessor or such mortgagee to correct or cure any such condition

F. This Lease may not be modified or amended so as to reduce the rent, shorten the term, or otherwise materially affect the rights of Landlord hereunder, or be canceled or surrendered except as provided in subparagraph (E) of this Article 44, without the prior written consent in each instance of the ground lessors and of any mortgagees whose mortgages shall require such consent. Any such modification, agreement, cancellation or surrender made without such prior written consent shall be null and void.

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AIR CONDITIONING

45. Supplementing the provisions of Article 9 hereof, Landlord shall provide air conditioning to the Premises, through the presently existing equipment and facilities servicing the Premises, from May 15th to October 15th in each year during the term of the Lease. Monday through Friday from 8 a.m. to 6 p.m., and on Saturdays from 8:00 am to 12:00 Noon (after hours air conditioning to be furnished, after reasonable advance request by Tenant in writing, at Landlord's then standard building rates for same). Tenant shall reimburse Landlord, in accordance with Article 40 of this Lease, for electricity consumed by such equipment and facilities in providing air conditioning to the Premises. Tenant acknowledges and agrees that the air conditioning equipment and facilities servicing the Premises are Landlord's property, however, Tenant shall keep, maintain and repair such equipment and all of the facilities including, without limitation, the ducts, dampers, registers, grilles and appurtenances utilized in connection therewith: In connection therewith, Tenant shall at all times during the term hereof contract for and maintain regular service of said air conditioning equipment and related facilities through an independent, licensed, professional third-party maintenance company approved by Landlord and shall, within (30) days of the commencement of the term of this Lease, forward to Landlord a fully executed original copy of such contract. Tenant shall also forward to Landlord within thirty (30) days of their execution by the parties thereto any and all renewals and modifications thereof. Said contract shall include the thorough overhauling of the air conditioning systems and facilities servicing the Premises at least once each year during the term of this Lease. Any restoration or replacement by Tenant of all or any part of the air conditioning equipment shall be in quality and class equal to the original work or installations. In the event that Tenant fails to perform the aforementioned maintenance and repair of the existing air conditioning equipment and facilities servicing the Premises or fails to enter into and maintain the referenced service contract Landlord may following twenty (20) days' written notice to Tenant and Tenant's failure to cure such non-performance, at Tenant's sole cost and expense payable by Tenant upon demand as additional rent hereunder, perform any necessary maintenance or enter into such service contract for the Premises. Provided that Tenant performs the referenced maintenance and repair of the existing air conditioning equipment and enters into the above-referenced service contract, Landlord shall be responsible for the replacement, as necessary, of major components of the air conditioning mechanical equipment (e.g., without limitation, the compressor and pumps), provided that any such replacement are not necessitated by the negligence or willful misconduct of Tenant, its employees, representatives, servants or invitees, in which event Tenant shall be solely responsible for the cost of same. If supplementary air conditioning equipment and/or facilities are required to accommodate Tenant's special usage areas (e.g., without limitation computer rooms, conference rooms, cafeteria/lunchrooms or any special usage which subjects a portion or the entire Premises to a high density of office personnel and/or heat generating machinery or appliances), it shall be Tenant's responsibility to furnish, install, maintain, repair and operate, subject to Landlord's written approval, which approval shall not be unreasonably withheld, any necessary supplementary air conditioning equipment and/or facilities at its sole cost and expense. Landlord reserve the right to suspend the operation of all air conditioning equipment and facilities at any time that Landlord, in its sole judgment, deems it necessary, including without limitation, accidents, emergencies, repairs, alterations, or improvements in the Premises or the Building. Tenant agrees that any such suspension in the operation of the air conditioning equipment and/or facilities may continue until such time as the basis for such suspension has been remedied and that Landlord shall not be responsible or liable to Tenant for any damages suffered by Tenant in connection therewith subject to the terms of this Lease and unless resulting from Landlord's negligence or willful misconduct. Tenant further agrees that Landlord shall not be responsible or liable for any damages suffered by Tenant if operation of the air conditioning equipment and/or facilities is prevented by labor unrest, strikes, shortages or accidents or any cause beyond Landlord's reasonable control, or by the orders or regulations of any Federal, State, County or local authority or by failure of the equipment and/or facilities or electrical current, steam and/or water or other necessary power source.

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CHANGES AND ALTERATIONS

46. Anything in Article 7 to the contrary notwithstanding, Landlord will not unreasonably withhold, condition or delay approval of written requests of Tenant to make nonstructural interior alterations, decorations, additions and improvements (herein referred to as "alterations") in the demised Premises, provided that such alterations do no affect utility services or plumbing and electrical lines or other systems of the Building. All alterations shall be preformed in accordance with the following conditions:

(a) All alterations costing more than fifteen thousand ($15,000.00) dollars shall be performed in accordance with plans and specifications first submitted to Landlord for its prior written approval. Landlord shall be given, in writing, a good description of all other alterations.

(b) All alterations shall be done in a good and workmanlike manner. Tenant shall, prior to commencement of any such alterations, at its sole cost and expense, obtain or cause to be obtained and exhibit to Landlord any governmental permit required in connection with such alterations.

(c) All alterations shall be done in compliance with all other applicable provisions of this Lease and with all applicable laws, ordinances, directions, rules and regulations of governmental authorities having jurisdiction, including, without limitation, the Americans with Disabilities Act of 1990 and New York City Local Law No. 57/87 and similar present or future laws, and regulations issued, pursuant thereto, and also New York City Local Law No. 76 and subject to the terms of Article 56, and similar present or future laws, and regulations issued pursuant thereto, on abatement, storage, transportation and disposal of asbestos, which work, if required, shall be effected at Tenant's sole cost and expense, by contractors and consultants approved by Landlord and in strict compliance with the aforesaid rules and regulations and with Landlord's rules and regulations thereon.

(d) All work shall be performed with union labor having the proper jurisdictional qualifications.

(e) Tenant shall keep the Building and the demised Premises free and clear of all liens for any work or material claimed to have been furnished to Tenant or to the demised Premises.

(f) Prior to the commencement of any work by or for Tenant, Tenant shall furnish to Landlord certificates evidencing the existence of the following insurance:

(i) Workmen's compensation insurance covering all persons employed for such work and with respect to whom death or bodily injury claims could be asserted against Landlord, Tenant or the demised Premises.

(ii) Board form general liability insurance written on an occurrence basis naming Tenant as an insured and naming Landlord and its designees as additional insureds, with limits not less than three million ($3,000,000.00) dollars combined single limit for personal injury in any one occurrence, and with limits of not less than five hundred thousand ($500,000.00) dollars for property damage (the foregoing limits may be revised from time to time by Landlord to such higher limits as Landlord from time to time reasonably requires). Tenant at its sole cost and expense, shall cause all such insurance to be maintained at all time when the work to be performed for or by Tenant is in progress. All such insurance shall be obtained from a company authorized to do business in New York and shall provide that it cannot be canceled without thirty (30) days' prior written notice to Landlord. All policies, or certificates therefor, issued by the insurer and bearing notations evidencing the payment of premiums, shall be delivered to Landlord. Blanket coverage shall be acceptable, provided that coverage meeting the requirements of this paragraph is assigned to Tenant's location at the demised Premises.

(g) All work to be performed by Tenant shall be done in a manner which will not unreasonably interfere with or disturb other tenants and occupants of the Building.

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(h) Any alterations or other work and installations in and for the demised Premises, which shall be consented to by Landlord as provided herein if effected on Tenant's behalf at Tenant's requests by Landlord, its agents or contractors, and shall be paid for by the Tenant promptly when billed, at cost plus ten (10%) percent thereof for supervision and overhead, plus ten (10%) percent for general conditions, as additional rent hereunder.

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LANDLORD'S WORK

47. (a) Tenant has examined and agrees to accept the leased Premises in their existing condition and state of repair and understands that no work is to be performed by Landlord, except that Landlord's designated, wholly owned affiliate Emerald City Construction Corp., with reasonable dispatch, subject to delay by causes beyond its control or by the action or inaction of Tenant, shall perform the following work at Landlord's expense, subject to the provisions of
(b), below:

Landlord shall perform work in the Premises in a building standard manner utilizing building standard materials pursuant to the layout and work letter prepared by Design Consortium, drawing number PSA-5A, dated November 17, 1999 attached hereto and made a part hereof (the "Layout"). In supplement thereof, Tenant shall prepare, at its sole cost and expense, and submit to Landlord within fourteen (14) days of the execution and delivery of this Lease by the parties hereto construction documents necessary for Landlord to perform the work contained in the Layout ("Landlord's Work"), which construction documents shall be subject to the prior approval, provided that any variation between said construction documents and the Layout shall not increase Landlord's cost in its performance of Landlord's Work in the Premises. The aforementioned construction documents prepared by Tenant shall be suitable for filing with the Building Department of the City of New York. The performance by Landlord of Landlord's Work is expressly conditioned upon compliance by Tenant with all the terms and conditions of this Lease, including payment of rent.

The performance by Landlord of Landlord's work is expressly conditioned upon compliance by Tenant with all the terms and conditions of this Lease, including payment of rent.

(b) Any changes in or additions to the work and installations mentioned in paragraph (a) above which shall be consented to by Landlord as provided in Article 7 hereof, and further changes in or additions to be demised Premises after said work has been completed which shall be so consented to shall be made by Landlord, or its agents, but shall be paid for by Tenant promptly when billed at COST PLUS ONE AND ONE QUARTER (1 1/4%) PERCENT FOR INSURANCE, TEN (10%) PERCENT FOR OVERHEAD AND TEN (10%) PERCENT FOR GENERAL CONDITIONS, and in the event of the failure of Tenant so to pay for said changes or additions, Landlord at its option may consider the cost thereof, PLUS THE ABOVE PERCENTAGES, as additional rent payable by Tenant and collectible as such hereunder, as part of the rent for the next ensuing months.

(c) If Landlord's Work is substantially completed prior to the date first above set forth for the commencement of the term, then the term shall commence on the day ten (10) days following notice of such completion of Landlord's Work or upon occupancy of the Premises and shall expire on date set forth above as the expiration date. If the commencement term is other than the first (1st) day of a month, rent for the first (1st) month shall be adjusted.

(d) If Landlord's Work is not substantially completed and is delayed by acts, omissions or changes made or requested by Tenant, its agents, designers, architects or any other party acting or apparently acting on Tenant's behalf, then Tenant shall pay as hereinbefore provided rent and additional rent on a per diem basis for each day of delay of Landlord's substantial completion caused by Tenant or any of the aforementioned parties.

(e) Landlord's Work shall be deemed to be substantially completed notwithstanding that (i) minor or non-material details of construction, mechanical adjustment or decoration remain to be performed, provided, that said "Punch List Items" shall be completed by Landlord within a reasonable time thereafter or (ii) a portion of Landlord's Work is incomplete because construction scheduling requires that such work be done after incomplete finishing or after other work to be done by or on behalf of Tenant is completed.

(f) Tenant acknowledges and agrees that Landlord may be performing Landlord's Work or portion thereof simultaneously with Tenant's performance of its initial alteration work in the demised

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Premises, and that Tenant shall use reasonable efforts to coordinate with Landlord's affiliate, Emerald City Construction Corp., any such work performed by or on behalf of Tenant in the demised Premises.

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SIGNS

48. Supplementing Article 5 of the Rules and Regulations:

Tenant shall be permitted to affix a suitable sign, plaque or applied lettering made of brass or bronze on the entrance door of the demised Premises, subject to the prior written approval of Landlord with respect to location, number, type, size, shape and design thereof, and subject, also, to compliance by Tenant, at its expense, with all applicable legal requirements or regulations.

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BROKERAGE

49. A. Tenant represents and warrants to Landlord that it did not consult or negotiate with any broker, finder, or consultant with regard to the Premises other than SL Green Leasing, Inc., and that no other broker, finder or consultant participated in procuring this Lease. Tenant hereby indemnifies and agrees to defend and hold Landlord, its agents, servants and employees harmless from any suit, action, proceeding, controversy, claim or demand whatsoever at law or in equity that may be instituted against Landlord by anyone for recovery of compensation or damages for procuring this Lease or by reason of a breach or purported breach of the representations and warranties contained herein.

B. Landlord represents and warrants to Tenant that it did not consult or negotiate with any broker, finder, or consultant with regard to the Premises other than SL Green Leasing, Inc., and that no other broker, finder or consultant participated in procuring this Lease. Landlord hereby indemnifies and agrees to defend and hold Tenant, its agents, servants and employees harmless from any suit, action, proceeding, controversy, claim or demand whatsoever at law or in equity that may be instituted against Tenant by those who dealt with Tenant for recovery of compensation or damages for procuring this Lease or by reason of a breach or purported breach of the representations and warranties contained herein.

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FAILURE TO PROVIDE CONSENT

50. In no event shall Tenant be entitled to make, nor shall Tenant make any claim, and Tenant hereby waives any claim for money damages (nor shall Tenant claim any money damages by way of set-off, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord had unreasonably withheld, delayed or conditioned its consent or approval to any request by Tenant made under a provision of this Lease. Tenant's sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance or declaratory judgment which may be sought by arbitration before the American Arbitration Association on an expedited basis. In the event that Tenant demands arbitration under this Article, Landlord and Tenant shall jointly select an independent arbitrator (the "Arbitrator). In the event that Landlord and Tenant shall be unable to jointly agree on the designation of the Arbitrator within five (5) days after they are requested to do so by either party, then the parties agree to allow the American Arbitration Association, or any successor organization to designate the Arbitrator in accordance with the rules, regulations and/or procedures for expedited proceedings then obtaining of the American Arbitration Association of any successor organization. The Arbitrator shall conduct such hearings and investigations as he may deem appropriate and shall, within (10) days after the date of designation of the Arbitrator issue as determination as to whether Landlord's refusal to consent was unreasonable. The determination of the Arbitrator shall be conclusive and binding upon Landlord and Tenant and shall be set forth, along and with the Arbitrator's rationale for such choice, in a written report delivered to Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Article. The Arbitrator appointed pursuant to this Article shall be an independent real estate professional with at least ten (10) years' experience in leasing of properties which are similar in character to the Building. The Arbitrator shall not have the power to add to, modify or change any of the provisions of this Lease but shall have the power to direct Landlord to consent to such request.

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ASSIGNMENT AND SUBLETTING

51. Supplementing Articles 3 and 27 hereof:

A. Tenant, for itself, its heirs, distributees, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this Lease, no underlet, or suffer or permit the demised Premises or any part thereof to be used or occupied by others, without the prior written consent of Landlord in each instance. The merger or consolidation of a corporate tenant or subtenant where the net worth of the resulting or surviving corporation is less than the net worth of the tenant or subtenant immediately prior to such merger or consolidation shall be deemed an assignment of this Lease or of such sublease. If this Lease be assigned, or if the demised Premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, after notice and beyond the expiration of any applicable cure period, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the rent herein reserved, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Landlord to an assignment or underletting shall not in any way be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting. In no event shall any permitted subtenant assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Landlord's prior written consent in each instance. A modification, amendment or extension of a sublease shall be deemed a sublease. If any lien is filed against the demised Premises or the Building of which the same form a part for brokerage services claimed to have been performed for Tenant, other than by SL Green Leasing, Inc., whether or not actually performed, the same shall be discharged by Tenant within ten (10) days after Tenant receives notice thereof, at Tenant's expenses, by filing the bond required by law, or otherwise, and paying any other necessary sums, and Tenant agrees to indemnify Landlord and its agents and hold them harmless from and against any and all claims, losses or liability resulting from such lien for brokerage services rendered.

B. If Tenant desires to assign this Lease or to sublet all or any portion of the demised Premises, it shall first submit in writing to Landlord the documents described in Section C hereof, and shall offer in writing, (i) with respect to a prospective assignment, to assign this Lease to Landlord without any payment of moneys or other consideration thereof, or (ii) with respect to a prospective subletting, to sublet to Landlord the portion of the demised Premises involved ("Leaseback Area") for the term specified by Tenant in its proposed sublease or, at Landlord's option for the balance of the term of the Lease less one (1) day, and at the lower of (a) Tenant's proposed subrental or (b) at the same rate of fixed rent and additional rent, and otherwise on the same terms, covenants and conditions (including provisions relating to escalation rents), as are contained herein and as are allocable and applicable to the portion of the demised Premises to be covered by such subletting. The offer shall specify the date when the Leaseback Area will be made available to Landlord, which date shall be in no event earlier than thirty (30) days nor later than one hundred eighty (180) days following the acceptance of the offer. If an offer of sublease is made, and if the proposed sublease will result in all or substantially all of the demised Premises being sublet, then Landlord shall have the option to extend the term of its proposed sublease for the balance of the term of this Lease less one (1) day.

Landlord shall have a period of thirty (30) days from the receipt of such offer to either accept or reject the same. If Landlord shall accept such offer, Tenant shall then execute and deliver to Landlord, or to anyone designated or named by Landlord, an assignment or sublease, as the case may be, in either case in a form reasonably satisfactory to Landlord's counsel.

If a sublease is so made it shall expressly:

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(a) permit Landlord to make further subleases of all or any part of the Leaseback Area and (at no cost or expense to Tenant) to make and authorize any and all changes, alterations, installations and improvements in such space as necessary, provided that Tenant shall have no liability to restore any alterations made by Landlord or its subtenant;

(b) provide the Tenant will at all times permit reasonably appropriate means of ingress to and egress from the Leaseback Area;

(c) negate any intention that the estate created under such sublease be merged with any other estate held by either of the parties;

(d) provide that Landlord shall accept the Leaseback Area "as is" except that Landlord, at Tenant's reasonable expense, shall perform all such work and make all such alterations as may be required physically to separate the Leaseback Area from the remainder of the demised Premises and to permit lawful occupancy, it being intended that Tenant shall have no other cost or expense in connection with the subletting of the Leaseback Area;

(e) provide that the expiration of the term of such sublease (which shall be one day prior to the expiration date of this Lease) Tenant will accept the Leaseback Area in its then existing condition, subject to the foregoing, and subject to the obligations of Landlord to make such repairs thereto as may be necessary to preserve the Leaseback Area in good order and condition, ordinary wear and tear excepted.

Landlord shall indemnify and save Tenant harmless from all obligations under this Lease as to the Leaseback Area during the period of time it is so sublet, except for fixed annual rent and additional rent, if any, due under the within Lease, which are in excess of the rents and additional sums due under such sublease.

Subject to the foregoing, performance by Landlord, or its designee, under a sublease of the Leaseback Area shall be deemed performance by Tenant of any similar obligation under this Lease and any default under any such sublease shall not give rise to a default under a similar obligation contained in this Lease, nor shall Tenant be liable for any default under this Lease or deemed to be in default hereunder if such default is occasioned by or arises from any act or omission of the Tenant under such sublease or is occasioned by or arises from any act or omission of any occupant holding under or pursuant to any such sublease.

C. If Tenant requests Landlord's consent to a specific assignment or subletting, it shall submit in writing to Landlord (i) the name and address of the proposed assignee or subtenant, (ii) a duly executed counterpart of the proposed agreement of assignment or sublease, (iii) reasonably satisfactory information as to the nature and character of the business of the proposed assignee or subtenant and as to the nature of its proposed use of the space, and
(iv) banking, financial or other credit information relating to the proposed assignee or subtenant reasonably sufficient to enable Landlord to determine the financial responsibility and character of the proposed assignee or subtenant.

D. If Landlord shall not have accepted Tenant's offer, as provided in
Section B, then Landlord will not unreasonably withhold or delay its consent to Tenant's request for consent to such specific assignment or subletting. Any consent of Landlord under this Article shall be subject to the terms of this Article and conditioned upon there being no default by Tenant, beyond any grace period, under any of the terms, covenants and conditions of this Lease at the time that Landlord's consent to any such subletting or assignment is requested and on the date of the commencement of the term of any proposed sublease or the effective date of any proposed assignment.

E. Tenant understands and agrees that no assignment or subletting shall be effective unless and until Tenant, upon receiving any necessary Landlord's written consent (and unless it was theretofore

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delivered to Landlord) causes a duly executed copy of the sublease or assignment to be delivered to Landlord within ten (10) days after execution thereof. Any such sublease shall provide that the subtenant shall comply with all applicable terms and conditions of this Lease to be performed by the Tenant hereunder with respect to the space so sublet. Any such assignment of Lease shall contain an assumption by the assignee of all of the terms, covenants and conditions of this Lease to be performed by the Tenant arising from and after the effective date of such assignment.

F. Anything herein contained to the contrary notwithstanding:

1. Tenant shall not advertise (but may list with brokers) its space for assignment or subletting at a rental rate lower than the greater of the then Building rental rate for such space or the rental rate then being paid by Tenant to Landlord.

2. The transfer of a majority of the issued and outstanding capital stock of, or a controlling interest in, any corporate tenant or subtenant of this Lease or a majority of the total interest in any partnership Tenant or subtenant, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease of such sublease. The transfer of outstanding capital stock of any corporate tenant, for purposes of this Article, shall not include sale of such stock by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934 as amended, and which sale is affected through "over-the-counter market" or through any recognized stock exchange.

3. No assignment or subletting shall be made:

(a) To any person or entity which shall at that time be a tenant, subtenant or other occupant of any part of the Building of which the demised Premises form a part, or who dealt with Landlord or Landlord's agent (directly or through a broker) with respect to space in the Building during the six (6) months immediately proceeding Tenant's request for Landlord's consent;

(b) By legal representatives of the Tenant or by any person to whom Tenant's interest under this Lease passes by operation of law, except in compliance with the provision of this Article;

(c) To any person or entity for the conduct of a business which is not in keeping with the standards and the general character of the Building of which the demised Premises form a part.

(d) To any entity which is entitled to diplomatic or sovereign immunity or which is not subject to service of process in the State of New York or to the jurisdiction of the courts of the State of New York and the United States located in New York County.

G. Anything hereinabove contained to the contrary notwithstanding, the offer back to Landlord pursuant to the provisions of Section B hereof shall not apply to, and Landlord will not unreasonably withhold or delay its consent to an assignment of this Lease, or sublease of all or part of the demised Premises, to the parent of Tenant or to a wholly-owned subsidiary of Tenant or of said parent of Tenant, provided the net worth of transferor or sublandlord, after such transaction, is equal to or greater than its net worth immediately prior to such transaction, and provided also that any such transaction complies with the other provisions of this Article.

H. Anything hereinabove contained to the contrary notwithstanding, the offer back to Landlord pursuant to the provisions of Section B hereof shall not apply to, and Landlord will not unreasonably withhold or delay its consent to an assignment of this Lease, or sublease of all or part of the demised Premises, to any corporation (i) to which substantially all the assets of Tenant are transferred or (ii) into which Tenant may be merged or consolidated, provided that the net worth, experience and

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reputation of such transferee or of the resulting or surviving corporation, as the case may be, is equal to or greater than the net worth experience and reputation of Tenant and of any guarantor of this Lease immediately prior to such transfer and provided, also, that any such transaction complies with the other provisions of this Article.

No consent from Landlord shall be necessary under Subdivision G and H hereof where (i) reasonably satisfactory proof is delivered to Landlord that the net worth and other provisions of G or H, as the case may be, and the other provisions of this Article, have been satisfied and (ii) Tenant, in a writing reasonably satisfactory to Landlord's attorneys, agrees to remain primarily liable jointly and severally with any transferee or assignee, for the obligations of Tenant under this Lease, except that such writing shall not be necessary with regard to Subdivision H(ii).

I. If Landlord shall not have accepted any required Tenant's offer and/or Tenant effects any assignment or subletting, then Tenant thereafter shall pay to Landlord a sum equal to fifty (50%) percent of (a) any rent or other consideration paid to Tenant by any subtenant which (after (i) deducting the cost of Tenant, if any, in effecting the subletting, including reasonable alteration costs, commissions and legal fees and (ii) excluding from such sums any consideration paid solely for the sale of Tenant's business or Tenant's assets) is in excess of the rent allocable to the subleased space which is ten being paid by Tenant to Landlord pursuant to the terms hereof, and (b) any other profit or gain (after deducting any necessary expenses incurred) realized by Tenant from any such subletting or assignment. All sums payable hereunder by Tenant shall be payable to Landlord as additional rent upon receipt thereof by Tenant, provided that Tenant shall be entitled to recoup the sums set forth in
(a)(1) above prior to paying any such profits to Landlord.

J. In no event shall Tenant be entitled to make, nor shall Tenant make, any claim, and Tenant hereby waives any claims, for money damages (nor shall Tenant claim any money damages by way of set-off, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed its consent or approval to a proposed assignment or subletting as provided for in this Article. Tenant's sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance, injunction or declaratory judgment which may be sought by arbitration before the American Arbitration Association on an expedited basis. In the event that Tenant demands arbitration under this Article, Landlord and Tenant shall jointly select an independent arbitrator (the "Arbitrator"). In the event that Landlord and Tenant shall be unable to jointly agree on the designation of the Arbitrator within five (5) days after they are requested to do so by either party, then the parties agree to allow the American Arbitration Association, or any successor organization to designate the Arbitrator in accordance with the rules, regulations and/or procedures for expedited proceedings then obtaining of the American Arbitration Association of any successor organization. The Arbitrator shall conduct such hearings and investigations as he may deem appropriate and shall, within ten (10) days after the date of designation of the Arbitrator issue a determination as to whether Landlord's refusal to consent was unreasonable. The determination of the Arbitrator shall be conclusive and binding upon Landlord and Tenant and shall be set forth, along and with the Arbitrator's rationale for such choice, in a written report delivered to Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if any, in connection with any arbitration under this Article. The Arbitrator appointed pursuant to this Article shall be an independent real estate professional with at least ten (10) years' experience in leasing of properties which are similar in character to the Building. The Arbitrator shall not have the power to add to, modify or change any of the provisions of this Lease but shall have the power to direct Landlord to consent to such request.

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PORTER'S WAGE ESCALATION

52. Tenant shall pay to Landlord, as additional rent, Porter's Wage escalation, in accordance with this Article:

(a) DEFINITIONS: For the purpose of this Article, the following definitions shall apply:

(i) The term "Base Rate" as hereinafter set forth for the determination of Porter's Wage escalation, shall mean the labor rate determined as hereinafter provided, as of the first day of the calendar year 1999 (the "base year"). The term "comparative year" shall mean each calendar year, or portion thereof, subsequent to the base year.

(ii) For purposes of this Lease, the rentable square foot area of the presently demised Premises shall be deemed to be 8,064 square feet.

(iii) The term "labor rate" shall mean the average of the premium regular hourly wage rate, (without fringe benefits) plus any taxes applicable thereto, (1) for a porter and (2) for an office cleaner, determined as follows:

(1) The minimum regular hourly wage rate for porters with five
(5) years' service in Class A office buildings, from time to time established by Agreement between the Realty Advisory Board on Labor Relations, Inc., and Local 32B-32J of the Building Service Employees International Union AFL-CIO or by the successors to either or both of them; (this rate shall be used in computations under this Article whether or not porters' wages are actually paid by or for the Landlord or by independent contractors who furnish such services to the demised Premises or to the Building).

(2) The minimum regular hourly wage rate for office cleaners with five (5) years' service in Class A office buildings, from time to time established by agreement between the Realty Advisory Board on Labor Relations, Inc., and Local 32B-32J of the Building Service Employees International Union AFL-CIO or by the successors to either or both of them; (this rate shall be used in computations under this Article whether or not office cleaners' wages are actually paid by or for the Landlord or by independent contractors who furnish such services to the demised Premises or to the Building).

(3) As used herein, the term "porters" and the term "office cleaners" shall mean, respectively, that classification of employee engaged in the general maintenance and operation of office buildings most nearly comparable to that classification now applicable to porters or office cleaners, as the case may be, in the 1996-98 Agreement, as renewed with said Local 32B-32J (which classification is presently termed "others" in said Agreement).

(4) If any such union agreement shall require the regular employment of porters or office cleaners on days or during hours when overtime or other premium pay rates are in effect, then the minimum "regular hourly wage rate" as used above and subject to the other adjustments provided for herein, shall be deemed to mean the average hourly wage rate for the hours in a calendar week during which porters or office cleaners are required to be regularly employed (e.g., if, for example, as of October 1, 1997, an agreement between RAB and Local 32B-32J shall require the regular employment of Building porters for forty (40) hours during a calendar

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week at a regular hourly rate of three ($3.00) dollars for the first thirty (30) hours, and premium or overtime hourly wage rate of four dollars and fifty cents ($4.50) for the remaining ten (10) hours, then the regular straight time hourly wage rate under this Article, as of October 1, 1998, shall be deemed to be the total weekly wage rate of one hundred thirty-five ($135.00) dollars, divided by the total number of required hours of employment, forty (40) or $3.375).

(5) Subject to the provisions herein contained, and at Landlord's option, computation of the minimum regular hourly wage rate shall be based on the number of hours that a porter or office cleaner is expected to work in any comparison year. In determining said number of hours, Landlord may make reasonable estimates of the average number of days or hours not worked by an average porter or office cleaner, where such days or hours are not specified by, or vary with individual circumstances pursuant to, the union agreement.

If there is no such union agreement in effect at any time or prior to the term of this Lease, then all computations and payments shall, nevertheless, be made, but shall be on the basis of the regular hourly wage rates, plus any taxes applicable thereto, actually being paid or accrued at such time by the Landlord or by the contractor performing the cleaning services for Landlord for such porters or office cleaners, as the case may be, or, if there are no such persons employed at the Building, then such computation shall be based on the wage rates (without fringe benefits) of porters or office cleaners, as the case may be, at the Empire State Building, New York, New York. Appropriate retroactive adjustment shall thereafter be made if and when the minimum regular hourly wage rate pursuant to such agreement is finally determined; provided, however, that if as of the last day of any comparative year, no union agreement shall be in effect January 1, occurring in such comparative year, then the minimum regularly hourly wage rate computed as aforedescribed shall for all purposes hereof be deemed to be the minimum regular hourly wage rate of purposes of this Article, and that no retroactive adjustment shall be made with respect thereto.

(b) The parties acknowledge that the labor rate is intended to be an index in the nature of a cost of living or other such index; it is not intended to reflect the actual costs of wages or expenses for the Building.

(c) In the event that the labor rate in effect for the comparative year 2000 and any comparative year thereafter following the base year shall exceed the Base Rate, then Tenant shall pay to Landlord, as additional rent for such comparative year, an amount equal to the product obtained by multiplying (i) the rentable square foot area of the demised Premises, by (ii) one (1) cent for each cent (including any fraction of a cent) by which the labor rate in effect during such comparative year exceeds the Base Rate. Subject to subdivision (f) hereof, each such annual amount of additional rent shall commence to be payable, in equal monthly installments, as of the first day of the period for which such labor rate shall have changed; and, after Landlord shall furnish Tenant with an escalation statement relating to such increase in the labor rate, all monthly installments of rent shall contain an item of additional rent equal to one-twelfth (1/12) of the annual amount determined above, until a new change shall take place in the labor rate. In the event that the escalation statement is furnished to the Tenant after the commencement or effective date of any change in the labor rate, there shall be promptly paid by Tenant to Landlord the amount theretofore accrued or allocable to the period to the furnishing of the said escalation statement. In the event that the labor rate shall be changed or shall change more frequently than once a year, the adjustment shall similarly be made by Landlord in an additional escalation statement furnished by Landlord, so as to reflect such change in the monthly installments, as of the effective date of each such change.

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(d) The statements furnished by Landlord to Tenant, as provided above, shall be prepared in reasonable detail by Landlord. The statements thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant of the labor rate and Porter's Wage escalation additional rent for the periods represented thereby, unless Tenant within ninety (90) days after they are furnished shall in writing challenge their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate.

If Tenant shall so dispute said statement then, pending the resolution of such dispute, Tenant shall pay the additional rent to Landlord in accordance with the statements furnished by Landlord.

(e) In no event shall the fixed annual rent payable under this Lease be reduced by virtue of this Article.

(f) If the rent Commencement Date of this Lease is not the first day of the first comparative year, then the additional rent due hereunder for such first comparative year shall be a proportionate share of said additional rent for the entire comparative year, said proportionate share to be based upon the length of time that this Lease's term will be in existence during such first comparative year. Upon the date of any expiration or termination of this Lease (except termination because of Tenant's default), whether the same be the date hereinabove set forth for the expiration for the term or any prior or subsequent date, a proportionate share of said additional rent for the comparative year during which such expiration or termination occurs shall immediately become due and payable by Tenant to Landlord. The said proportionate share shall be based upon the length of time that this Lease shall have been in existence during such comparative year. Prior to or promptly after said expiration or termination, Landlord shall compute the additional rent, if any, due from Tenant as aforesaid, which computations shall either be based on that comparative year's labor rate(s) or be an estimate, based upon the most recent statements theretofore prepared by Landlord and furnished to Tenant. If an estimate is used, then Landlord thereafter shall cause statements to be prepared on the basis of that comparative year's actual labor rate(s) and, upon Landlord's furnishing such statement to Tenant. Landlord and Tenant shall make appropriate adjustments of amounts then owing or estimated payments theretofore made.

(g) Notwithstanding any cancellation or termination of the term of this Lease prior to the Lease's expiration date (except in the case of a cancellation by mutual agreement or Tenant's cancellation as of right) Tenant's obligation to pay any and all additional rent under this Article shall continue and cover all periods up to the Lease expiration date. Landlord's and Tenant's obligation to make the adjustments referred to in subdivision (f) above shall survive any expiration or sooner termination of the term of this Lease.

(h) Any delay or failure of Landlord in billing for any additional rent payable as hereinabove provided shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such additional rent hereunder, provided such failure does not continue for two (2) years beyond the expiration of the term of this Lease.

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RENT CREDIT

53. If and so long as Tenant is not in default under this Lease beyond any grace period, Tenant shall be entitled to a rent credit in the amount of $49,728.00, to be applied against the first (1st) and second (2nd) monthly installments of fixed annual rent (without electricity) accruing under this Lease after the Commencement Date (as defined in Article 55), so that Tenant shall occupy the demised Premises free of such fixed annual rent for that period; except that Tenant shall nevertheless be obligated from and after the Commencement Date of the term, to pay additional rents hereunder and to make payment of the ERIF portion of the fixed annual rent due under Article 40 hereof, (anything in said Article 40 to the contrary notwithstanding).

Anything contained hereinabove to the contrary notwithstanding, if Tenant at any time during the term of this Lease, breaches any material covenant, condition or provision of this Lease and fails to cure such breach within any applicable grace period, and provided that this Lease is terminated by Landlord because of such material default, then, in addition to all other damages and remedies herein provided and to which Landlord may be otherwise entitled, Landlord shall also be entitled to the repayment in full of any rent credit theretofore enjoyed by Tenant, which repayment Tenant shall make upon demand therefor provided , however, that the amount of such rent credit to be repaid hereunder shall be multiplied by a fraction, the denominator of which is one hundred twenty (120), and the numerator of which is the number of months, including portions thereof, remaining in the originally stated term of this Lease following such breach.

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MISCELLANEOUS

54. A. This Lease constitutes the entire agreement between the parties hereto and no earlier statement or prior written matter shall have any force or effect. Tenant agrees that it is not relying on any representations or agreements other than those contained in this Lease. This agreement shall not be modified or canceled except by written instrument subscribed by both parties. The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, successors and their permitted assigns.

B. This Rider modifies and supersedes certain provisions of the printed portion of this Lease. In the event any term, covenant, condition or agreement contained in this Rider to the Lease shall conflict or be inconsistent with any term, covenant, condition or agreement contained in the printed portion of this Lease, then the parties agree that the Rider provision shall prevail.

C. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted.

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COMMENCEMENT OF TERM

55. A. The Premises are leased for a term of approximately ten (10) years ("Term") which shall commence on a date ("Commencement Date") which shall be the earlier of:

(i) the date upon which Landlord's Work is substantially completed, or

(ii) the date Tenant or anyone claiming by, under or though Tenant first shall occupy any part of the Premises for the conduct of Tenant's business, and shall end on the last day of the calendar month in which the day preceding the tenth (10th) anniversary of the Commencement Date occurs ("Expiration Date") unless the term shall terminate sooner pursuant to any of the terms of this Lease or pursuant to law. Landlord shall notify Tenant (i) ten
(10) days prior to the date upon which it estimates that Landlord's Work will be substantially completed.

B. When the Commencement Date has occurred, Tenant, upon the request of Landlord, shall execute a statement prepared by Landlord, stating the Commencement Date unless Tenant disputes the correctness thereof. Any failure of Tenant to execute such statement shall not affect the Commencement Date as determined by Landlord.

C. Except as provided in this Article, Tenant expressly waives any right to rescind this Lease under Section 223-a of the New York Real Property Law or under any present or future statute of similar import then in force and further expressly waives the right to recover any damages, direct or indirect, which may result form Landlord's failure to deliver possession of the Premises on the Commencement Date. Tenant agrees that the provisions of this Article and Article 16 are intended to constitute "an express provision to the contrary" within the meaning of said Section 223-a.

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ACM

56. Notwithstanding anything to the contrary contained in this Lease, in the event of the existence of any asbestos-containing material (collectively, "ACM") within the Premises, Landlord shall (at its sole cost and expense) remove, enclose, encapsulate or otherwise manage such ACM as required by applicable law and shall use reasonable efforts to minimize interference with Tenant's permitted use of the Premises in complying with its obligations pursuant to said law, provided, however, that Tenant acknowledges and agrees that all such efforts shall be performed on normal business days during normal business hours, and provided to the extent that Tenant has not (i) disturbed such ACM, (ii) caused such ACM to become friable by the performance of any work or alterations in the Premises or (iii) installed same; in the event that any of the foregoing occur, then Tenant shall remove, enclose, encapsulate or otherwise manage such ACM as required by applicable law at its sole cost and expense.

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HAZARDOUS SUBSTANCES

57. Notwithstanding anything contained herein to the contrary, Landlord represents and warrants to Tenant that no proceeding has been instituted and, to the best of Landlord's knowledge, no proceeding is threatened, by any party or governmental body in any way relating to the existence of substances in the Premises deemed to be hazardous as a matter of law.

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INTERRUPTION OF SERVICES

58. If Landlord fails to make any repair or provide any service Landlord is obligated to provide under this Lease and as a result thereof, Tenant shall be not able to use and shall have discontinued its occupancy of all or any affected portion of the Premises for a period of thirty (30) consecutive days or more after notice thereof to Landlord then, except as provided in Article 10 hereof, Tenant shall be entitled to an abatement of rent with respect to the Fixed Annual Rent and Additional Rent allocable to such portion of the Premises which is not usable and is unoccupied for each day after said thirty (30) consecutive day period until said repair is substantially completed or services substantially restored by Landlord provided further, however, Tenant shall not be entitled to an abatement of rent in the event that such failure results from
(i) any installation, alteration or improvement which is not performed by Tenant in a good workmanlike manner, (ii) Tenant's failure to perform its obligations hereunder, or (iii) the negligence or tortious conduct of Tenant.

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FREIGHT ELEVATOR

Supplementing Article 4 of the Rules and Regulations:

59. No heavy or bulky materials including, but not limited to furniture, office equipment, packages, or merchandise ("Freight Items") shall be received in the Premises or Building by Tenant or removed from the Premises or Building by Tenant except on Mondays through Fridays between the hours of 7:30 a.m. and 5:00 p.m. ("Freight Hours") and by means of the freight elevators only. In the event that Tenant requires additional freight elevator service at hours other than those set forth above, Tenant shall provide Landlord with at least twenty-four (24) hours' prior notice. In such event, Tenant agrees that it shall pay to Landlord the charge prescribed for such additional freight service and further agrees that, in the event that additional freight service is requested for a weekend, the minimum charge prescribed by Landlord shall be for four (4) hours. Any damage done to the Building or Premises by Tenant, its employees, agents, servants, representatives and/or contractors in the course of moving any Freight Items shall be paid by Tenant upon demand by Landlord. Notwithstanding anything to the contrary contained in this Lease and the Rules and Regulations, at the time Tenant commences or vacates occupancy of the Premises, all Freight Items and other personal property of Tenant shall be delivered to or removed from the Building or Premises upon not les than twenty-four (24) hours' prior notice to Landlord and at times prescribed by Landlord.

Tenant shall not be charged for its use of freight service during its move into the Premises in connection with its initial occupancy thereof, provided that such use is during normal Freight Hours an provided that Tenant acknowledges and agrees that such use shall be on a non-exclusive, first-come, first-served basis.

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LETTER OF CREDIT

60. A. At any time during the term of this Lease, Tenant shall have the option to deposit with Landlord in substitution for or in lieu of the cash security deposit, deposited with Landlord pursuant to Article 32 hereof simultaneously with the execution of this Lease by Tenant, an unconditional, irrevocable, negotiable, commercial letter of credit in a sum equal to one hundred twenty thousand eight hundred eighty-five dollars and twenty cents ($120,885.20) (any such letter of credit deposited hereunder hereinafter called the "Credit"), to be held and used under the security deposit provisions of the Lease. Any such Credit shall be issued by a bank which is a member of the New York Cleaning House Association, naming Landlord (or its successor as Landlord) as beneficiary and authorizing the beneficiary to draw on the bank in said amount, or any portion thereof, available by the sight draft of the beneficiary (which may be executed on behalf of the beneficiary by its agent), without presentation of any other documents, statements or authorizations. The Credit shall have a term of at least twelve (12) months, and it shall by its terms be renewed, automatically, each year, by the bank, the last renewal of which shall be for a term set to expire not earlier than the date occurring ninety (90) days following the expiration of the term of this Lease, unless the bank gives written notice to the beneficiary, at least forty-five (45) days prior to the expiration date of the then existing Credit, that the bank elects that it not so be renewed. The Credit shall be transferable. All transfer fees shall be payable by Tenant. The bank shall further agree with drawers, endorsers, and all bona fide holders that drafts drawn under and in compliance with the terms of the Credit will be duly honored upon presentation to the bank at its main office located in New York, New York. The Credit shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500.

B. If during the term of this Lease, the Credit and/or the proceeds of all or part of said Credit become less than the full amount of the security hereinabove required, then and in such event Tenant shall, upon demand, deposit with Landlord the amount of any security/Credit theretofore used or applied by Landlord pursuant to the terms hereof in order that Landlord shall have the full security on hand at all times during the term of this Lease. If at the expiration of the term of this Lease, Landlord holds all or part of said Credit, and Tenant is not in default under any of the terms, covenants and conditions of this Lease, then Landlord will turn over said Credit to Tenant or assign it to the designee of Tenant.

C. It shall be the obligation of Tenant during the term of this Lease to deliver to Landlord at lest thirty (30) days prior to the expiration date of the then existing Credit, a renewal or extension of said Credit or a substitute Credit (each fully complying with the foregoing). If for any reason Landlord has not received such renewal or extension or substitute Credit within twenty (20) days prior to the expiration date of the then existing Credit, then and in such event Landlord shall be free to draw on the Credit and hold and use and apply the proceeds thereof in accordance with the security deposit provisions of this Lease. Tenant agrees to reimburse Landlord for any reasonable attorneys' fees incurred by Landlord in connection with reviewing the Credit and renewals, extensions or substitutions therefor, ensuring that the provisions of the Credit and any renewals, extensions or substitutions therefor comply with the provisions of this Article, drawing down upon the proceeds of Credit, or any renewals, extensions or substitution therefor, or ensuring that the security/Credit is maintained as required under this Lease.

D. Landlord and Tenant acknowledge and agree that Tenant may reduce either the amount of the cash security deposit or the Credit, as the case may be, by the sum of thirty-nine thousand eight hundred ninety-two dollars and thirteen cents ($39,892.13) on the fifth (5th) anniversary of the Commencement Date, so that the amount of the cash security deposit or the Credit held by Landlord from the fifth (5th) anniversary of the Commencement Date through the expiration of the term of this Lease shall be eighty thousand nine hundred ninety-three dollars and seven cents ($80,993.07) provided that (x) at the time of notice or the effective date of said reductions in the cash security deposit or the Credit, Tenant shall not then or at any time during the term of this Lease been in default in any of its obligations under this Lease beyond the expiration of any notice and cure period, (y) Tenant gives Landlord thirty

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(30) days' written notice of its intent to so reduce the cash security deposit or the Credit (z) provides Landlord with an amendment to said Credit issued by the bank which issued the Credit at the time of the foregoing reduction.

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CLEANING SPECIFICATIONS

A) GENERAL CLEANING - NIGHTLY

- Dust sweep all stone, ceramic tile, marble terrazzo, asphalt tile, linoleum, rubber, vinyl and other types of flooring

- Carpet sweep all carpets and rugs four (4) times per week

- Vacuum clean all carpets and rugs, once (1) per week

- Police all private stairways and keep in clean condition

- Empty and clean all wastepaper baskets, ash trays and receptacles; damp dust as necessary

- Clean all cigarette urns and replace sand or water as necessary

- Remove all normal wastepaper and tenant rubbish to a designated area in the Premises. (Excluding cafeteria waste, bulk materials, and all special materials such as old desks, furniture, etc.)

- Dust all furniture and window sills as necessary

- Dust clean all glass furniture tops

- Dust all chair rails, trim and similar objects as necessary

- Dust all baseboards as necessary

- Wash clean all water fountains

- Keep locker and service closets in clean and orderly condition

B) LAVATORIES - NIGHTLY (EXCLUDING PRIVATE & EXECUTIVE LAVATORIES)

- Sweep and mop all flooring

- Wipe clean all mirrors, powder shelves and bright work, including flushometers, piping and toilet seat hinges

- Wash and disinfect all basins, bowls and urinals

- Wash both sides of all toilet seats

- Dust all partitions, tile walls, dispensers and receptacles

- Empty and clean paper towel and sanitary disposal receptacles

- Fill toilet tissue holders, soap dispensers and towel dispensers; materials to be furnished by Landlord

- Remove all wastepaper and refuse to designated area in the Premises

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C) LAVATORIES - PERIOD CLEANING (EXCLUDES PRIVATE & EXECUTIVE LAVATORIES)

- Machine scrub flooring as necessary

- Wash all partitions, tile walls, and enamel surfaces periodically, using proper disinfectant when necessary

D) DAY SERVICES - DUTIES OF THE DAY PORTERS

- Police ladies' restrooms and lavatories, keeping them in clean condition

- Fill toilet dispensers; materials to be furnished by Landlord

- Fill sanitary napkin dispensers; materials to be furnished by Landlord

E) SCHEDULE OF CLEANING

- Upon completion of the nightly chores, all lights shall be turned off, windows closed, doors locked and offices left in a neat and orderly condition

- All day, nightly and periodic cleaning services as listed herein, to be done five nights each week, Monday through Friday, except Union and Legal Holidays

- All windows from the second (2nd) floor to the roof will be cleaned inside out quarterly, weather permitting

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OFFICE LEASE

between

67 BROAD STREET LLC

Landlord,

and

FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

Tenant.

Premises: Portion of the 19th Floor
67 a/k/a 75 Broad Street
New York, New York

STANDARD FORM OF OFFICE LEASE

AGREEMENT OF LEASE, made as of this 29th day of September, 1999 between 67 BROAD STREET LLC, a New York limited liability company, having an office at 152 West 57th Street, 60th Floor, New York, New York, party of the first part, hereinafter referred to as LANDLORD, and FUSION TELECOMMUNICATIONS INTERNATIONAL, INC., A New York corporation having an office at __________________________________, party of the second part, hereinafter referred to as TENANT.

WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from Landlord, the portion of the Nineteenth (19th) Floor (including the 19th floor setback) delineated as Space A on the rental plan annexed hereto and made a part hereof as Exhibit A (the "Demised Premises" or "demised premises", whether capitalized or not) in the building known as 67 a/k/a 75 Broad Street in the Borough of Manhattan, City of New York (the "Building" or "Building", whether capitalized or not), for the term of approximately ten (10) years and six (6) months (or until such term shall sooner cease and expire as hereinafter provided) which shall commence as provided in Article 52 (the "Commencement Date") and shall expire nevertheless on the last day of the 126th calendar month following the month in which the Commencement Date occurs (the "Expiration Date"), both dates inclusive, at annual rental rates, as provided in the Rent Schedule annexed hereto and made a part hereof as Exhibit B (the "fixed rent" or "Fixed Rent" or "Fixed Annual Rent," whether capitalized or not), which Tenant agrees to pay in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, in equal monthly installments in advance on the first day of each month during said term, at the office of Landlord or such other place as Landlord may designate, without any set off, counterclaim or deduction whatsoever except as otherwise provided in this Lease. The first (1st) monthly installment of fixed rent shall be paid upon execution of this Lease by Tenant.

The parties hereto, for themselves, their heirs, distributes, executors, administrators, legal representatives, successors and assigns, hereby covenant as follows:

1. RENT. Tenant shall pay the rent as above and as hereinafter provided.

2. OCCUPANCY. Tenant shall use and occupy the Demised Premises for telecommunications switching equipment and related administrative offices and for no other purpose.

3. ALTERATIONS: Tenant shall make no changes in or to the Demised Premises of any nature without Landlord's prior written consent provided, however, that Tenant may make purely decorative changes such as painting and installation of partitions and carpeting without Landlord's consent, but upon notice to Landlord. Subject to the prior written consent of Landlord, not to be unreasonably withheld or delayed and to the provisions of this Article, Tenant at Tenant's expense, may make non-structural alterations, installations, additions or improvements which do not materially affect utility services or plumbing and electrical lines, in or to the interior of the Demised Premises using licensed and reputable contractors or mechanics first reasonably approved by Landlord. All labor employed by Tenant shall be harmonious and compatible with the labor employed by Landlord and other tenants in the Building, it being agreed that if such labor shall be incompatible, Tenant shall forthwith on Landlord's demand withdraw such labor from the Demised Premises Notwithstanding the foregoing. Tenant must use Landlord's base building contractor for any electrical work in and to or from any base building electrical service rooms. Tenant shall, at its expense, before making any alterations, additions, installations or improvements obtain all permits, approval and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval thereof and shall deliver promptly duplicates of all such permits, approvals and certificates to Landlord. Tenant agrees to carry and will cause Tenant's contractors and sub-contractors to carry such workman's compensation, general liability, persons and property damage insurance as Landlord may reasonably require if any mechanic's lien is filed against the Demised Premises or the Building for work claimed to have been done for, or materials furnished to, Tenant, whether or not done pursuant to this Article, the same shall be discharged by Tenant within thirty (30) days after Tenant receives written notice thereof at Tenant's expense, by filing the bond required by law or otherwise. All fixtures and all paneling, partitions, railings and like

installations, installed in the Demised Premises at any time, either by Tenant or by Landlord on Tenant's behalf, shall, upon installation, become the property of Landlord and shall remain upon and be surrendered with the Demised Premises unless Landlord, by notice to Tenant no later than thirty (30) days prior to the date fixed as the termination of this lease, elects to relinquish Landlord's right thereto and to have them removed by Tenant, in which event the same shall be removed from the Demised Premises by Tenant prior to the expiration of the lease, at Tenant's expense. Landlord hereby requires Tenant to remove the Generator and all switching equipment and wiring and other equipment appurtenant thereto, as defined below. Nothing in this Article shall be construed to give Landlord title to or to prevent Tenant's removal of trade fixtures. moveable office furniture and equipment, but upon removal of any such furniture, fixtures and equipment from the Demised Premises or upon removal of other installations as may be permitted hereunder, Tenant shall immediately and at its expense, repair and restore the Demised Premises to the condition existing prior to installation and repair any damage to the Demised Premises or the Building due to such removal. All property permitted to be removed by Tenant at the end of the term remaining in the Demised Premises after Tenant's removal shall be deemed abandoned and may, at the election of Landlord, either be retained as Landlord's property or removed from the Demised Premises by Landlord, at Tenant's expense.

With respect to any proposed work, Tenant shall, submit (a) "load letter" evidencing Tenant's proposed floor and electrical loads and, upon completion thereof, (b) final "as built" plans.

4. REPAIRS: Landlord shall maintain and repair the exterior of and the public portions of the Building and all Building systems servicing the Demised Premises and all other portions of the Demised Premises for which Tenant is not responsible and which Tenant did not install, such as the base Building services and Building equipment located within the Demised Premises, (i.e., plumbing, which is not installed by Tenant etc.). Tenant shall, throughout the term of this lease, take good care of the Demised Premises including the windows and window frames and, the fixtures and appurtenances therein and at Tenant's sole cost and expense promptly make all repairs thereto and to the Building, whether structural or non-structural in nature, caused by or resulting from the carelessness, omission, neglect or improper conduct of Tenant, Tenant's servants, employees, invitees, or licensees. Tenant shall also repair all damage to the Building and the Demised Premises caused by the moving of Tenant's fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Tenant fails, after ten
(10) days notice, to commence and thereafter proceed with due diligence to make repairs required to be made by Tenant, the same may be made by the Landlord at the expense of Tenant, and the expenses thereof incurred by Landlord shall be collectible, as additional rent, within ten (10) days after rendition of a bill or statement therefore. If the Demised Premises be or become infested with vermin, as a result of Tenant's actions or inactions, Tenant shall, at its expense, cause the same to be exterminated. Tenant shall give Landlord prompt notice of any defective condition in any plumbing, heating system or electrical lines located in the Demised Premises and following such notice, Landlord shall remedy the condition with due diligence, but at the expense of Tenant (except to the extent such expense is actually reimbursed by Landlord's insurance company, but subject to the second paragraph of Article 9 hereof), if repairs are necessitated by damage or injury attributable to Tenant, Tenant's servants, agents, employees, invitees or licensees as aforesaid. There shall be no allowance to the Tenant for a diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord, Tenant or others making or failing to make any repairs, alterations, additions or improvements in or to any portion of the Building or the Demised Premises or in and to the fixtures, appurtenances or equipment thereof provided Landlord shall use reasonable efforts to minimize interference with Tenant's occupancy. The provisions of this Article 4 with respect to the making of repairs shall not apply in the case of fire or other casualty with regard to which Article 9 shall apply.

5. WINDOW CLEANING: Tenant will not clean nor require, permit, suffer or allow any window in the Demised Premises to be cleaned from the outside in violation of Section 202 of the NEW YORK STATE LABOR LAW or any other applicable law or of the Rules of the Board of Standards and Appeals, or of any other Board or body having or asserting jurisdiction.

6. REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS: Prior to the commencement of the lease term, if Tenant is then in possession, and at all times thereafter, Tenant shall, at Tenant's sole cost and expense, promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, commissions and boards and any direction of any public officer pursuant to law, and all orders, rules and regulations of the New York Board of Fire Underwriters, or the insurance Services Office, or any similar body which shall impose any violation, order or duty upon Landlord or Tenant with respect to the Demised Premises, whether or not arising out of Tenant's use or manner of use thereof, or, with respect to the Building, if arising out of Tenant's use or manner of use of the Demised Premises or the Building (including the use permitted under the lease). Nothing herein shall require Tenant to make structural repairs or alterations unless Tenant has, by its manner of use of the Demised Premises or method of operation therein, violated any such laws, ordinances, orders, rules, regulations or requirements with respect thereto. Tenant shall not do not permit any act or thing to be done in or to the Demised Premises which is contrary to law, or which will invalidate or be in conflict with public liability, fire or other policies of insurance at any time carried by or for the benefit of Landlord. Attached hereto as Exhibit D is a Certificate of Occupancy for the Building which Landlord will maintain in full force and effect throughout the term of this Lease. Tenant shall not keep anything in the Demised Premises except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization and other authority having jurisdiction, and then only in such manner and such quantity so as not to increase the rate for fire insurance applicable to the Building, nor use the Demised Premises in a manner which will increase the insurance rate for the Building or any property located therein over that in effect prior to the commencement of Tenant's occupancy. If by reason of failure to comply with the foregoing the fire insurance rate shall, at the beginning of this lease or at any time thereafter, be higher than it otherwise would be, then Tenant shall reimburse Landlord, as additional rent hereunder, for that portion of all fire insurance premiums thereafter paid by Landlord which shall have been charged because of such failure by Tenant. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make-up" or rate for the Building or Demised Premises issued by a body making fire insurance rates applicable to said Demised Premises, shall be conclusive evidence of the facts therein stated and of the items and changes in the fire insurance rates applicable to the Demised Premises. Tenant shall not place a load upon any floor of the Demised Premises exceeding the floor load per square foot area which it was designed to carry and which is allowed by law. Landlord reserves the right to prescribe the weight and position of all safes, business machines and mechanical equipment. Such installations shall be placed and maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's reasonable judgement, to absorb and prevent vibration, noise and annoyance.

7. SUBORDINATION: This lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which the Demised Premises form a part thereof, and to all renewals, modifications, consolidations, replacements and extensions of any such underlying leases and mortgages. This clause shall be self-operative and no further instrument or subordination shall be required by any ground or underlying lessor or by any mortgagee, affecting any lease or the real property of which the Demised Premises are a part. In confirmation of such subordination, Tenant shall execute within ten (10) days any certificate that Landlord may request.

Landlord agrees that it shall use best efforts (at no cost or expense to Landlord) to obtain and deliver to Tenant, as to the existing mortgage and mortgages hereafter made covering the real property of which the Demised Premises form a part, and/or any renewal, modification, consolidation, replacement and extension of the existing mortgage, or future mortgages, non-disturbance agreements in recordable form (or such agreement shall be contained in such mortgage or any renewal, modification, consolidation, extension or replacement thereof) from the holder of any such mortgage, providing in substance that provided Tenant shall have entered into possession and occupancy of the Demised Premises and commenced payment of fixed rent and additional rent hereunder, and so long as Tenant is not in default in its obligations for the payment of fixed rent and additional rent and in the performance of the other terms, covenants and conditions to be performed on its part under this Lease, its possession of the Demised Premises will not be disturbed during the term hereof, notwithstanding the foreclosure of any such mortgage, and Tenant will not be named as a party defendant in any foreclosure proceedings

brought for the recovery of possession, it being hereby covenanted and agreed to by Tenant that the holder of any such mortgage, or anyone claiming by, through or under said holder shall not be:

(a) liable for any act or omission for any prior landlord (including Landlord), or

(b) subject to any offsets or defenses which Tenant might have against any prior landlord (including Landlord), or

(c) bound by any fixed rent or additional rent or other charges which Tenant might have paid for more than the current month to a prior landlord (including Landlord), or

(d) bound by any modification of this Lease made without the consent of such mortgagee. The inability of Landlord to obtain such agreement shall not be deemed a default on Landlord's part of its obligations hereunder, or impose any claim in favor of Tenant against Landlord by reason thereof, or affect the validity of this Lease. Tenant agrees to (i) execute and deliver to such mortgagee a nondisturbance and attornment agreement in form and substance customarily adopted by such mortgagee and (ii) reimburse Landlord for all reasonable expenses incurred by Landlord in connection therewith, including legal expenses.

8. PROPERTY - LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY: Landlord or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the Building, nor for loss of or damage to any property of Tenant by theft or otherwise, nor for any injury or damage to persons or property resulting from any causes of whatsoever nature, unless caused by or due to the negligence or willful acts of Landlord, its agents, servants or employees. Landlord or its agents shall not be liable for any damage caused by other tenants or persons in, upon or about said Building or caused by operations in connection of any private, public or quasi public work. If at any time any windows of the Demised Premises are temporarily closed, darkened or bricked up (or permanently closed, darkened or bricked up, if required by law) for any reason whatsoever including, but not limited to Landlord's own acts, Landlord shall not be liable for any damage Tenant may sustain thereby and Tenant shall not be entitled to any compensation therefore nor any abatement or diminution of rent nor shall the same release Tenant from its obligations hereunder nor constitute an actual or constructive eviction. Tenant shall indemnify and save harmless Landlord against and from liabilities, obligations, damages, penalties, claims, costs and expenses for which Landlord shall not be reimbursed by insurance, including reasonable attorney's fees, paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents, contractors, employees, invitees, or licensees, of any covenant or condition of this lease, or the carelessness, negligence or improper conduct of the Tenant, Tenant's agents, contractors, employees, invitees or licensees. Tenant's liability under this lease extends to the acts and omissions of any sub-tenant and any sub-tenant agent, contractor, employee, invitee or licensee of any sub-tenant. In case any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon written notice from Landlord, will, at Tenant's expense, resist or defend such action or proceeding by counsel approved by Landlord in writing, such approval not to be unreasonably withheld.

Landlord shall indemnify and save harmless Tenant against and from all liabilities, obligations, damages, penalties, claims, costs and expenses for which Tenant shall not be reimbursed by insurance, including reasonable attorney's fees, paid, suffered or incurred as a result of any breach by Landlord or Landlord's agents of any covenant or condition of this Lease, or the carelessness, negligence or improper conduct of Landlord or Landlord's agents.

9. DESTRUCTION, FIRE AND OTHER CASUALTY: (a) If the Demised Premises or any part thereof shall be damaged by fire or other casualty, Tenant shall give immediate notice thereof to Landlord and this lease shall continue in full force and effect except as hereinafter set forth. (b) If the Demised Premises are partially damaged or rendered partially unusable by fire or other casualty, the damages thereto shall be repaired by and at the expense of Landlord and the rent, until such repair shall be substantially completed, shall be apportioned from the day following the casualty according to the

portion of the Demised Premises which is usable. (c) If the Demised Premises are substantially (i.e., 70% or more of the rentable area of the Demised Premises) damaged or rendered wholly unusable by fire or other casualty, then the rent shall be proportionately paid up to the time of the casualty and thenceforth shall cease until the date which is 15 days after the Demised Premises shall have been repaired and restored by Landlord, subject to Landlord's right to elect not to restore the same as hereinafter provided. (d) If the Demised Premises are rendered wholly unusable or (whether or not the Demised Premises are damaged in whole or in part) if the Building shall be so damaged that Landlord shall decide to demolish it or to rebuild it, then, in any such events, Landlord may elect to terminate this lease by written notice to Tenant, given within 90 days after such fire or casualty, specifying a date for the expiration of the lease, which date shall not be more than 60 days after the giving of such notice, and upon the date specified in such notice the term of this lease shall expire as fully and completely as if such date were the date set forth above for the termination of this lease and Tenant shall forthwith quit, surrender and vacate the Demised Premises without prejudice however, to Landlord's rights and remedies against Tenant under the lease provisions in effect prior to such termination, and any rent owing shall be paid up to such date and any payments of rent made by Tenant which were on account of any period subsequent to such date shall be returned to Tenant. Unless Landlord shall serve a termination notice as provided for herein, Landlord shall make the repairs and restorations under the conditions of (b) and (c) hereof, with all reasonable expedition, subject to delays due to adjustment of insurance claims, labor troubles and causes beyond Landlord's control. After any such casualty, Tenant shall cooperate with Landlord's restoration by removing from the Demised Premises as promptly as reasonably possible, all of Tenant's salvageable inventory and movable equipment, furniture, and other property. Tenant's liability for rent shall resume five (5) days after written notice from Landlord that the Demised Premises are substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty.

Each party hereby releases the other party (which term as used in this paragraph includes the employees, agents, officers and directors of the other party) from all liability whether for negligence or otherwise, in connection with loss covered by any insurance policies which the releaser carries with respect to the Demised Premises or any interest or property therein or, thereon (whether or not such insurance is required to be carried under this Lease), but only to the extent that such loss is collected under said insurance policies. Such release is also conditioned upon the inclusion in the policy or policies of a provision whereby any such release shall not adversely affect said policies or prejudice any right of the releaser to recover thereunder. Each party agrees that its insurance policies, aforesaid, will include such a provision so long as the same shall be obtainable without extra cost, or if extra cost shall be charged therefor, each party shall advise the other thereof of the amount of the extra cost, and the other party, at its election, may pay the same, but shall not be obligated to do so.

If the building or the Demised Premises shall be so damaged by fire or other casualty so as to interfere substantially with the use of or access to the Demised Premises by Tenant, and such casualty was not intentionally caused by Tenant's, its employees', agents' or contractors', actions or inactions or it shall have been mutually determined by Landlord and an independent architect, no later than sixty (60) days from the occurrence of the event, that such damage cannot be repaired within six (6) months from the date of the occurrence of the event, or if such damage is not actually repaired within said six (6) month period, then in either of such events, Tenant shall have the right, by giving written notice to Landlord to such effect within fifteen (15) days after it has been determined by Landlord that the damage can not be restored or repaired within the aforesaid period, or within fifteen (15) days after the expiration of the six (6) month outside date for rebuilding, to terminate this Lease and its obligations hereunder, in which event the fixed rent and additional rent shall be prorated to the date of the occurrence of such damage. If Tenant shall fail to serve such notice as aforesaid, then this Lease shall continue in full force and effect subject, however, to Landlord's right of termination as set forth in this Article 9.

In addition to Tenant's termination rights set forth above, in the event that such fire or other casualty occurs in the last year of the term of the Lease so as to interfere with the use of or access to the Demised Premises by Tenant (provided such fire or casualty is not intentionally caused by Tenant, its employees, agents or contractors), irrespective of the rebuilding time, then, in such event,

Tenant shall have the right to terminate this Lease within fifteen (15) days after such fire or casualty occurs and the term of the Lease shall expire, fifteen (15) days after the rendition of such notice with the same force and effect as if said date were the Expiration Date.

10. EMINENT DOMAIN: If the whole or any part of the Demised Premises shall be acquired or condemned by eminent domain for any public or quasi public use or purpose, then and in that event, the term of this lease shall cease and terminate from the date of title vesting in such proceeding and Tenant shall have no claim for the value of any unexpired term of said lease. Tenant shall have the right to make an independent claim to the condemning authority for the value of its moving expenses, personal property, trade fixtures and equipment provided such claim does not diminish Landlord's award.

11. ASSIGNMENT, MORTGAGE, ETC.: Tenant, for itself, its heirs, distributes, executors, administrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this Lease, nor underlet, or suffer or permit the Demised Premises or any part thereof to be used by others without the prior written consent of Landlord in each instance. Transfer of the majority of the stock of a corporate Tenant shall be deemed an assignment of this lease. If this lease be assigned, or if the Demised Premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, under-tenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Landlord to an assignment or underletting shall not in anyway be constructed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting.

12. ELECTRIC CURRENT: Tenant covenants and agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the Building or the risers or wiring installation and Tenant may not use any electrical equipment which, in Landlord's opinion will overload such installations or interfere with the use thereof by other tenants of the Building. The change at any time of the character of electric service shall in no manner make Landlord liable or responsible to Tenant, for any loss, damages or expenses which Tenant may sustain.

13. ACCESS TO PREMISES: Landlord or Landlord's agents shall have the right (but shall not be obligated) to enter the Demised Premises in any emergency at any time, and, at other reasonable times after giving reasonable notice, to examine the same and to make such repairs, replacements and improvements as Landlord may reasonably deem necessary and reasonably desirable to any portion of the Building or which Landlord may elect to perform in the Demised Premises after Tenant's failure, after the giving of notice and the expiration of any applicable cure period, to make repairs or perform any work which Tenant is obligated to perform under this lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Landlord shall perform any work using all reasonable efforts to minimize interference and interruption with Tenant's occupancy and the conduct of its business in the Demised Premises. Tenant shall permit Landlord to use and maintain and replace pipes and conduits in and through the Demised Premises and to erect new pipes and conduits therein provided the same does not, in more than a de-minimus manner, reduce the area of the Demised Premises or ceiling heights. Landlord may, during the progress of any work in the Demised Premises, take all necessary materials and equipment into the Demised Premises without the same constituting an actual or constructive eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise. Throughout the term hereof, Landlord shall have the right to enter the Demised Premises at reasonable hours-after giving reasonable notice for the purpose of showing the same to prospective purchasers or mortgagees of the Building, and during the last nine (9) months of the term for the purpose of showing the same to prospective tenants and may, during said nine (9) months period, place upon the Building the usual notices "To Let" and "For Sale" which notices Tenant shall permit to remain thereon without molestation. If Tenant is not present to open and permit an entry into the Demised Premises, Landlord or Landlord's agents may enter the same whenever such entry may be necessary or permissible by master key or, in the case of an emergency, forcibly and provided reasonable care is exercised to

safeguard Tenant's property, such entry shall not render Landlord or its agents liable therefore, nor in any event shall the obligations of Tenant hereunder be affected. Landlord shall use reasonable efforts to minimize interference with Tenant's occupancy when exercising such access rights.

14. VAULT, VAULT SPACE, AREA: No Vaults, vault space or area, whether or not enclosed or covered, not within the property line of the Building is leased hereunder, anything contained in or indicated on any sketch, blue print or plan, or anything contained elsewhere in this lease to the contrary notwithstanding Landlord makes no representation as to the location of the property line of the Building. All vaults and vault space and all such areas not within the property line of the Building, which Tenant may be permitted to use and/or occupy, is to be used and/or occupied under a revocable license, and if any such license be revoked or if the amount of such space or area be diminished or required by any federal, state or municipal authority or public utility, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of rent, nor shall such revocation, diminution or requisition be deemed an actual or constructive eviction. Any tax, fee or charge of municipal authorities for such vault or area shall be paid Tenant, if used by Tenant, whether or not specifically leased hereunder.

15. OCCUPANCY: Tenant will not at any time use or occupy the Demised Premises in violation of the Certificate of Occupancy issued for the Building. Tenant has inspected the Demised Premises and accepts them as is, subject to any Riders annexed hereto with respect to Landlord's Work, if any, except for latent defects which affect the Tenant's ability to occupy the Demised Premises for the permitted use. In any event, Landlord makes no representation as to the condition of the Demised Premises (except as otherwise set forth in this Lease) and Tenant agrees to accept the same subject to violations, whether or not of record, provided that such violations do not affect Tenant's ability to occupy the Demised Premises for the permitted use or perform its work. In the event such violations affect Tenant's ability to occupy the Demised Premises for the permitted use or to make alterations subject to Article 3, Landlord will remove or cure said violations.

16. BANKRUPTCY: (a) Anything elsewhere in this lease to the contrary notwithstanding, this lease may be cancelled by Landlord by sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (1) the commencement of a case in bankruptcy or under the laws of any state naming Tenant as the debtor, which, in the case of an involuntary bankruptcy, is not dismissed within ninety (90) days after the commencement thereof or (2) the making by Tenant of an assignment or any other arrangement for the benefit of creditors under any state statute. Neither Tenant nor any person claiming through or under Tenant, or by reason of any statute or order of court, shall thereafter be entitled to possession of the Demised Premises but shall forthwith quit and surrender the Demised Premises. If this lease shall be assigned in accordance with its terms, the provisions of this Article 16 shall be applicable only to the party then owning Tenant's interest in this lease.

(b) It is stipulated and agreed that in the event of the termination of this lease pursuant to (a) hereof, Landlord shall forthwith, notwithstanding any other provisions of this lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rental reserved hereunder for the unexpired portion of the term and the fair and reasonable rental value of the Demised Premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the Demised Premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of four percent (4%) per annum. If the Demised Premises or any part thereof be relet by Landlord for the unexpired term of said lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such reletting shall be deemed to be the fair and reasonable rental value for the part of the whole of the Demised Premises so re-let during the term of the re-letting. Nothing herein contained shall limit or prejudice the right of the Landlord to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such

damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above.

17. DEFAULT: A. If Tenant defaults in fulfilling any of the covenants of this lease other than the covenants for the payment of rent or additional rent, or if the Demised Premises becomes vacant or deserted; or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the Demised Premises shall be taken or occupied by Someone other than Tenant, or if this lease be rejected under Section 235 of Title 11 of the U.S. Code (bankruptcy code); in any one or more of such events, upon Landlord serving a written ten (10) days notice upon Tenant specifying the nature of said default and upon the expiration of said ten (10) days if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of a nature that the same cannot be completely cured or remedied within said ten (10) day period, and if Tenant shall not have diligently commenced curing such default within such ten (10) day period, and shall not thereafter with reasonable diligence and in good faith, proceed to remedy or cure such default, then Landlord may serve a written five
(5) days' notice of cancellation of this lease upon Tenant, and upon the expiration of said five (5) days this lease and the term thereunder shall end and expire as fully and completely as if the expiration of such five (5) day period were the day herein definitely fixed for the end and expiration of this lease and the term thereof and Tenant shall then quit and surrender the Demised Premises to Landlord but Tenant shall remain liable as hereinafter provided.

B. If the notice provided for in (1) hereof shall have been given and the term shall expire as aforesaid, or if Tenant shall make default in the payment of any item of rent reserved herein or any item of additional rent herein mentioned or any part of either or in making any other payment herein required: then and in any of such events, Landlord may dispossess Tenant by summary proceedings or otherwise, and the legal representative of Tenant or other occupant of the Demised Premises and remove their effects and hold the Demised Premises as if this lease had not been made, and Tenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end. If Tenant shall make default hereunder prior to the date fixed as the commencement of any renewal or extension of this lease, Landlord may cancel and terminate such renewal or extension agreement by written notice.

18. REMEDIES OF LANDLORD AND WAIVER OF REDEMPTION: In case of any such default, re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a) the rent, and additional rent, shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, (b) Landlord may re-let the Demised Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms, which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the term of this lease and may grant concessions or free rent or charge a higher rental than that in this lease, (c) Tenant or the legal representatives of Tenant shall also pay Landlord as liquidated damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and or covenanted to be paid and the net amount, if any, of the rents collected on account of the subsequent lease or leases of the Demised Premises for each month of the period which would otherwise have constituted the balance of the term of this lease. The failure of Landlord to re-let the Demised Premises or any part or parts thereof shall not release or affect Tenant's liability for damages hereunder provided, however, Landlord shall use commercially reasonable efforts to mitigate its damages by re-letting the Demised Premises. In computing such liquidated damages there shall be added to the said deficiency such reasonable expenses as Landlord may incur in connection with re-letting, such as legal expenses, attorneys' fees, brokerage, advertising and for keeping the Demised Premises in good order or for preparing the same for re-letting. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent day specified in this lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar proceeding. Landlord, in putting the Demised Premises in good order or preparing the same for re-rental may, at Landlord's option, make such alterations, repairs, replacements, and/or decorations in the Demised Premises as Landlord, in Landlord's reasonable judgment, considers advisable and necessary for the purpose of re-letting the Demised Premises, and the making of such alterations, repairs, replacements, and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way

whatsoever for failure to re-let the Demised Premises, or in the event that the Demised Premises are re-let, for failure to collect the rent thereof under such re-letting, and in no event shall Tenant be entitled to receive any excess, if any, of such net rents collected over the sums payable by Tenant to Landlord hereunder. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this lease of any particular remedy, shall not preclude Landlord from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws.

19. FEES AND EXPENSES: If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the terms or provisions in any Article of this lease beyond any applicable notice and cure periods, then, unless otherwise provided elsewhere in this lease, Landlord may immediately or at any time thereafter and without notice perform the obligations of Tenant hereunder. If Landlord, in connection with the foregoing or in connection with any default by Tenant in the covenant to pay rent hereunder, makes any reasonable expenditures or incurs any reasonable obligations for the payment of money, including but not limited to attorney's fees, in instituting, prosecuting or defending any action or proceedings, then Tenant will reimburse Landlord for such sums so paid or obligations incurred with interest and costs. The foregoing expenses incurred by reason of Tenant's default shall be deemed to be additional rent hereunder and shall be paid by Tenant to Landlord within five (5) days after rendition of any bill or statement to Tenant therefore. If Tenant's lease term shall have expired at the time of making of such expenditures or incurring of such obligations, such sums shall be recoverable by Landlord as damages.

20. BUILDING ALTERATIONS AND MANAGEMENT: Landlord shall have the right at any time without the same constituting an eviction and without incurring liability to Tenant therefore to run pipes and conduits through the Demised Premises and other building areas, make other repairs and to change the arrangement and or location of public entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets or other public parts of the Building and to change the name, number or designation by which the Building may be known provided the same does not in more than a de-minimus manner reduce the area of the Demised Premises or ceiling height and that Landlord shall use reasonable efforts to minimize interference with Tenant's occupancy. There shall be no allowance to Tenant for diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from Landlord or other Tenant making any repairs in the building or any such alterations, additions and improvements. Furthermore, Tenant shall not have any claim against Landlord by reason of Landlord's imposition of any reasonable controls of the manner of access to the Building by Tenant's invitees as the Landlord may deem necessary for the security of the Building and its occupants.

21. NO REPRESENTATIONS BY LANDLORD: Neither Landlord nor Landlord's agents have made any representations or promises with respect to the physical condition of the Building, the land upon which it is erected or the Demised Premises, the rents, leases, expenses of operation or any other matter or thing affecting or related to the Demised Premises or the Building except as herein expressly set forth and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this lease. Tenant has inspected the Building and the Demised Premises and is thoroughly acquainted with their condition and agrees to take the same "as is", except for latent defects which effect the Tenant's ability to occupy the Demised Premises for the permitted use, on the date possession is tendered and acknowledges that the taking of possession of the Demised Premises by Tenant shall be conclusive evidence that the said Demised Premises and the Building of which the same form a part were in good and satisfactory condition at the time such possession was so taken. All understandings and agreements heretofore made between the parties hereto are merged in this contract, which alone fully and completely expresses the agreement between Landlord and Tenant and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part, unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought.

22. END OF TERM: Upon the expiration or sooner termination of the term of this lease, Tenant shall quit and surrender to Landlord the Demised Premises, broom clean, in good order and condition, ordinary wear and damages which Tenant is not required to repair as provided elsewhere in this lease excepted, and Tenant shall remove all its property from the Demised Premises. Tenant's obligation to observe or perform its covenant shall survive the expiration or other termination of its lease. If the last day of the term of this Lease or any renewal thereof, falls on Sunday, this lease shall expire at noon on the preceding Saturday unless it be a legal holiday in which case it shall expire at noon on the preceding business day.

23. QUIET ENJOYMENT: Landlord covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the Demised Premises hereby demised, subject, nevertheless, to the terms and conditions of this lease.

24. FAILURE TO GIVE POSSESSION: If Landlord is unable to give possession of the Demised Premises on the date of the commencement of the term hereof, because of the holding-over or retention of possession of any tenant, undertenant or occupants, or if Landlord has not completed any work required to be performed by Landlord, or for any other reason, Landlord shall not be subject to any liability for failure to give possession on said date and the validity of the lease shall not be impaired under such circumstances, nor shall the same be construed in any manner to extend the term of this lease, but the rent payable hereunder shall be abated until after Landlord shall have given Tenant notice that the Demised Premises are substantially ready for Tenant's occupancy. If permission is given to Tenant to enter into the possession of the Demised Premises or to occupy any space in the Building other than the Demised Premises prior to the date specified as the commencement of the term of this lease, Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except as to the covenant to pay rent. The provisions of this Article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the NEW YORK REAL PROPERTY LAW.

25. NO WAIVER: The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this lease or of any of the Rules or Regulations, set forth or hereafter adopted by Landlord, shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this lease shall not be deemed a waiver of such breach and no provision of this lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount that the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement of any check, any letter accompanying any check or payment of rent be deemed an accord and satisfaction and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this lease provided. All checks tendered to Landlord as and for the rent of the Demised Premises shall be deemed payments for the account of Tenant. Acceptance by Landlord of rent from anyone other than Tenant shall not be deemed to operate as an attornment to Landlord by the payor of such rent or as a consent by Landlord to an assignment or subletting by Tenant of the Demised Premises to such payor, or as a modification of the provisions of this lease. No act or thing done by Landlord or Landlord's agents during the term hereby demised shall be deemed an acceptance of a surrender of said Demised Premises and no agreement to accept such surrender shall be valid unless in writing signed by Landlord. No employee of Landlord or Landlord's agent shall have any power to accept the keys of said Demised Premises prior to termination of the lease and the delivery of keys to any such agent or employee shall not operate as a termination of the lease or a surrender of the Demised Premises.

26. WAIVER OF TRIAL BY JURY: It is mutually agreed by and between Landlord and Tenant that the respective parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other (except for personal

injury or property damage) on any matters whatsoever arising out of or in any way connected with this lease, the relationship of Landlord and Tenant, Tenant's use of or occupancy of the Demised Premises, and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Landlord commences any summary proceeding for possession of the Demised Premises, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding except for mandatory counterclaims which would otherwise be waived.

27. INABILITY TO PERFORM: This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in no manner be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of strike or labor troubles or any cause whatsoever beyond Landlord's sole control including, but not limited to, government preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the condition of supply and demand which have been or are affected by war or other emergency.

Subject to the "force majeure" provision below, if due to any work or installation performed by Landlord under the Lease or failure by Landlord to perform its obligations under the Lease, (i) Tenant shall be unable for at least ten (10) consecutive business days to operate its business in the Demised Premises in substantially the same manner as such business was operated prior to the performance of such work or installation or such failure, and (ii) such interruption shall occur during business hours, the Fixed Rent and the Additional Rent shall be reduced on a per diem basis in the proportion in which the area of the part of the Demised Premises which is unusable bears to the total area of the Demised Premises for each day subsequent to the aforesaid ten (10) consecutive business day period that such portion of the Demised Premises remains unusable.

If Landlord is delayed or prevented from performing any of its obligations hereunder by reason of "force majeure" (as said term is hereinafter defined), the period of such delay or of such prevention shall be added to the time herein provided within which such obligation may be performed, except to the extent delayed by the wrongful acts or wrongful omissions or gross negligence of Landlord. The term "force majeure" as used in this Paragraph shall mean any period of delay which arises from or through Acts of God; strikes, lockouts or labor difficulty; explosion, sabotage, accident, riot or civil commotion; acts of war; fire or other casualty; legal requirements; delays caused by Tenant; and other cases beyond the reasonable control of Landlord.

28. NOTICES: Except as otherwise expressly provided in this Lease or by any Legal Requirement, every notice, demand, consent, approval, request or other communication (collectively, "notices") which may be or is required to be given under this Lease or by law shall be in writing and shall be sent by United States certified or registered mail, postage prepaid, return receipt requested or by overnight courier and shall be addressed:

A. If no Landlord, to Landlord's address set forth on the cover page hereof with a copy to Landlord's managing agent and attorney, respectively:

                           Newmark & Company Real Estate Co., Inc.
                           125 Park Avenue
                           New York, New York  10017

and to:                    Robert J. Oppenheimer, P.C.
                           c/o Olshan Grundman Frome Rosenzweig & Wolcsky LLP
                           505 Park Avenue
                           New York, New York  10022

                  B. If to Tenant, to Tenant's address set forth on the cover

page hereto with a copy to:

Greenberg Traurig 200 Park Avenue New York, New York 10166 Attention: Stephen L. Rabinowtiz

Notices shall be deemed delivered five (5) business days after being deposited in the United States Mail or on the next business day for overnight courier. A notice given by counsel for either party shall be deemed a valid notice if addressed and sent in accordance with the provisions of this Paragraph. Either party may designate, by similar written notice to the other party, any other address for such purposes. Each of the parties hereto waives personal or any other service other than as provided for in this Paragraph. Notwithstanding the foregoing, either party hereto may give the other party telefax notice of the need of emergency repairs. If there occurs any interruption of certified and registered mail service, lasting more than five
(5) consecutive business days, notices may be given by telefax or personal delivery, but shall not be effective until personality received by an executive officer of a party which is a corporation, or a member of a party which is a partnership or joint venture, or a principal of any other entity.

29. SERVICES PROVIDED BY LANDLORD: As long as Tenant is not in default under any of the covenants of this lease after notice and applicable cure periods, Landlord shall provide the following services:

A. ELEVATOR SERVICE.

(i) PASSENGER ELEVATOR SERVICE. Landlord shall provide necessary passenger elevator facilities twenty-four (24) hours a day, three hundred, sixty five (365) days a year.

(ii) FREIGHT ELEVATOR SERVICE. Landlord shall provide freight elevator service to the Demised Premises on a first-come, first-served basis (i.e., no advance scheduling) on business days from 8:00 a.m. to 4:30 p.m. Freight elevator service shall, provided same is available, be provided on a reserved basis at all other times, upon the payment of Landlord's then established charges therefore which shall constitute additional rent hereunder.

B. CLEANING SERVICES.

(i) Provided Tenant shall keep the Demised Premises in good order, Landlord, at Landlord's expense, shall cause the executive and administrative portions of the Demised Premises only to be cleaned. Tenant shall pay to Landlord within ten (10) days of Landlord's demand, Landlord's charges for cleaning work in the Demised Premises or the Building required because of
(i) misuse or neglect on the part of Tenant or its employees or visitors, (ii) use of portions of the Demised Premises for preparation, serving, or consumption of food or beverages, reproducing operations, private lavatories or toilets or other special purposes requiring greater or more difficult cleaning work than office areas, (iii) interior portioning glass surfaces, (iv) non-Building standard materials or finishes installed by Tenant or at its request. Landlord and/or its cleaning contractor and their employees shall have after hours access to the Demised Premises and the use of Tenant's light, power and water in the Demised Premises as may be reasonably required for the purpose of cleaning the Demised Premises.

(ii) Tenant, at Tenant's expense, shall cause all portions of the Demised Premises used for the storage, preparation, service or consumption of food or beverages to be cleaned daily in a manner satisfactory to Landlord, and to be exterminated against infestation by vermin, roaches or rodents regularly and, in addition, whenever there shall be evidence of any infestation.

(iii) Only Landlord or any one or more persons, firms or corporations authorized in writing by Landlord shall be permitted to act as maintenance contractor for any waxing, polishing, cleaning and maintenance work in the Demised Premises. Nothing herein contained shall prohibit Tenant from performing such work for itself by use of its regular employees. Landlord may fix, in its reasonable discretion, at any time and from time to time, the hours during which and regulations under which such services are to be furnished. Landlord expressly reserves the right to act as or to designate, at any time and from time to time, an exclusive contractor for all or any one or more of such services, provided that the quality thereof and the charges therefore are reasonably comparable to that of other contractors, and Landlord expressly reserves the right to exclude from the Building any person, firm or corporation attempting to furnish any of such services.

C. WATER. Landlord shall provide hot and cold water for ordinary lavatory and drinking purposes only, but if Tenant uses or consumes water for any other purposes or in unusual quantities, Landlord may install a water meter at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense in good working order and repair to register such water consumption and Tenant shall pay for water consumed as shown on said meter as additional rent as and when bills are rendered.

D. HEAT. See Article 54.

E. Landlord reserves the right, without same constituting an actual or constructive eviction or entitling Tenant to any abatement and/or diminution of fixed rent and/or additional rent, to stop services of the heating, elevators, plumbing, air-conditioning, power systems or cleaning or other services, if any, when necessary by reason of accident or for repairs, alterations, replacements or improvements necessary or desirable in the judgment of Landlord for as long as may be reasonably required by reason thereof. If the Building of which the Demised Premises are a part supplies manually-operated elevator service, Landlord at any time may substitute automatic-control elevator service and upon ten days' written notice to Tenant, proceed with alterations necessary therefore without in any manner affecting this lease or the obligation of Tenant hereunder. The same shall be done with a minimum of inconvenience to Tenant and Landlord shall pursue the alteration with due diligence.

30. CAPTIONS: The Captions are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this lease nor the intent of any provision thereof.

31. DEFINITIONS: The term "Landlord" as used in this lease means only the Landlord of the fee or of the leasehold of the Building, or the mortgagee in possession, for the time being of the land and Building (or the Landlord of a lease of the Building or of the land and Building) of which the Demised Premises form a part, so that in the event of any sale or sales of said land and Building or of said lease, or in the event of a lease of said Building, or of the land and Building, Landlord shall be and hereby is entirely freed and relieved of all covenants, liabilities and obligations of Landlord hereunder and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, at any such sale, or the said lessee of the Building, or of the land and Building, that the purchaser or the lessee of the Building has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. Notwithstanding the provisions of this Article 31 or of Article 34, no sale, assignment or transfer by Landlord of Tenant's security deposit (in connection with the sale, transfer or assignment by Landlord of its rights and obligations under this Lease and/or in the Building) shall operate to release Landlord from its responsibility and liability to Tenant for said security deposit, unless and until the party to whom such security deposit has been assigned or transferred has acknowledged to Tenant its receipt of such security deposit, and has assumed all of the obligations of Landlord with respect thereto. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. The term "business days" as used in this lease, shall exclude Saturdays, Sundays and all days observed by the State or Federal Government as legal holidays and those designated as holidays by the applicable Building service union employees service contract or by the applicable Operating Engineers contract with respect to HVAC service.

32. ESTOPPEL CERTIFICATE: Landlord and Tenant shall execute, acknowledge and deliver to the other, within ten (10) business days after request by Landlord or Tenant, a certificate stating: (a) that this lease is unmodified and in full force and effect (or, if there have been modifications, that this lease is in full force and effect, as modified, and identifying the modifications); (b) the commencement and expiration dates of the term of this lease; (c) the dates through which fixed rent and additional rent have been paid; (d) whether or not there is any existing default by Landlord or Tenant with respect to which a notice of default has been delivered, and if there is any such default, specifying the nature and extent thereof; (e) that this lease is subordinate to any existing or future mortgage placed by Landlord on the Building; and (f) whether or not there are any setoffs, defenses or counterclaims against the enforcement of any of the agreements, terms, covenants or conditions of this lease to be paid, compiled with or performed by Tenant. Any such certificate may be relied upon by Landlord and any mortgagee, purchaser or other person with whom Landlord may deal. In the event that Tenant fails to deliver the certificate required under this Article 32, same shall be deemed a default hereunder. Landlord and Tenant's only liability under this Article 32 is to be estopped from any claim contrary to the certificate executed therein.

33. RULES AND REGULATIONS: Tenant and Tenant's servants, employees, agents, visitors, and licensees shall observe faithfully, and comply strictly with, the Rules and Regulations annexed hereto and made a part hereof as Exhibit C and such other and further reasonable Rules and Regulations as Landlord or Landlord's agents may from time to time adopt provided such present and future Rules and Regulations are adopted and enforced in a consistent, non-discriminatory manner as to all tenants in the Building. Notice of additional rules or regulations shall be given in writing to Tenant in accordance with the provisions of Article 28 of this Lease. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Landlord or Landlord's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the New York office of the American Arbitration Association, whose determination shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice, in writing upon Landlord within fifteen (15) days after the giving of notice thereof.

34. SECURITY: Tenant shall, upon execution of this lease, deposit with Landlord the sum of SIX HUNDRED SEVENTY TWO THOUSAND SEVEN HUNDRED TWO AND 52/100 ($672,702.52) DOLLARS security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this lease and provided Tenant has not been and is not then in default under the terms, provisions an conditions of this Lease during the three year period hereinafter set forth, than effective on the Third Anniversary of the Rent Commencement Date, Tenant shall be entitled to a return of $168,175.63 (i.e., the Security shall then be $504,526.90); and, provided Tenant has not been and is not then in default under the terms, provisions and conditions of this Lease, then effective on the Fourth Anniversary of the Rent Commencement Date, Tenant shall be entitled to a return of $168,175.63 of the Security (i.e., the Security shall then be $336,351.27); and, provided Tenant has not been and is not then in default under the terms, provisions and conditions of this lease, then effective on the Fifth Anniversary of the Rent Commencement Date, Tenant shall be entitled to a return of $168,175.64 of the Security (i.e., the Security shall then be $168,175.74); it is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this lease, including, but not limited to the payment of rent and additional rent, and fails to cure the same within any applicable grace and/or notice periods, then, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this lease, including but not limited to, any damages or deficiency in the re-letting of the Demised Premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this lease, the security shall be promptly returned to Tenant. In the event of a sale of this land and Building or leasing of the Building, of which the Demised Premises form a part, Landlord shall have the right to transfer the security to the vendee or lessee and Landlord shall thereupon be released by Tenant from all liability for the return of such security; and Tenant agrees to look to the new Landlord solely for the return of said security, and it

is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.

In lieu of the cash security provided for in Article 34 hereof, Tenant may deliver to Landlord, as security pursuant to said Article 34, an irrevocable, clean, commercial letter of credit in the amount of $672,702.52 (the "Letter"), issued by a bank which is authorized by the State of New York to conduct banking business in New York State and is a member of the New York Clearing House Association, which shall permit Landlord (a) to draw thereon up to the full amount of the credit evidenced thereby in the event of any default by Tenant in the terms, provisions, covenants or conditions of this Lease or (b) to draw the full amount thereof to be held as cash security pursuant to Article 34 hereof if for any reason the Letter is not renewed within forty-five (45) days prior to its expiration date. The Letter (and each renewal thereof) shall (i) be for a term of not less than one (1) year (except that the last Letter shall be for a term expiring forty-five (45) days after the Expiration Date), (ii) expressly provide for the issuing bank to notify Landlord in writing not less than forty-five (45) days prior to its expiration as to its renewal or non-renewal, as the case may be, and (iii) if not so renewed each year (or later period of expiration) shall be immediately available for Landlord to draw up to the full amount of such credit (to be held as cash security pursuant to said Article 34). Not less than forty-five (45) days prior to the expiration date of each Letter (and every renewal thereof), Tenant shall deliver to Landlord a renewal or new Letter subject to all of the conditions aforesaid, all to the intent and purposes, that a Letter in the sum of $672,702.52 shall be in effect during the first three (3) years of this Lease and provided that Tenant has not been and is not then in default under the terms of this lease, that a Letter in the sum of $504,526.90 shall be in effect for the 3rd year of the term of this Lease; and provided Tenant has not been and is not then in default under the terms of this Lease, that a Letter in the sum of $336,351.27 shall be in effect for the 4th year of the term of this Lease and provided Tenant has not been and is not then in default under the terms of this Lease, that a Letter in the sum of $168,175.64 shall be in effect for the remainder of the Term of this Lease. Failure by Tenant to comply with the provisions of this Article shall be deemed a material default hereunder entitling Landlord to exercise any and all remedies as provided in this Lease for default in the payment of fixed rent and, to draw on the existing Letter up to its full amount.

The Security shall be deposited into an interest-bearing account with interest accruing to the benefit of Tenant and becoming part of the Security, minus the administrative fee allowed by law to be retained by Landlord. Such interest shall be paid to Tenant annually.

35. ADJACENT EXCAVATION - SHORING: If an excavation shall be made upon land adjacent to the Demised Premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demises Demised Premises for the purpose of doing such work as said person shall deem necessary to preserve the wall or the Building of which Demised Premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of rent.

36. SUCCESSORS AND ASSIGNS: The covenants, conditions and agreements contained in this lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributes, executors, administrators, successors, and except as otherwise provided in this lease, their assigns.

SEE RIDER ANNEXED HERETO AND MADE A PART HEREOF.

IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed this lease as of the day and year first above written.

LANDLORD:
67 BROAD STREET LLC

BY: ______________________________
NAME:
TITLE: A MEMBER

TENANT:
FUSION TELECOMMUNICATIONS
INTERNATIONAL, INC.

BY: ______________________________
NAME:
TITLE:

RIDER ANNEXED TO

LEASE FOR 67 A/K/A 75 BROAD STREET, NEW YORK, NEW YORK

TENANT: FUSION TELECOMMUNICATIONS INTERNATIONAL, INC.

SPACE: PORTION OF THE 19TH FLOOR

37. RIDER PROVISIONS PREVAIL:

If and to the extent that any of the provisions of this Rider conflict or are otherwise inconsistent with any of the preceding printed provisions of this Lease, or of the Rules and Regulations attached to this Lease, whether or not such inconsistency is expressly noted in this Rider, the provisions of this Rider shall prevail, and in case of inconsistency with said Rules and Regulations, the Rider shall govern and control.

38. ADDITIONAL DEFINITIONS:

For the purposes of this Lease and all agreements supplemental to this Lease, and all communications with respect thereto, unless the context otherwise requires:

1. The term "fixed rent" or "Fixed Rent" shall mean rent at the annual rental rate or rates provided for in Schedule B annexed hereto and made a part hereof.

2. The term "additional rent" shall mean all sums of money, other than fixed rent, and which become due and payable from Tenant to Landlord hereunder, and Landlord shall have the same remedies therefore as for a default in payment of fixed rent.

3. The term "rent" and "rents" shall mean and include fixed rent and/or additional rent hereunder.

4. The terms "Commencement Date" and "Expiration Date" shall mean the dates fixed in this Lease, or to be determined pursuant to the provisions of this Lease, respectively, as the beginning and the end of the term for which the Demised Premises are hereby leased.

5. The term "lease Year" shall mean the twelve (12) month period commencing on the Commencement Date and each successive twelve (12) month period thereafter.

6. The term "Superior Lessee" or "Superior Mortgagee" shall mean any party then holding a ground lease or mortgage encumbering the land and/or Building.

39. ESCALATION FOR INCREASE IN REAL ESTATE TAXES:

A. As used herein:

1. "Taxes" shall mean to the extent payable by Landlord real estate taxes payable (adjusted after protest or litigation, if any) for any part of the term of this lease on the Building and/or the land (the "Land"), (i) any taxes which shall be levied in lieu of any such real estate taxes or which shall be levied on the gross rentals of the Building and/or the Land, and (ii) any special assessments against the Building and/or the Land which shall be required to be paid during the fiscal year in respect to which taxes are being determined. Such special assessments shall be deemed payable in the maximum number of installments permitted by law.

2. "Tax Year" shall mean each period of twelve (12) months, commencing on the first day of July of each such period, in which occurs any part of the term of this Lease or such other

period of twelve (12) months occurring during the term of this Lease as hereafter may be duly adopted as the fiscal year for real estate tax purposes of the City of New York.

3. "Base Tax" shall mean the Taxes for the 1999/2000 fiscal year (i.e., the fiscal tax year commencing July 1, 1999 and ending June 30, 2000) (the "Base Tax Year").

4. "Tenant's Proportionate Share" shall mean 2.20%.

B. If the Taxes for any Tax Year shall be greater than the Base Tax, then Tenant shall pay as additional rent for such Tax Year, a sum equal to Tenant's Proportionate Share of the amount by which the Taxes for such Tax Year are greater than the Base Tax (which amount is hereinafter called the "Tax Payment"). Should this Lease commence or terminate prior to the expiration of a Tax Year, such Tax Payment shall be prorated to, and shall be payable on or as and when ascertained after the Commencement Date or the Expiration Date as the case may be. Tenant's obligation to pay such additional rent and Landlord's obligation to refund pursuant to Paragraph C below, as the case may be, shall survive the termination of this Lease. If the Taxes for any Tax Year subsequent to the Base Tax Year, or an installment thereof, shall be reduced before such Taxes or such installment shall be paid, the amount of Landlord's reasonable costs and expenses of obtaining such reduction (but not exceeding the amount of such reduction) shall be added to and be deemed part of the Taxes for such Tax Year. Payment of additional rent for any Tax Payment due from Tenant shall be made as and subject to the conditions hereinafter provided in this Article.

C. Only Landlord shall be eligible to institute proceedings to contest the Taxes or reduce the assessed valuation of the land and Building. Landlord shall be under no obligation to contest the Taxes or the assessed valuation of the Land and the Building for any Tax Year and may settle any such contest on such terms as Landlord in its sole judgment considers proper. If Landlord shall receive a refund for any Tax Year for which a Tax Payment shall have been made by Tenant pursuant to Paragraph B above either in the form of repayment to Tenant or a credit against taxes for any Tax Year, Landlord shall refund or credit to Tenant, within twenty (20) days Tenant's Proportionate Share of such refund or credit (including experts' and attorneys' fees) of obtaining such refund or credit.

D. Landlord shall furnish to Tenant, prior to the commencement of any Tax Year, a written statement setting forth the Tax Payment for such Tax Year. Tenant shall pay to Landlord on the first day of each month during such Tax Year an amount equal to one-twelfth (1/12th) of the Tax Payment for such Tax Year. If, however, Landlord shall furnish any such statement for a Tax Year subsequent to the commencement thereof, then (i) until the first day of the month following the month in which such statement is furnished to Tenant, Tenant shall pay to Landlord on the first day of each month an amount equal to the monthly sum payable by Tenant to Landlord under this Paragraph in respect of the last month of the immediately preceding Tax Year; (ii) promptly after such statement is furnished to Tenant, Landlord shall give notice to Tenant stating whether the installments of the Tax Payment previously made for such Tax Year were greater or less than the installments of the Tax Payment to be made for such Tax Year in accordance with such statement and (a) if there shall be a deficiency, Tenant shall pay the amount thereof within twenty (20) days after demand therefore, or
(b) if there shall have been an overpayment, Landlord shall promptly either refund to Tenant the amount thereof or permit Tenant to credit the amount thereof against subsequent payments under this Article; and (iii) on the first day of the month following the month in which such statement is furnished to Tenant, and monthly thereafter throughout the remainder of such Tax Year, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12th) of the Tax Payment shown on such statement.

E. Landlord's failure during the lease term to prepare and deliver any tax statements or bills, or Landlord's failure to make a demand under this Article or under any other provision of this Lease shall not in any way waive Landlord's right to collect any such amounts due hereunder. Tenant's liability for the additional rent due under this Article shall survive the expiration or sooner termination of this Lease. Tenant's failure to demand a refund under this Article shall not in any way waive Tenant's right to collect any such amounts due hereunder.

F. In no event shall any adjustment of Tax Payments hereunder result in a decrease in the fixed rent or additional rent payable pursuant to any other provision of the lease, it being agreed that the payment of additional rent under this Article 39 is an obligation supplemental to Tenant's obligation to pay fixed rent of additional rent under this Article 39 is an obligation supplemental to Tenant's obligation to pay fixed rent.

40. INTENTIONALLY OMITTED.

41. FREE RENT:

Tenant shall have the right to use and occupy the Demised Premises free of fixed rent for the first eight (8) months following the Commencement Date, except that Tenant shall pay to Landlord all sums due under Article 46 hereof representing reimbursement to Landlord for the furnishing to Tenant of electric current during said period. Except for the free fixed rent allowance as herein provided, Tenant shall use and occupy the Demised Premises pursuant to all of the other terms, covenants and conditions of this lease.

42. AMENDING ARTICLE 11:

Notwithstanding the provisions of Article 11, and in modification and simplification thereof and except as provided in paragraphs H and J hereof:

A. If Tenant shall desire to assign this Lease or to sublet all or a portion of the Demised Premises, Tenant shall submit to Landlord a written request for Landlord's consent to such assignment or subletting, which request shall contain or be accompanied by the following information: (i) the name and address of the proposed assignee or subtenant; (ii) a duplicate original or photocopy of the proposed assignment agreement or sublease or a true and correct photocopy of the offer from the proposed assignee or subtenant signed by such proposed assignee or subtenant; (iii) the nature and character of the business of the proposed assignee or subtenant and its proposed use of the Demised Premises; and (iv) banking, financial and other credit information with respect to the proposed assignee or subtenant reasonably sufficient to enable Landlord to determine the financial responsibility of the proposed assignee or subtenant

Landlord shall then have the option to be exercised by written notice given to Tenant within thirty (30) days after receipt of Tenant's request for consent to require a surrender of the Demised Premises or portion thereof, upon the terms and conditions hereinafter provided.

B. If Landlord shall exercise its option to require a surrender of the Demised Premises or portion thereof as provided above, then upon the proposed commencement date of the subletting specified in Tenant's notice to Landlord, the Demised Premises or portion intended to be sublet, as the case may be, shall be surrendered to Landlord in accordance with the provisions of the Lease pertinent to Surrender, and this Lease shall cease and terminate insofar as the Demised Premises or portion thereof, as the case may be, with the same force and effect as though such proposed commencement date were the Expiration Date. If only a portion of the Demised Premises is involved, the terms and conditions of the Lease shall remain in full force and effect, except that the Fixed Rent and additional rent shall be proportionately reduced based upon the number of square feet of the portion of the Demised Premises surrendered. In addition, in the event that less than all of the Demised Premises is surrendered.

1. Landlord shall cause to be constructed, at Landlord's sole cost and expense, such alterations and connections as may be required in order to physically separate such surrendered the portion of the Demised Premises from the balance of the Demised Premises; and

2. At least thirty (30) days prior to the proposed commencement date specified above, Landlord shall have free access to enter to the Demised Premises in order to complete the construction referred to in "1" above and in connection therewith Landlord shall use reasonable efforts to minimize interference with Tenant's occupancy.

C. If Landlord does not exercise its option specified above, then Landlord's consent to a subletting of all or a portion of the Demised Premises or an assignment of Tenant's interest in this lease shall not be unreasonably withheld or delayed on further condition that:

1. The proposed subtenant or assignee shall not be a school of any kind, or an employment or placement agency or governmental or quasi governmental agency, medical office or executive recruitment office;

2. The subletting or assignment shall be to a tenant whose occupancy will be materially in keeping with the dignity and character of the then use and occupancy of the Building and whose occupancy will not be materially more objectionable or more hazardous than that of Tenant herein or impose any additional burden upon Landlord in the operation of the Building;

3. No space shall be advertised or openly promoted to the general public utilizing the name of the Landlord or any principal or partner thereof, or stating or otherwise characterizing a rental rate;

4. Provided comparable space is then available in the Building for rent, the proposed sublessee or assignee shall not be an occupant of any space in the Building or a party who dealt with Landlord or Landlord's agent (directly or through a broker) with respect to space in the Building during the six (6) months immediately preceding Tenant's request for Landlord's consent;

5. Tenant shall reimburse Landlord on demand for any reasonable costs that may be incurred in connection with any assignment or sublease, including, without limitation, the reasonable costs of making investigations as to the acceptability of the proposed assignee or subtenant and reasonable legal costs incurred in connection with the granting of any requested consent;

6. In case of a subletting, it shall be expressly subject to all of the obligations of Tenant under this Lease and the further condition and restriction that the subleased Demised Premises shall not be further sublet by the sublessee in which or in part, or any part thereof suffered or permitted by the sublessee to be used or occupied by others, without the prior written consent of Landlord in each instance.

7. Tenant, at Tenant's expense, shall provide and permit reasonably appropriate means of ingress to and egress from the space sublet by Tenant; and

8. Tenant is not then in default under the terms beyond any applicable notice and grace periods, covenants and conditions of this lease on Tenant's part to be observed and performed.

D. No permitted or consented to assignment or subletting shall be effective or valid for any purpose whatsoever unless and until a counterpart of the assignment or a counterpart or reproduced copy of the sublease shall have been first delivered to the Landlord, and, in the event of an assignment, the Tenant shall deliver to Landlord a written agreement executed and acknowledged by the Tenant and such assignee in recordable form wherein such assignee shall assume jointly and severally with Tenant the due performance of this Lease on Tenant's part to be performed for the balance of the term of this Lease notwithstanding any other or further assignment.

E. Any transfer by operation of law or otherwise, of Tenant's interest in this Lease or of a fifty (50%) percent or greater interest in Tenant (whether stock, partnership interest or otherwise) shall be deemed an assignment of this Lease for purposes of this Article except that the transfer of the outstanding capital stock of any corporate tenant shall be deemed not to include the sale of such stock by persons or parties through the "over-the-counter-market" or through any recognized stock exchange, other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1934, as amended.

F. Neither any assignment of Tenant's interest in this Lease nor any subletting, occupancy or use of the Demised Premises or any part thereof by any person other than Tenant, nor any collection of rent by Landlord from any person other than Tenant as provided in Article 11 hereof, nor any application of any such rent as provided in said Article 11 shall, in any circumstances, relieve Tenant of its obligations fully to observe and perform the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed.

G. Notwithstanding anything to the contrary contained herein, if Landlord shall consent to any assignment or subletting, then (i) in the case of an assignment, if Tenant shall receive any consideration from its assignee in connection with the assignment of this Lease. Tenant shall pay over to Landlord, as additional rent, a sum equal to fifty (50%) percent of any such consideration (including sums designated by the assignee as paid for the purpose of Tenant's property in the Demised Premises less the unamortized cost thereof), as shall exceed the brokerage commissions, alterations expenses and attorneys' fees and disbursements and other expenses reasonably incurred by Tenant for such assignment or (ii) if Tenant shall sublet the Demised Premises or any portion thereof to anyone for rents, additional charges or other consideration which for any period shall exceed the rents payable for the subleased space under this Lease for the same period, Tenant shall pay Landlord, as additional rent, a sum equal to fifty (50%) percent of any such excess less brokerage commissions, and attorneys' fees and disbursements or other expenses reasonably incurred by Tenant for such subletting. All sums payable to Landlord pursuant to subdivision
(i) of this Paragraph G shall be paid on the effective date of such assignment and all sums payable to Landlord pursuant to subdivision (ii) of this Paragraph G shall be paid on the date or dates such sums are received by Tenant by the subtenant.

H. Tenant may, without Landlord's prior written consent, but upon prior written notice to Landlord, assign or transfer its entire interest in this Lease and the leasehold estate hereby created or sublet the whole of the Demised Premises to a related corporation of Tenant (as hereinafter defined); provided, however, that (i) Tenant shall not be in default in any of the terms of this Lease beyond any applicable notice and cure periods, (ii) the proposed occupancy shall not increase the office cleaning requirements (if any) or impose an extra burden upon the building equipment or building services and (iii) the proposed subtenant or assignee shall not be entitled, directly or indirectly, to diplomatic or sovereign immunity and shall be subject to the service of process in, and the jurisdiction of the courts of, New York State. A "related corporation", as used in this Section shall mean a corporation controlled by Tenant or which controls Tenant or is under common control with Tenant. For the purposes hereof, "control" shall be deemed to mean ownership of not less than fifty (50%) percent of all of the voting stock of such corporation or not less than fifty (50%) percent of all of the legal and equitable interest in any other business entities. Any such subletting shall not be deemed to vest in any such related corporation any right or interest in this Lease or the Demised Premises nor shall it relieve, release, impair or discharge any of Tenant's obligations hereunder.

I. Each sublease shall provide that it is subject and subordinate to this Lease and to the matters to which this Lease is or shall be subordinate, and that in the event of default by Tenant under this Lease, Landlord may, at its option, take over all of the right, title and interest of Tenant, as sublessor, under such sublease, and such sublessee shall, at Landlord's option, attorn to Landlord pursuant to the then executory provisions of such sublease, except that Landlord shall not (i) be liable for any previous act or omission of Tenant under such sublease or, (ii) be subject to any offset not expressly provided in such sublease which theretofore accrued to such sublease to which Landlord has not specifically consented in writing or by any previous prepayment of more than one month's rent.

J. Tenant may, without Landlord's consent, but upon prior written notice to Landlord, assign or transfer its entire interest in this Lease and the leasehold estate hereby created or sublet the whole of the Demised Premises to a successor corporation of Tenant (as hereinafter defined); provided, however, that (i) Tenant shall not be in default in any of the terms of this Lease beyond applicable cure periods, (ii) the proposed occupancy shall not materially increase the office cleaning requirements (if any) or impose an extra burden upon the building equipment or building services and (iii) the proposed subtenant or assignee shall not be entitled, directly or indirectly, to diplomatic or sovereign immunity and shall be subject to the service of process in, and the jurisdiction of the courts of, New York State. A "successor

corporation", as used in this Section shall mean (a0 a corporation into which or with which Tenant, its corporate successors or assigns, is merged or consolidated, in accordance with applicable statutory provisions for the merger or consolidation of corporations, provided that by operation f law or by effective provisions contained in the instruments of merger or consolidation, the liabilities of the corporations participating in such merger or consolidation are assumed by the corporation surviving such merger or consolidation, or (b) a corporation acquiring this lease and the term hereof and the estate hereby granted, the goodwill and all or substantially all of the other property and assets (other than capital stock of such acquiring corporation) of Tenant, its corporate successors or assigns, and assuming all or substantially all of the liabilities of Tenant, its corporate successors and assigns, or (c) any corporate successor to a successor corporation becoming such by either of the methods described in subdivisions (a) and (b) above; provided that, immediately after giving effect to any such merger or consolidation, or such acquisition and assumption, as the case may be, the corporation surviving such merger or created by such consolidation or acquiring such assets and assuming such liabilities, as the case may be, shall have assets, capitalization and a net worth, as determined in accordance with generally accepted accounting principles, at lease equal to the assets, capitalization and net worth, similarly determined, of Tenant, its corporate successors or assigns, immediately prior to such merger or consolidation or such acquisition and assumption, as the case may be. The acquisition by Tenant, its corporate successors or assigns, of all or substantially all of the assets, together with the assumption of all or substantially all of the obligations and liabilities of any corporation, shall be deemed to be a merger for the purposes of this Article. For purposes hereof, the following entities shall be deemed a successor corporation or related entity provided they meet the foregoing requirements set forth in Paragraphs H and J:

o Clarion

o AIS

o C&F Switching, L.L.C.

43. ADDENDUM TO ARTICLE 3:

In connection with Landlord's agents' review, modification, approval, supervisor and/or coordination of plans and specifications for any Tenant work, Tenant shall, promptly upon demand, reimburse Landlord's agent for any reasonable out-of-pocket fees, expenses and other charges incurred by Landlord in connection with the review, modification and/or approval of such plans and specifications.

In performing any alterations or installations Tenant shall be responsible for the cost of compliance with all applicable governmental rules and regulations including without limitation The Americans With Disabilities Act of 1990, Public Law 101-336 42 U.S.C. Secs. 12101 et seq. together with all amendments thereto which may be adopted from time to time, and all regulations and rules promulgated thereunder.

44. LIMITATION OF LIABILITY:

Tenant agrees that the liability of Landlord under this Lease and all matters pertaining to or arising out of the tenancy and the use and occupancy of the Demised Premises, shall be limited to Landlord's interest in the Building. In no event shall Tenant make any claim against or seek to impose any personal liability upon any general or limited partner of Landlord, or any principal of any firm or corporation that hereafter becomes the Landlord.

45. INDEMNIFICATION AND INSURANCE:

A. Tenant shall indemnify and save harmless Landlord and its agents against and from any and all claims arising from any work or thing whatsoever done, or any condition created in or about the Demised Premises during the term hereof or arising from any negligent or wrongful acts or omission of Tenant or any of its subtenants or licensees or its or their employees, agents, visitors, invites or contractors or subcontractors.

Landlord shall indemnify and save harmless Tenant and its agents against and from any and all claims arising from any work or thing whatsoever done, or any condition created in or about the Demised Premises during the term hereof or arising from any negligent or wrongful acts or omissions of Landlord or any of its licensees or its or their employees, agents, visitors, invitees or contractors or subcontractors.

B. Tenant covenants to provide on or before the Commencement Date and to keep in force during the term hereof the following insurance coverage:

(i) For the benefit of Landlord, Tenant, and all Superior Mortgagees and Superior Lessees whose names are to be provided to Tenant, a comprehensive policy of liability insurance protecting and indemnifying Landlord, Tenant all Superior Mortgagees and Superior Lessees against claims for personal injury, death or property damage occurring upon, in or about the Demised Premises, and the public portions of the Building used by Tenant, its employees, agents, contractors, customers, invitees and visitors including, without limitation, personal injury, death or property damage resulting from any work performed by or on behalf of Tenant, with coverage of not less than Two Million (2,000,000.00) Dollars combined single limit for personal injury, death and property damage. The paid liability insurance shall include a broad form contractual liability endorsement protecting Tenant against loss arising out of liabilities assumed by Tenant by indemnity or otherwise.

(ii) Fire and extended coverage in an amount adequate to cover the cost of replacement of all personal property, fixtures, furnishing and equipment, including Tenant's work, located in the Demised Premises.

On or before the Commencement Date, Tenant shall deliver to Landlord certificates evidencing the aforesaid insurance coverage, and renewal policies or certificates shall be delivered to Landlord at least thirty (30) days prior to the expiration date of each policy with proof of payment of the premiums thereof.

C. All policies of insurance procured by Tenant shall be issued in form reasonably acceptable to Landlord by insurance companies with general policy holder's ratings of not less than A- and in a Financial Size Category of not less than VIII, as rated in the most current available "Best's" insurance reports and licensed to do business in the State of New York and authorized to issue such policy or policies;

D. All insurance procured by Tenant shall be issued in the names and for the benefit of Landlord (and each member thereof in the event Landlord is a partnership or joint venture whose names and addresses are to be furnished to Tenant), Landlord's managing agent, Tenant, and unless Landlord otherwise requests, any Superior Lessee and the Superior Mortgagee, as their respective interests may appear, and shall contain an endorsement that each of Landlord, the Superior Lessee and Superior Mortgagee, although named as an insured, nevertheless shall be entitled to recover under said policies for any loss or damage occasioned to it, its agents, employees, contractors, directors, shareholders, partners and principals (disclosed and undisclosed) by reason of the negligence of Tenant, its servants, agents, employees, and contractors. In the case of insurance against damage by fire or other casualty, the policy or policies shall provide that loss shall be adjusted with Landlord, and shall be payable to Landlord and/or the Superior Mortgagee and/or Superior Lessee as directed by the Landlord, to be held and disbursed by Landlord and/or the Superior Mortgagee under a standard mortgage clause;

E. All policies of insurance procured by Tenant shall contain endorsements providing as follows: (i) that such policies may not be materially changed, amended, reduced, canceled (including for non-payment of premium) or allowed to lapse with respect to Landlord or the Superior Lessor or the Superior Mortgagee except after thirty (30) days' prior notice from the insurance company to each, sent by registered mail; and (ii) that Tenant shall be solely responsible for the payment of all premiums under such policies and that Landlord or any other party named therein shall have no obligation for the payment thereof notwithstanding that Landlord or certain other parties may be named as an insured.

F. Each party hereby releases the other party (which term as used in this paragraph includes the employees, agents, officers and directors of the other party) from all liability whether for negligence or otherwise, in connection with loss covered by any insurance policies which the releaser carries with respect to the Demised Premises or any interest or property therein or, thereon (whether or not such insurance is required to be carried under this Lease), but only to the extent that such loss is collected under said insurance policies. Such release is also conditioned upon the inclusion in the policy or policies of a provision whereby any such release shall not adversely affect said policies or prejudice any right of the releaser to recover thereunder. Each party agrees that its insurance policies, aforesaid, will include such a provision so long as the same shall be obtainable without extra cost, or if extra cost shall be charged therefore, each party shall advise the other thereof of the amount of the extra cost, and the other party, at its election, may pay the same, but shall not be obligated to do so.

46. ELECTRIC CURRENT:

A. DEFINITIONS

For purposes of this Article 46, the following term shall have the following meanings:

The term "Landlord's Cost", shall mean, the then going cost per kilowatt hour and kilowatt to Landlord of purchasing electricity at the Building, from the Electricity Providers (herein defined) as adjusted from time to time for fuel adjustment charges, rate adjustment charges, sales tax, and/or any other factors.

The term "Electricity Provider" shall mean any utility and any other energy services company or companies that is supplying electric energy and capacity including but not limited to generation, transmission, distribution and other ancillary services, to the building and the Demised Premises, or directly to Tenant, regardless of whether such Electricity Provider generates its own electricity at or near the building or delivers such electricity over transmission and distribution equipment owned by the Electricity Provider, the local utility or any other Electricity Provider. Landlord may purchase such services from more than one Electricity Provider.

B. METHOD OF FURNISHING ELECTRIC CURRENT TO THE DEMISED PREMISES

Tenant agrees that Landlord, that subject to Paragraph 5 hereof, shall furnish 20 watts per rentable square foot electricity to Tenant on a "submetering" basis.

1. Submetering: Landlord shall, at Tenant's sole cost and expense, install a meter or meters (collectively, the "Submeter") at a location designated by Landlord. If and so long as electric current is supplied by Landlord to the Demised Premises or other Tenant controlled areas to service Tenant's equipment and the air conditioning units and other appurtenant equipment contained therein or elsewhere in the Building, Tenant will pay Landlord or Landlord's designated agent, as additional rent for such service, the amounts, as determined by the Submeter, for the purpose of measuring Tenant's consumption and demand. Such service shall be computed at Landlord's Cost, plus a fee (the "Overhead Charge") equal to nine (9%) percent of such charge to Landlord, representing administrative/overhead costs to Landlord. The amounts computed from the Submeter together with the Overhead Charge are herein collectively called the "Electricity Additional Rent". Landlord may increase the Electricity Additional Rent based upon any increase in Landlord's Cost. Where more than one meter measures the electric service to Tenant (including such electric energy as is consumed in connection with the operation of the ventilation and air conditioning equipment servicing the Demised Premises), the electric service rendered through each meter may be computed and billed separately as above set forth. Bills for the Electricity Additional Rent (the "Bills") shall be rendered to Tenant at such time as Landlord may elect. If any tax is imposed upon Landlord's receipts from the sale or resale of electric current to Tenant by any Federal, state or municipal authority, Tenant agrees that, unless prohibited by law, Tenant's

Percentage of such taxes shall be passed on to, and included in the bill of, and paid by Tenant to Landlord as additional rent.

2. Tenant agrees not to connect any additional electrical equipment of any type to the building electric distribution system, without Landlord's prior written consent, which consent shall not be unreasonably withheld. Any additional risers, feeders, or other equipment proper or necessary to supply Tenant's electrical requirements, upon written request of Tenant, will be installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's sole judgment, the same are necessary and will not cause permanent damage or injury to the building or the Demised Premises, or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repair or expense or interfere with or disturb other tenants or occupants.

3. Tenant's use of electric current in the Demised Premises shall not at any time exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Demised Premises which is and will continue to be 20 watts; 208 three phase, per rentable square foot. At Tenant's sole cost and expense, Landlord shall provide additional amperage at a cost of $350 per additional amp. Except as provided in Article 53, Tenant shall not make or perform or permit the making or performing of, any alterations to wiring, installations or other electrical facilities in or serving the Demised Premises without the prior consent of Landlord in each instance (which shall not be unreasonably withheld). Should Landlord grant any such consent, all additional risers or other equipment required therefore shall be installed by Landlord and the cost thereof shall be paid by Tenant upon Landlord's demand.

4. Except to the extent caused by either Landlord's or Electrical Provider's negligence, neither Landlord nor its Electrical Providers shall be liable in any way to Tenant for any failure or defect in the supply or character of electric energy furnished to the Demised Premises by reason of any requirement, act or omission of the utility serving the building with electricity or for any other reason.

5. Provided Landlord discontinues furnishing electric energy to a majority of the other Building tenants, Landlord reserves the right to discontinue furnishing electric energy to Tenant at any time upon thirty (30) days' written notice to Tenant, and from and after the effective date of such termination, Landlord shall no longer be obligated to furnish Tenant with electric energy, provided, however, that such termination date may be extended for a time reasonably necessary for Tenant to make arrangements to obtain electric service directly from the Electrical Provider approved by Landlord. If Landlord exercises such right of termination, this Lease shall remain unaffected thereby and shall continue in full force and effect; and thereafter Tenant shall diligently arrange to obtain electric service directly from the Electrical Provider approved by Landlord servicing the building, and may utilize the then existing electric feeders, risers and wiring serving the Demised Premises to the extent available and safely capable of being used for such purpose and only to the extent of Tenant's than authorized connected load. Landlord shall be obligated to pay no part of any cost required for Tenant's direct electric service.

6. Notwithstanding any provisions of this Article 46, in no event shall (a) the fixed rent under this Lease be reduced by virtue of this Article 46 and (b) the cost to Tenant for electric energy be less than 109% of Landlord's Cost.

47. BROKER:

Landlord and Tenant represent and warrant to the other that neither consulted nor negotiated with any broker or finder with regard to the rental of the Demised Premises from Landlord other than Newmark & Company Real Estate, Inc. and Cushman & Wakefield of New Jersey, Inc. (the "Broker"). Landlord and Tenant agree to indemnify and hold the other harmless from any claims, suits, damages, costs and

expenses suffered by the other by reason of any breach of the foregoing representation. Landlord shall pay any commission due either broker in accordance with Landlord's separate agreement with said brokers.

48. BINDING EFECT:

It is specifically understood and agreed that this Lease may be offered to Tenant for signature by the leasing or managing agent and is subject to Landlord's acceptance and approval, and that Tenant shall have affixed its signature hereto with the understanding that such act shall not, in any way, bind Landlord or its agent until such time as this Lease shall have been approved and executed by Landlord and delivered to Tenant.

49. MISCELLANEOUS:

A. Without incurring any liability to Tenant, Landlord may permit access to the Demised Premises and open the same, whether or not Tenant shall be present, upon demand of any receiver, trustee, assignee for the Benefit of creditors, sheriff, marshal or court officer entitled to, or reasonably purporting to be entitled to, such access for the purpose of taking possession of, or removing, Tenant's property or for any other lawful purpose (but this provision and any action by Landlord hereunder shall not be deemed a recognition by Landlord that the person or official making such demand has any right or interest in or to this Lease, or in or to the Demised Premises), or upon demand of any representative of the fire, policy, Building, sanitation or other department of the city, state or federal governments.

B. No receipt of monies by Landlord from Tenant, after any reentry or after the cancellation or termination of this Lease in any lawful manner, shall reinstate the lease, and after the service of notice to terminate this Lease, or after the commencement of any action, proceeding or other remedy, Landlord may demand, receive and collect any monies due, and apply them on account of Tenant's obligations under this Lease but without in any respect affecting such notice, action, proceeding or remedy, except that if a money judgment is being sought in any such action or proceeding, the amount of such judgment shall be reduced by such payment.

C. If Tenant is in arrears in the payment of fixed rent or additional rent, Tenant waives its right, if any, to designate the items in arrears against which any payments made by Tenant are to be credited and Landlord may apply any of such payments to any such items in arrears as Landlord, in its sole discretion, shall determine, irrespective of any designation or request by Tenant as to the items against which any such payments shall be credited.

D. No payment by Tenant nor receipt by Landlord of a lesser amount than may be required to be paid hereunder shall be deemed to be other than on account of any such payment, nor shall any endorsement or statement on any check or any letter accompanying any check tendered as payment be deemed an accord and satisfaction and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such payment due or pursue any other remedy in this Lease provided.

E. If in this Lease it is provided that Landlord's consent or approval as to any mater will not be unreasonably withheld, and it is established by a court or body having final jurisdiction thereover that Landlord has been unreasonable the only effect of such finding shall be that Landlord shall be deemed to have given its consent or approval, but Landlord shall not be liable to Tenant in any respect for money damages by reason of withholding its consent.

F. If payment of any Fixed Rent or Additional Rent shall not have been paid by the tenth (10th) day after the date on which such amount was due and payable, then, in addition to and without waiving or releasing any other remedies of Landlord, a late charge of three cents ($.03) for each dollar overdue shall be payable by Tenant to Landlord as damages for Tenant's failure to make prompt payment. In default of payment of any late charges, Landlord shall have (in addition to all other remedies) the same rights as provided in this Lease for nonpayment of Fixed Rent. Nothing in this

Section contained and no acceptance of late charges by Landlord shall be deemed to extend or change the time for payment of Fixed Rent or Additional Rent.

G. If the Expiration Date or the date of sooner termination of this Lease shall fall on a day which is not a business day, then Tenant's obligations pursuant to Article 22 hereof shall be performed on or prior to the next succeeding business day. Tenant expressly waives, for itself and for any person claiming through or under Tenant, any rights which Tenant or any such per son may have under the provisions of Section 2201 of the New York Civil Practice Law and Rules and of any similar or successor law of same import then in force, in connection with any holdover proceedings which Landlord may institute to enforce the provisions of this Lease. If the Demised Premises are not surrendered within sixty (60) days after the termination of this Lease, Tenant hereby indemnifies Landlord against liability resulting from delay by Tenant in so surrendering the Demised Premises, including any claims made by any succeeding tenant or prospective tenant founded upon such delay. In the event Tenant remains in possession of the Demised Premises after the termination of this Lease without the execution of a new lease, Tenant, at the option of Landlord, shall be deemed to be occupying the Demised Premises as a tenant from month to month, at a monthly rental equal to 200% times the fixed rent and additional rent payable during the last month of the term, subject to all of the other terms of this Lease insofar as the same are applicable to a month-to-month tenancy. Tenant's obligations under this Paragraph shall survive the expiration or sooner termination of this Lease.

H. This Lease shall be governed in all respects by the laws of the State of New York. Tenant hereby specifically consents to jurisdiction in the State of New York in any action or proceeding arising out of this Lease and/or the use and occupation of the Demised Premises.

I. Except for those materials normally and ordinarily used in connection with office cleaning, etc., Tenant shall not cause or permit any Hazardous Materials. (hereinafter defined) to be used, stored, transported, released, handled, produced or installed in, on or from the Demised Premises or the Building in violation of applicable law. "Hazardous Materials", as used herein, shall mean any flammables, explosives, radioactive materials, hazardous wastes, hazardous and toxic substances or related materials, asbestos or any material containing asbestos, or any other substance or material included in the definition of "hazardous substances", hazardous wastes", "hazard materials", "toxic substances", "contaminants" or any other pollutant, or otherwise regulated by and Federal, state or local environmental laws, ordinance, rule or regulation including, without limitation, the Comprehensive Environmental Responses Compensation and Liability Act of 1980, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, and in the regulations adopted and publications promulgated pursuant to each of the foregoing. In the event of a violation of any of the foregoing provisions of this Paragraph, Landlord may, without notice and without regard to any grace period contained herein, take all remedial action deemed necessary by Landlord to correct such condition and Tenant shall reimburse Landlord for the cost thereof, upon demand, as additional rent.

J. The individual signatories to this lease each represent that they are duly authorized to execute this document.

K. Any representations made by any other party other than Landlord itself shall not be binding upon Landlord.

L. To the extent that Tenant required use of any riser space i.e., vertical or horizontal running of piping, conduit, wire or fiber optics whether or (not encased in conduit) the following charges (subject to adjustment as provided below) shall apply.

1. $2.00 per linear foot per annum for 2" conduits.

2. $4.00 per linear foot per annum for 4" conduits.

3. $6.00 per linear foot per annum for 6" conduits.

The aforesaid charges shall increase 3% per annum.

50. DOWNTOWN TAX APPLICATION:

Landlord and Tenant hereby acknowledge and agree that Tenant, at Tenant's sole cost and expense, may make application (the "Application") after the Commencement Date of this Lease to the appropriate governmental authority in order to receive certain tax abatements (the "Tax Abatement" for the Building pursuant to "The Lower Manhattan commercial Revitalization Program") (the "Program") created by Title 4A of Article 4 of the real Property Tax Law, ss.ss.499-a ET. SEQ. (the "Law"); provided, however, Tenant shall not make the Application (nor continue with its being processed) unless all of the following are and remain true and correct (and all of which are in any event hereby agreed to and acknowledged by Tenant), (whereby, if all of the following are and remain true and correct, Landlord shall cooperate with Tenant in Tenant's attempt to obtain the Tax Abatement for the Building by joining in the Application): (i) Tenant shall file the Application, and all related documentation in accordance with all time frames and schedules as may be required by the law (and all related rules and regulations) and the Program; (ii) Tenant meets all eligibility requirements for the Program with respect to the Premises (and, in this regard, upon request, Tenant shall promptly deliver to Landlord all information and documentation reasonably requested by Landlord with respect to the Program, and Tenant's eligibility thereunder, with respect to the Premises);
(iii) Landlord shall incur no cost or expense in connection with the Application or the Tax Abatement (as well as in connection with its being obtained); (iv) Landlord has not made, nor will Landlord be making, any representations or warranties whatsoever regarding the feasibility of obtaining the Tax Abatement (or any facts or circumstances related thereto), or whether any Tax Abatement which may be received will subsequently be reduced or eliminated, or regarding Tenant's eligibility for receiving the Tax Abatement, or whether this Lease properly conforms with requirements imposed by the Program, or whether the appropriate expenditures as may be imposed by the Program will be made at the Premises and the Building (and Landlord is not required to perform any other work other than as may expressly be set forth in this Lease/ (v) all information which may be or is set forth on the Application as well as on all related documentation shall be true and correct in all respects and, in this regard, Tenant shall indemnify and hold Landlord harmless from any and all claims, losses, expenses or liabilities in connection with any inaccuracy; (vi) Landlord shall incur no liability whatsoever in connection with the Application, or any other related documentation, the Program, or the Tax Abatement (or in connection with its being obtained) and, in this regard, Tenant shall indemnify and hold Landlord harmless from any and all claims, losses, expenses or liabilities in connection therewith; and (vii) Tenant complies, and continues to comply, at all times with all of the provisions and requirements of the Program, including without limitation, all eligibility requirements, together with the rules promulgated thereunder and, in this regard, Tenant shall indemnify and hold Landlord harmless from any claims, losses, expenses or liabilities in connection with Tenant's failure to so comply.

Notwithstanding the above, Landlord, upon written request made by Tenant, agrees to join with Tenant in signing the Application (to the extent Landlord is required by the Program to do so), provided, however, Landlord shall not be required to join in if any of the terms or conditions set forth above are untrue in any respect, or if Tenant is in default (after applicable notice and cure periods) under this Lease (and, in this regard, to the extent Landlord does so join in it shall not be deemed to be an acknowledgment by Landlord that any of the applicable provisions or requirements set forth above are necessarily true, nor shall the joining in ever be deemed to be a waiver of any such provisions or requirements).

Provided all of the terms and conditions set forth above in this Article are fully complied with by Tenant and Tenant is not otherwise in default (after applicable notice and cure periods) under this Lease (including, without limitation, as provided in this Paragraph above), the, in such event, Landlord shall provide Tenant with a credit (the "Tax Credit") against the Tax Amount payable by Tenant under this Lease in an amount for any applicable Tax Year occurring during the Term which equals (but does not exceed) the full amount of such particular Tax Year of the Tax Abatement which is exclusively attributable to the Premises pursuant to the Program and which is actually received by Landlord (with such amount being called the "Actual Benefits").

In addition, as set forth in the Law, all abatements granted under the Program with respect to the Building pursuant to the Program will automatically be revoked (without notice) if, during the benefit period, real estate taxes or water or sewer charges or other lienable charges are unpaid for more than one year, unless such delinquent amounts are paid as provided in the Law.

The provisions of this Article shall survive the expiration or earlier termination of this Lease.

Pursuant to and in connection with the foregoing, Landlord and Tenant agree to the following:

(1) Borough of Manhattan Block 29 Lot 70

(2) Floor Number: Portion of 19th Floor.

(3) Lease execution date as of: ___________, 1999.

(4) Lease commencement date: As provided in Article 52.

(5) Rent commencement date: Eight (8) months after Commencement Date.

(6) Lease expiration date: last day of the 126th calendar month following the month in which the Commencement Date occurs.

(7) Tenant's Proportionate Share: 2.20%.

Landlord hereby informs the Tenant that:

(1) An application for abatement of real property taxes will be made for the premises;

(2) The rent including amounts payable by the Tenant for real property taxes will accurately reflect any abatement of real property taxes;

(3) Certain stipulated sums must be spent on improvements to the Demised Premises and the common areas, the amount being dependent upon the length of the lease and whether it is a new, renewal or expansion lease.

(4) All abatements granted will be revoked if, during the benefit period, real estate taxes, water or sewer charges or other lienable charges are unpaid for more than one (1) year, unless such delinquent amounts are paid as provided in the relevant law. Landlord agrees to timely pay such real estate taxes, water and other charges so as to avoid a forfeiture of Tenant's tax benefits hereunder.

Notwithstanding anything set forth herein to the contrary, nothing set forth in this Article 50 shall impose any obligation on Landlord to make any alterations or improvements to the Demised Premises, common areas, or any other part of the Building.

51. LANDLORD'S CONTRIBUTION:

A. In consideration of Tenant performing all of the work (other than Landlord's Work pursuant to Article 52) necessary for its occupancy of the Demised Premises and for Tenant completing such work therein, Landlord agrees that if Tenant shall have submitted to Landlord (a) a detailed itemization of the leasehold improvements installed by Tenant in the Demised Premises, i.e., exclusive of soft costs except as hereinafter provided, (b) together with receipted paid bills therefore, (c) partial and final lien waivers to the effect that there has not been filed with respect to the Building and/or the Demised

Premises or any part thereof or upon Tenant's leasehold interest therein any vendor's, mechanic's, laborer's, materialman's or other lien which has not been discharged of record, Landlord shall reimburse or cause to be reimbursed to Tenant an amount equal to the lesser of (i) the actual cost of the leasehold improvements performed by Tenant in the Demised Premises or (ii) TWO HUNDRED TWENTY FIVE THOUSAND DOLLARS ($225,000), representing "Landlord's Contribution" to such work, it being understood and agreed that Landlord's Contribution shall not exceed the sum of TWO HUNDRED TWENTY FIVE THOUSAND DOLLARS ($225,000), and that all costs and expenses in excess of said sum shall be borne solely by Tenant.

B. Upon Tenant's request, Landlord's Contribution as provided in Paragraph A hereof shall be paid out from-time to time as Tenant's alterations progress, within fifteen (15) business days after each request by Tenant accompanied by the following:

(a) A certificate signed by Tenant or Tenant's architect, dated not more than ten (10) days prior to such request setting forth the following:

(i) That the sum then requested is justly due to persons who have rendered services or furnished materials for the work therein specified, and giving a brief description of such services and materials and the several amounts due to each of said persons in respect thereof, and stating that no part of such expenditure is being made the basis, in any previous or then pending prior request, for the receipt of Landlord's Contribution or has been made out of the proceeds of Landlord's Contribution received by Tenant, and that the sum then requested does not exceed the value of the services and materials described in the certificate; and

(ii) That except for the amount, if any, stated pursuant to the foregoing subdivision (a)(i) in such certificate to be due for services or materials, there is no outstanding indebtedness
(except for withholding of ten (10%) percent of such amount) known to the persons signing such certificate, which is then due for labor, wages, materials, supplies or services in connection with such work which, if unpaid, might immediately become the basis of a vendor's, mechanic's, laborer's or material man's statutory or similar lien upon such work or upon the land and building or any part thereof or upon Tenant's leasehold interest.

52. LANDLORD'S WORK:

Tenant acknowledges and agrees that Landlord shall have no obligation to prepare the Demised Premises for Tenant's occupancy except for those items set forth below ("Landlord's Work").

1. Provide means to tie into the Building Class E system;

2. Deliver the Demised Premises demolished and broom clean;

3. Provide demising walls for the Demised Premises;

4. Deliver the Demised Premises in accordance with NYC ACP-5 requirements;

5. Seal any holes in the walls within the Demised Premises;

6. Upgrade the common area bathrooms to Building standard, and

7. Provide an ADA bathroom for Tenant's use throughout the term of this Lease in the elevator bank.

The Commencement Date shall commence on a date fixed by Landlord in a written notice to Tenant which notice shall not be sent prior to the substantial completion date of Landlord's Work and shall state that on or prior to said date, Landlord's Work shall have been substantially completed, and the term of this Lease shall expire on the last day of the calendar month 126th months following the Commencement Date.

Notwithstanding anything contained hereinabove to the contrary, Landlord's Work shall be a substantially completed within thirty (30) days from the date of full execution of this Lease and delivery by Tenant of the first month's rent check and security as specified herein. In the event Landlord's Work is not substantially complete by said date, Tenant shall be entitled to a day for day Fixed Rent abatement from the date said thirty (30) day period expires to the date Landlord's Work is substantially complete.

53. GENERATOR USE:

Landlord shall lease to Tenant (based on 1,319 square feet at the same annual per square foot rental rate as utilized for the Demised Premises which is included in the rent schedule attached hereto), certain space on the eighteenth
(18th) floor (as depicted on the plan attached hereto as Exhibit E) for a 750 KVA size generator (the "Generator"). The Generator to be installed shall be free and clear of any financing and installed by Tenant at Tenant's sole cost and expense. Until a fuel supply system is completed by Landlord, which Landlord shall complete within sixteen (16) weeks from the date of full execution of this Lease and delivery by Tenant of the first month's rent check and security as specified herein, the Generator will be serviced with a day fuel tank (and a pump set also to tie into Landlord's fuel supply system) which shall be filled by Tenant and at Tenant's sole cost and expense. In the event the fuel supply system is not complete within said sixteen (16) week period, Tenant shall receive a day for day Generator rent abatement only from the date the sixteen
(16) week period expires to the date a fuel supply system is complete. Landlord shall arrange for the availability of fuel to the Generator, it being agreed that Tenant shall purchase such fuel from Landlord at Landlord's then standard rates. To the extent that Tenant elects to or must run conduits risers to the Generator, then, the conduit charges shall be consistent with the Building's then published payment schedule (i.e., presently as follows: $2.00 per linear foot per annum for 2" conduits $4.00 per linear foot per annum for 4" conduits and $6.00 per linear foot for 6" conduits).

1. Landlord shall provide an area around the generator (to be subject to the payment of the license fee hereinbefore provided) to include code required and maintenance clearances around equipment, controls, electrical boxes, conduit, piping, fuel system components, etc.;

2. Steel dunnage or reinforcement to be installed by Tenant and may be attached to structural supports spanning from base building structural members as necessary to support the generator system;

3. Landlord to allow Tenant to install generator support steel as required, fasten to structural members of roof and to perform waterproofing, if necessary. Tenant not responsible for leaks in roof due to age of existing roof and/or ability of existing roofing to accept new waterproofing repair;

4. Landlord will provide shaftways for Tenant's connection to Generator at Landlord's then Building standard rates; and

5. All maintenance and repairs to the Generator shall be performed by Tenant at Tenant's sole cost and expense and in furtherance thereof, the Generator shall be surrendered at the expiration or sooner termination of this Lease in good working order.

6. Tenant acknowledges and agrees that Landlord has advised Tenant that there will be certain other Building tenants or telecommunications suppliers installing generators and to facilitate orderly installation of all generators, Tenant shall schedule in advance with Landlord as to when it intends to install the Generator. The installation of the Generator shall be at a time or times which shall not interfere with other tenants and/or telecommunications suppliers installing their respective generators and otherwise in a time and manner reasonably satisfactory to Landlord.

54. HEATING, VENTILATION AND AIR CONDITIONING:

Subject to Article 3 hereof, Tenant shall install its own internal HVAC system in the Demised Premises (i.e., not on any other portion of the Building) it being agreed that Landlord shall have no responsibility to furnish any HVAC to the Demised Premises. Furthermore, Landlord shall have no responsibility regarding repair, maintenance or replacement of Tenant's internal HVAC unit, and all such repairs, maintenance and service shall be at Tenant's sole responsibility. However, Landlord shall remove any air conditioning condensers and repair and resurface that portion of the roof of the 18th floor covered by the 19th floor setback. At the Tenant's option, Tenant may have its HVAC system fully enclosed by Partition walls.

55. TENANT'S ACCESS RIGHTS:

Tenant shall have access to (and, as applicable, continued operation of) the following Building systems, at its sole risk and expense, subject to any and all applicable Building standard rules, regulations and charges, prior to Tenant's commencement of any alterations and throughout the term hereof:

a) Riser system;

b) Basement fuel tank;

c) Fuel piping system;

d) Main sprinkler loop; and

e) Class E system.

56. EXTENSIONS OF TERM:

A. Subject to the provisions of Paragraph E hereof, Tenant shall have the right to extend the term of this Lease for two (2) additional terms of five
(5) years each, the first additional term (the "First Extension Term") commencing on the day following the expiration of the initial term of this Lease (hereinafter called the "Commencement Date of the First Extension Term") and the second additional term (the "Second Extension Term") commencing on the day following the expiration of the First Extension Term (hereinafter called the "Commencement Date of the Second Extension Term") provided that:

1. Tenant shall give Landlord notice (hereinafter called the "Extension Notice") of its election to extend the term of this Lease at least twelve (12) months prior to the expiration of the (a) initial term of this Lease with respect to the First Extension Term and (b) First Extension Term with respect to the Second Extension Term, and

2. Tenant is not in default (after the expiration of applicable grace periods, if any) under this Lease as of the time of the giving of the Extension Notice and the Commencement Date of the First Extension Term and the Commencement Date of the Second Extension Term, as the case may be, and

3. With respect to the Second Extension Term, Tenant shall have exercised the First Extension Term.

B. The Fixed Annual Rent payable by Tenant to Landlord during the First Extension Term and the Second Extension Term shall be a sum equal to the fair market rent for the Demised Premises (taking into account that base periods are not changing) as determined as of the date occurring six (6) months prior to the Commencement Date of the First Extension Term and the Commencement Date of the Second Extension Term, as the case may be (each such date is hereinafter called a "Determination Date") and which determination shall be made within a reasonable period of time after the occurrence of the Determination Date pursuant to the provisions of Paragraph C hereof, but such Fixed Annaul Rent shall in no event be less than the Fixed Annual Rent in effect under this Lease for the last month of the immediately preceding term hereof (without giving effect to any temporary abatement of Fixed Annual Rent under the provisions of Article 9 or any other Article of this Lease). In determining the fair market

rent, the provisions of Articles 38 and 39 of this Lease shall remain in effect during the First Extension Term and the Second Extension Term with the same base periods as set forth therein.

C. 1. Landlord and Tenant shall endeavor to agree as to the amount of the fair market rent for the Demised Premises pursuant to the provisions of Paragraph B hereof, during the thirty (30) day period following a Determination Date. In the event that Landlord and Tenant can not agree as to the amount of the fair market rent within such thirty (30) day period following a Determination Date, then Landlord or Tenant may initiate the appraisal process provided for herein by giving notice to that effect to the other, and the party so initiating the appraisal process (such party hereinafter called the "Initiating Party") shall specify in such notice the name and address of the person designated to act as an arbitrator on its behalf. Within thirty (30) days after the designation of such arbitrator, the other party (hereinafter called the "Other Party") shall give notice to the initiating Party specifying the name and address of the person designated to act as an arbitrator on its behalf. If the Other Party fails to notify the Initiating Party of the appointment of its arbitrator within the time above specified, then the appointment of the second arbitrator shall be made in the same manner as hereinafter provided for the appointment of a third arbitrator in a case where the two arbitrators appointed hereunder and the parties are unable to agree upon such appointment. The two arbitrators so chosen shall meet within ten (10) days after the second arbitrator is appointed and if, within sixty (60) days after the second arbitrator is appointed, the two arbitrators shall not agree, they shall together appoint a third arbitrator. In the event of their being unable to agree upon such appointment within eighty (80) days after the appointment of the second arbitrator, the third arbitrator shall be selected by the parties themselves if they can agree thereon within a further period of fifteen (15) days. If the parties do not so agree, then either party, on behalf of both and on notice to the other, may request such appointment by the American Arbitration Association (or organization successor thereto) in New York City in accordance with its rules than prevailing.

2. Each party shall pay the fees and expenses of the one of the two original arbitrators appointed by or for such party, and the fees and expenses of the third arbitrator and all other expenses (not including the attorneys fees, witness fees and similar expenses of the parties which shall be borne separately be each of the parties) of the arbitration shall be borne by the parties equally.

3. The majority of the arbitrators shall determine the fair market rent of the Demised Premises and render a written certified report of their determination to both Landlord and Tenant within sixty (60) days of the appointment of the first two arbitrators or sixty (60) days from the appointment of the third arbitrator if such third arbitrator is appointed pursuant to this Paragraph; and the fair market rent, so determined, shall be applied to determine the Fixed Annual Rent pursuant to Paragraph B hereof.

4. Each of the arbitrators selected as herein provided shall have at least ten (10) years experience in the leasing and renting of office space (i.e., brokers and appraisers) in first class office buildings in lower Manhattan.

5. If Landlord notifies Tenant that the Fixed Annual Rent for the First Extension Term or the Second Extension Term, as the case may be, shall be equal to the fixed rent for the immediately preceding term, then the provisions of Subsection 1 of this Paragraph C shall be inapplicable and have no force or effect.

6. In the event Landlord or Tenant initiates the appraisal process and as of the Commencement Date of the First Extension Term or Commencement Date of the Second Extension Term, as the case may be, the amount of the fair market rent has not been determined, Tenant shall continue to pay the fixed rent in effect under this Lease for the last month of the immediately preceding term and when such determination has been made, an appropriate retroactive adjustment shall be made as of the Commencement Date of the First Extension Term or Commencement Date of the Second Extension Term, as the case may be.

D. Except as provided in Paragraphs A and B hereof, Tenant's occupancy of the Demised Premises during the First Extension Term and Second Extension Term, as the case may be, shall be on the same terms and conditions as are in effect immediately prior to the expiration of the immediately

preceding term of this Lease, provided, however, Tenant shall have no further right to extend the term of this Lease pursuant to this Article 56.

E. If Tenant does not send an Extension Notice pursuant to the provisions of Paragraph A hereof, this Article 56 shall have no force or effect and shall be deemed deleted from this Lease.

F. If this Lease is renewed in accordance with the provisions of this Article, then Landlord or Tenant can request the other party hereto to execute an instrument in form for recording setting forth the exercise of Tenant's right to extend the terms of this Lease and the last day of the relevant Extension Term.

G. If Tenant exercises its right to extend the term of this Lease for an Extension Term pursuant to this Article 56, the phrases "the term of this Lease" or "the term hereof" as used in this Lease, shall be construed to include, when practicable, the relevant Extension Term.

57. YEAR 2000 COMPLIANCE:

(a) Landlord represents and warrants the following to Tenant that to the best of Landlord's knowledge:

(i) Landlord has or will have tested the Internal components (as hereinafter defined) of all the Building systems (including, but not limited to, any plumbing, electrical and heating systems), components and services (collectively, the "Tested Systems) to determine which are Y2K-Compliant (as hereinafter defined); and

(ii) The Internal Components of the Tested Systems have been determined to be Y2K Compliant or will be made compliant or any century date change and date handling deficiencies found within such Tested Systems have since been remediated.

(b) (i) A Building system, component or service shall be deemed "Y2K COMPLIANT" if, when used in accordance with its documentation, and provided that all other Building systems, components and services used with such Building system, component or service shall properly exchange accurate date data with it, it:

(A) is capable of correctly and accurately processing, providing and/or receiving date data from, into, and between the 20th and 21st centuries and the years 1999 and 2000 and beyond, including recognizing that the year 2000 is a leap year; and

(B) Does not operate abnormally or inaccurately or cease to operate as a result of the inability to correctly and accurately process, provide and/or receive date data from, into, and between the 20th and 21st centuries and the years 1999 and 2000 and beyond.

(ii) The term "INTERNAL COMPONENT" shall mean any portion of a Building system, component or service that is located within the Building and is exclusively within Landlord's control.

58. ROOF RIGHTS:

Tenant, at its sole cost and expense, subject to the Building Rules, Regulations and Rate Schedule and to the provisions of this Article 58, shall have the following rights: (i) Tenant may install upon the roof of the Building, in a specific location designated by Landlord (the "Roof Location") in its sole discretion, multiple supportive microwave towers G.P.S. antennae and related base site cabinets,

requiring up to _________square feet of space ("Tenant's Telecommunications Equipment"); provided Tenant may run, in and through the Building's shafts reasonably approved by Landlord, such lines and cables (collectively, the "Connecting Equipment") necessary for the operation of Tenant's Telecommunications Equipment from the Roof Location to the Demised Premises. Subject to conduit charge payments as aforesaid, the rights afforded Tenant pursuant to the preceding sentence are subject to and are granted upon the express condition that (1) if approved pursuant to the preceding sentence, any such alteration shall be conducted as if it were a structural alteration within the meaning and subject to the provisions of Article 3 hereof (including, without limitation, obtaining all required operating permits and approvals from the Federal Communications Commission); (2) Tenant at its sole cost and expense shall install and maintain the Tenant's Telecommunications Equipment and the Connecting Equipment; (3) Tenant shall promptly repair any damage caused to the Building (including, without limitation, the roof or any exterior portions thereof) by reason of the installation, maintenance, operation, removal and replacement of any of Tenant's Telecommunications Equipment and/or the Connecting Equipment; (4) Tenant shall remove the applicable Tenant's Telecommunications Equipment and the Connecting Equipment upon the expiration or sooner termination of the term of this lease; and (5) Tenant shall repair any resulting damage to the Building (including, without limitation, the roof or any exterior portions thereof) and restore the Building (including, without limitation, the roof or any exterior portions thereof) to the condition which existed prior to any such installation, ordinary wear and tear and damages beyond the reasonable control of Tenant excepted. The parties agree that Tenant's use of the roof of the Building is a non-exclusive use and Landlord may permit the use of any other portion of the roof by any other person for any use, including installation of other antennae, dishes and similar telecommunications equipment so long as any such equipment which is installed after the date on which the applicable piece of Tenant's Telecommunications Equipment is installed does not unreasonably interfere with such piece of Tenant's Telecommunications Equipment.

59. TENANT'S RIGHT OF FIRST OFFER FOR CONTIGUOUS SPACE:

A. For purposes hereof, the term "Contiguous Space" shall mean 5,000 square feet of space which is contiguous to the Demised Premises (i.e., space on the same floor or the floor directly above the Demised Premises) not subject to either any renewal, extension, expansion or additional space option held by any third party.

B. Provided that (a) Tenant is not then in default under any of the terms, covenants and conditions of this Lease after the expiration of all applicable grace, notice and/or cure periods, (b) Tenant is in actual occupancy of no less than seventy-five (75%) percent of the retable area of the demised premises, then in both of such events, Landlord agrees that at least fifteen
(15) days before Landlord executes a lease or other occupancy agreement with any third party (other than any existing tenant(s) or other occupant(s) of the Contiguous Space or any third party having any prior rights with respect to all or a portion of the Contiguous Space) for all or any portion of the Contiguous Space, Landlord will first offer to lease such space to Tenant upon such terms, covenants and conditions as Landlord by written notice (the "Contiguous Space Notice") given to Tenant as provided in the next paragraph.

The Contiguous Space Notice shall set forth (A) a description of the location of the Contiguous Space, (B) the number of rentable square feet attributable to the Contiguous Space as determined by Landlord (the "Contiguous Space Area"), (c) the term (the "Contiguous Space Term") for which Landlord proposes to lease the Contiguous Space which, for purposes hereof shall not extend beyond the Expiration Date (so that such space is coterminous with the space originally demised hereunder), (d) the date upon which Landlord anticipates the Contiguous Space will be delivered to Tenant, and (e) the fixed rent, additional rent, escalation base years, landlord's contribution, tenant work allowance, concession periods and any other material monetary factors (collectively, the "Rent Package") applicable to the Contiguous Space during the Contiguous Space Term (the "Contiguous Space Basic Annual Rent") which Rent Package shall be based upon the prevailing market rent for space then being offered for rent by Landlord in the Building. The Contiguous Space Notice shall constitute a one-time only offer by Landlord to Tenant to lease all and not less than all of the Contiguous Space identified in the Contiguous Space Notice for a term equal to the Contiguous Space Term at a Basic Annual Rent equal to the Contiguous Space Basic Annual Rent. The Contiguous Space shall be leased to Tenant unless otherwise specified

in the Contiguous Space Notice (i) "as is" in the condition in which the same shall be upon the Contiguous Space Effective Date, (ii) Tenant shall not be entitled to any abatement, reduction of rent, or construction allowance by reason of such condition, (iii) Landlord shall not be obligated to do any work or alteration for Tenant in the Contiguous Space and (iv) otherwise upon the terms and conditions set forth in this Article 59. The parties hereto agree that in no event shall the Contiguous Space Area constitute or imply any representation or warranty by Landlord as the actual size of the Contiguous Space.

Tenant shall, within ten business (10) days after receipt of the Contiguous Space Notice (time being of the essence), notify Landlord as to whether Tenant accepts all of the terms set forth in the Contiguous Space Notice and, if Tenant shall elect to accept the Contiguous Space Notice, Tenant shall execute and deliver to Landlord, within ten business (10) days after Tenant's receipt thereof, an additional space agreement "Contiguous Space Agreement"), in form and substance satisfactory to Landlord, Tenant and Landlord's counsel, wherein the Contiguous Space referred to in the Contiguous Space Notice shall be added to the demised premises upon all of the terms set forth in the Contiguous Space Notice. Landlord shall be free, if Tenant does not accept the Contiguous Space Notice or does not execute the Contiguous Space Agreement within the period provided for herein to lease all or any portion of the Contiguous Space on any terms Landlord may desire, whether more favorable than that set forth in the Contiguous Space Notice or not. If Tenant (x) declines the Contiguous Space Notice or (y) fails to reply to the Contiguous Space Notice within said first ten (10) business day period or (z) fails to execute and deliver the Contiguous Space Agreement within said second ten (10) business day period, Tenant shall thereunder have no further rights with respect to the leasing of all or any portion of the Contiguous Space.

C. The rights granted to Tenant hereunder are personal to Tenant names herein and shall not be exercisable by any party other than Tenant.

D. Notwithstanding the foregoing, provided Tenant does not exercise its right pursuant to Paragraph B, Landlord shall have a period of six (6) months after the expiration of the ten business (10) day period set forth in Paragraph B (said period being hereinafter referred to as the "Non-Restricted Period") to enter into a lease for the Contiguous Space without any obligation whatsoever to re-offer such space to Tenant, provided, however, Landlord's right to enter into any lease during the Non-Restricted Period shall be conditional upon the Contiguous Space Basic Annual Rent being not less than ninety (90%) percent of the Contiguous Space Basic Annual Rent offered to Tenant. In the event that (i) the Contiguous Space Basic Annual Rent for the space offered to any third party is less than 90% of the Contiguous Space Basic Annual Rent offered to Tenant, or
(ii) Landlord has not entered into a lease within the Non-Restricted Period, the right of first offer afforded Tenant pursuant to this Paragraph B shall be revived and reinstated.

LANDLORD:
67 BROAD STREET LLC

By:_________________________________
Name:
Title: A Member

TENANT:
FUSION TELECOMMUNICATIONS INTERNATIONAL,
INC.

By:__________________________________
Name:
Title:

EXHIBIT B

FIXED RENT SCHEDULE

Tenant shall pay Fixed Rent as follows:

For the First (1st) Lease Year: FOUR HUNDRED SIXTY-FOUR THOUSAND ONE
HUNDRED EIGHTY-SIX AND 00/100 DOLLARS ($464,186.00)

For the second (2nd) Lease Year: FOUR HUNDRED SEVENTY-EIGHT THOUSAND
THREE HUNDRED EIGHTY-NINE AND 68/100 DOLLARS ($478,389.68)

For the third (3rd) Lease Year: FOUR HUNDRED NINETY-TWO THOUSAND SEVEN
HUNDRED SEVENTY-THREE AND 51/100 DOLLARS ($492,773.51)

For the fourth (4th) Lease Year: FIVE HUNDRED SEVEN THOUSAND SIX
HUNDRED AND 50/100 DOLLARS ($507,600.50)

For the fifth (5th) Lease Year: FIVE HUNDRED TWENTY-TWO THOUSAND EIGHT
HUNDRED SEVENTY-SEVEN AND 64/100 DOLLARS ($522,877.64)

For the sixth (6th) Lease Year: FIVE HUNDRED NINETY-SEVEN THOUSAND FIVE
HUNDRED FIFTY-TWO AND 64/100 DOLLARS ($597,552.64)

For the seventh (7th) Lease Year: SIX HUNDRED FIFTEEN THOUSAND FOUR
HUNDRED FORTY-SIX 80/100 DOLLARS ($615,446.80)

For the eighth (8th) Lease Year: SIX HUNDRED THIRTY-THREE THOUSAND NINE
HUNDRED THIRTY-FOUR AND 17/100 DOLLARS ($633,934.17)

For the ninth (9th) Lease Year: SIX HUNDRED FIFTY-THREE THOUSAND
TWENTY-ONE AND 74/100 DOLLARS ($653,021.74)

For the balance of the term: SIX HUNDRED SEVENTY-TWO THOUSAND SEVEN
HUNDRED TWO AND 52/100 DOLLARS ($672,702.52)

All fixed rent shall be payable in equal monthly installments as heretofore provided, without offset, deduction or counterclaim, except as otherwise provided in this Lease.

EXHIBIT C
RULES AND REGULATIONS

1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than for ingress to and egress from the Demised Premises and for delivery of merchandise and equipment in a prompt and efficient manner using elevators and passageways designated for such delivery by Landlord. There shall not be used in any space, or in the public hall of the Building, either by any tenant or by jobbers or others in the delivery or receipt of merchandise, any hand trucks except those equipped with rubber tires and sideguards. If the Demised Premises are situated on the ground floor of the Building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in front of said Demised Premises clean and free from ice, snow, dirt and rubbish.

2. The water and wash closets and plumbing fixtures shall not be used for any purposes other than those for which they were designed or constructed and no sweepings, rubbish, rags, acids or other substances shall be deposited therein, and the expense of any breakage, stoppage, or damage resulting from the violation of this rule shall be borne by the tenant who, or whose clerks, agents, employees or visitors, shall have caused it.

3. No carpet, rug or other article shall be hung or shaken out of any window of the Building; and no tenant shall sweep or throw or permit to be swept or thrown from the Demised Premises any dirt or other substances into any of the corridors or halls, elevators, or out of the doors or windows or stairways of the Building and Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Demised Premises, or permit or suffer the Demised Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors, and/or vibrations or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be kept in or about the Building. Smoking or carrying lighted cigars or cigarettes in the elevators of the Building is prohibited.

4. No awnings or other projections shall be attached to the outside walls of the Building without the prior written consent of Landlord.

5. No sign advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any tenant on any part of the outside of the Demised Premises or the Building or without the prior written consent of Landlord, except that the name of Tenant may appear on the entrance door of the Demised Premises. In the event of the violation of the foregoing by any tenant, Landlord may remove same without any liability, and may charge the expense incurred by such removal to Tenant or any other tenants violating this rule. Interior signs on doors and directory tablet shall be inscribed, painted or affixed for each tenant by Landlord at the expense of such tenant, and shall be of a size, color and style reasonably acceptable to Landlord.

6. No tenant shall mark, paint, drill into, or in any way deface any part of the Building of which they form a part and no boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as Landlord may direct. No tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the Demised Premises, and, if linoleum or other similar floor covering is desired to be used as interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited.

7. Unless duplicate keys are furnished to Landlord, no additional locks or bolts of any kind shall be placed upon any of the doors or windows by any tenant, nor shall any changes be made in existing locks or mechanism thereof. Each tenant must, upon the termination of his Tenancy, restore to Landlord all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such tenant, and in the event of the loss of any keys, so furnished, such tenant shall pay to Landlord the cost thereof.

8. Freight, furniture, business equipment, merchandise and bulky mater of any description shall be delivered to and removed from the Demised Premises only on the freight elevators and through the service entrances and corridors, and only during hours and in a manner reasonably approved by Landlord. Landlord reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of these Rules and Regulations.

9. Canvassing, soliciting and peddling in the Building is prohibited and each tenant shall cooperate to prevent the same.

10. Landlord reserves the right to exclude from the Building between the hours of 6 P.M. and 8 A.M. and at all hours on Sundays, and legal holidays all persons who do not present a pass to the Building. Landlord will furnish passes to persons for whom any tenant requests same in writing. Each tenant shall be responsible for all persons for whom he requests such pass and shall be liable to Landlord for all acts of such persons.

11. Tenant shall not bring or permit to be brought or kept in or on the Demised Premises, any inflammable, combustible or explosive fluid, material, chemical or substance, or cause or permit any odors of cooking or other processes, or any unusual or other objectionable odors to permeate in or emanate from the Demised Premises.

12. Intentionally Omitted.

13. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky matter, or fixtures into or out of the Building without Landlord's prior written consent. If such safe, machinery, equipment, bulky matter or fixtures requires special handling, allow work in connection therewith shall comply with the Administrative Code of the City of New York and all other laws and regulations applicable thereto and shall be done during such hours as Landlord may designate.

14. Any louvers shall be installed as Building standard and only with Landlord's prior approval not to be unreasonably withheld and otherwise in accordance with the standard quantity and quality adopted by Landlord for the Building.

EXHIBIT 10.10

LEASE AGREEMENT

BETWEEN

FORT LAUDERDALE CROWN CENTER, INC.

LANDLORD

AND

FUSION TELECOM INTERNATIONAL

TENANT

                                TABLE OF CONTENTS

                                                                            PAGE

ARTICLE I ...................................................................  1
      DESCRIPTION OF PROPERTY; TERM .........................................  1
            1.    Description of Property ...................................  1
            2.    Term ......................................................  1
            3.    Renewal Option ............................................  1
            4.    Expansion Option ..........................................  2

ARTICLE II ..................................................................  2
            1.    Base Rent; Late Charge; Sales Tax .........................  2
            2.    Rental Adjustment .........................................  2
            3.    Payment Without Notice or Demand ..........................  3
            4.    Place of Payment ..........................................  3

ARTICLE III .................................................................  3
      ADDITIONAL RENT .......................................................  3
            1.    Additional Rent ...........................................  3
            2.    Tenant's Proportionate Share ..............................  5
            3.    Operating Expenses All Inclusive ..........................  5

ARTICLE IV ..................................................................  5
      SECURITY/DAMAGE DEPOSIT ...............................................  5

ARTICLE V ...................................................................  6
      USE OF PREMISES .......................................................  6

ARTICLE VI ..................................................................  6
      PARKING ...............................................................  6

ARTICLE VII .................................................................  6
      PREPARATION OF THE PREMISES ...........................................  6
            1.    Leasehold Improvement .....................................  6
            2.    Acceptance of Premises ....................................  7
            3.    Access to Premises Prior to Commencement Date .............  7

ARTICLE VIII ................................................................  7
      LANDLORD AND TENANT OBLIGATIONS .......................................  7
            1.    Tenant's Obligations ......................................  7
            2.    Landlord's Obligations ....................................  8
            3.    Floor Loads; Noise and Vibration ..........................  8
            4.    Services ..................................................  8
            5.    Energy Conservation .......................................  8
            6.    Janitorial Services .......................................  8
            7.    Antenna, Telephone and Cable ..............................  9

ARTICLE IX ..................................................................  9
      LANDLORD'S AND TENANT'S PROPERTY ......................................  9
            1.    Landlord's Property .......................................  9
            2.    Tenant's Property .........................................  9
            3.    Removal of Tenant's Property ..............................  9
            4.    [Deliberately Omitted] ....................................  9

                                                                            PAGE

ARTICLE X ................................................................... 10
      INSURANCE ............................................................. 10
            1.    Tenant's Insurance ........................................ 10
            2.    Destruction of the Premises or Building ................... 11

ARTICLE XI .................................................................. 11
      ALTERATIONS AND MECHANIC'S LIENS ...................................... 11
            1.    Alterations by Tenant ..................................... 11
            2.    Additional Alterations by Tenant .......................... 12
            3.    Mechanic's, Materialman's and Laborer's Liens ............. 13

ARTICLE XII ................................................................. 13
      ASSIGNMENT AND SUBLETTING ............................................. 13
            1.    Tenant's Transfer ......................................... 14
            2.    Tenant's Liability ........................................ 14
            3.    Landlord's Right of Cancellation .......................... 14
            4.    Landlord's Transfer ....................................... 14

ARTICLE XIII ................................................................ 14
      OBLIGATION TO COMPLY .................................................. 14
            1.    Obligations of Tenant ..................................... 14
            2.    Rules and Regulations ..................................... 15
            3.    Attorney's Fees ........................................... 15

ARTICLE XIV ................................................................. 15
      RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS ....................... 15
            1.    Payment or Performance .................................... 15
            2.    Reimbursement ............................................. 15

ARTICLE XV .................................................................. 16
      NON-LIABILITY AND INDEMNIFICATION ..................................... 16
            1.    Non-Liability of Landlord ................................. 16
            2.    Indemnification by Tenant ................................. 16
            3.    Independent Obligations; Force Majeure .................... 16

ARTICLE XVI ................................................................. 17
      DEFAULT ............................................................... 17
            1.    Events of Default ......................................... 17
            2.    Surrender of Premises ..................................... 17
            3.    Holdover .................................................. 17

ARTICLE XVII ................................................................ 17
      REMEDIES .............................................................. 17
            1.    Remedies .................................................. 17
                  A. Termination ............................................ 18
                  B. Right of Re-Let ........................................ 18
                  C. Acceleration ........................................... 18
                  D. Additional Charges ..................................... 18
                  E. Waiver of Notice ....................................... 18

ARTICLE XVIII ............................................................... 19
      EMINENT DOMAIN ........................................................ 19
            1.    Taking .................................................... 19
            2.    Award ..................................................... 19
            3.    Temporary Taking .......................................... 19
            4.    Partial Taking ............................................ 19

                                                                            PAGE

ARTICLE XIX ................................................................. 19
      QUIET ENJOYMENT ....................................................... 19

ARTICLE XX .................................................................. 20
      SUBORDINATION AND ATTORNMENT .......................................... 20
            1.    Subordination ............................................. 20
            2.    Notice to Landlord and Superior Mortgage .................. 20
            3.    Attornment ................................................ 20

ARTICLE XXI ................................................................. 20
      LANDLORD'S RIGHT OF ACCESS ............................................ 20
            1.    Access for Maintenance and Repair ......................... 20
            2.    Access for Inspection and Showing ......................... 21
            3.    Landlord's Alterations and Improvements ................... 21

ARTICLE XXII ................................................................ 21
      SIGNS AND OBSTRUCTION.................................................. 21
            1.    Signs ..................................................... 21
            2.    Obstruction ............................................... 21

ARTICLE XXIII ............................................................... 21
      NOTICES ............................................................... 22
            1.    Notices ................................................... 22

ARTICLE XXIV ................................................................ 22
      MISCELLANEOUS ......................................................... 22
            1.    [Deliberately Omitted] .................................... 22
            2.    Environmental Indemnity ................................... 22
            3.    Radon Gas ................................................. 23
            4.    Broker Commission ......................................... 23
            5.    Financial Statements ...................................... 23
            6.    Estoppel Certificates ..................................... 23
            7.    No Recordation ............................................ 23
            8.    Governing Law ............................................. 23
            9.    No Partnership or Joint Venture ........................... 24
            10.   Capacity to Execute Lease ................................. 24
            11.   Exculpation of Landlord ................................... 24
            12.   Waiver of Trial by Jury ................................... 24
            13.   Time of Essence ........................................... 24
            14.   Entire Agreement .......................................... 24

LEASE AGREEMENT

THIS LEASE AGREEMENT (hereinafter referred to as the "Lease") is made and entered into as of the ____day of September, 1999, by and between FORT LAUDERDALE CROWN CENTER, INC., a Florida corporation (hereinafter referred to as "Landlord") and FUSION TELECOM INTERNATIONAL, a Delaware (hereinafter referred to as "Tenant").

W I T N E S S E T H:

THAT LANDLORD, in consideration of the rents and agreements promised and agreed by Tenant to be paid and performed, leases to Tenant, and Tenant leases from Landlord, the Premises described herein, subject to the following terms.

ARTICLE I

DESCRIPTION OF PROPERTY; TERM

1. DESCRIPTION OF PROPERTY. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the following space: Suite 200 consisting of approximately 13,502 rentable square feet on the second (2nd) floor as shown on EXHIBIT "A" and made a part of this Lease (the "Premises"), in the building now known as Crown Center, located at 1415 Cypress Creek Road, Fort Lauderdale, Florida 33309 (the "Building"), depicted on the site plan attached hereto as EXHIBIT "B", together with the right to use in common with other tenants of the Building, their invitees, customers and employees, the lobby areas, stairways, elevators, hallways, lavatories and all other common facilities contained in the Building, parking areas and common areas of the building at 1425 Cypress Creek Road, Fort Lauderdale, Florida. All of the land and real property underlying or adjacent to the Building, with all improvements, including the Building, and used in connection with the operation of the Building shall be referred to as the "Property". For purposes of determining Operating Expenses, the term "Building" also includes 1425 Cypress Creek Road, Fort Lauderdale, Florida 33309.

2. TERM. Tenant shall have and hold the Premises for a term of seven
(7) years hereinafter referred to as the "Term" or "Lease Term"), commencing on the date that a certificate of occupancy for the Premises is issued by the City of Fort Lauderdale ("Commencement Date"), and expiring on the day preceding the seventh (7th) anniversary of the Commencement Date (the "Expiration Date"). The parties hereto agree that they will execute upon the Commencement Date, an Estoppel Certificate in substantially the form attached hereto as EXHIBIT "C", certifying said dates. Tenant's failure or refusal to execute said Estoppel Certificate shall constitute a default hereunder.

For the purposes of this Lease, a "Lease Year" shall be defined as that twelve (12) month period commencing on the Commencement Date or the annual anniversary thereof, as may be applicable, and ending on the day before the next succeeding anniversary of the Commencement Date; provided, however, that if the Commencement Date is a day other than the first day of the calendar month, then the first Lease Year shall end on the last day of the calendar month in which occurs the first anniversary of the Commencement Date, and any subsequent Lease Year shall be the twelve (12) month period beginning on the first day of the immediately succeeding calendar month; and provided further that the last Lease Year shall end on the Expiration Date or sooner termination or expiration of this Lease, regardless of whether the last Lease Year is a full twelve (12) month period. For the purpose of this Lease, a "Lease Month" shall be defined as those successive calendar month periods beginning with the Commencement Date and continuing through the Term or any extension of the Term of the Lease;

provided, however, if the Commencement Date is a day other than the first day of the calendar month, then the first Lease Month shall include that period of time from the Commencement Date up to the first day of the next calendar month, and each subsequent Lease Month shall be a calendar month period beginning on the first day of such month.

3. RENEWAL OPTION. Provided that the Tenant is not in default of any of the provisions of this Lease on the date that the Landlord receives the notice from the Tenant described below in this paragraph and is still in occupancy of the Premises, the Tenant shall have the option to extend the term of this Lease for one five (5) year term upon all of the same terms and conditions in this Lease, provided that Tenant gives notice in writing to the Landlord no later than one hundred eighty (180) days prior to the Expiration Date that Tenant is exercising such option. Upon exercising such option, any references in this Lease to the "Expiration Date", shall thereafter mean the date which is the day preceding the twelfth (12th) anniversary of the Commencement Date.

4. EXPANSION OPTION. Provided that Tenant is not then in default of any of the provisions of this Lease and is still in occupancy of the Premises, and subject to the expansion rights or rights of first refusal of existing tenants in effect on the Commencement Date, the Landlord shall offer first to the Tenant the right to lease adjacent space to the Premises on the second floor of the Building or space that becomes available on the first floor of the Building at the then market lease rate for the Crown Center complex. Landlord shall notify Tenant in writing when any adjacent space to the Premises on the second floor or space on the first floor of the Building becomes available, and Tenant shall have ten (10) days after receipt of the Landlord's written notice to respond to the Landlord of Tenant's intent to exercise its right to lease any such space. If Tenant so notified Landlord, the parties shall enter into a new lease for such expansion space within thirty (30) days of the Tenant's receipt from the Landlord of a proposed lease, or amend this Lease to include the expansion space and other applicable rental terms within thirty (30) days of Tenant's receipt from Landlord of a proposed amendment. If Tenant fails to respond to the Landlord within such ten (10) day period, or if a lease (or an amendment to this Lease) is not entered into within such thirty (30) day period, then the Tenant's first right of refusal shall expire with respect to such space.

If Tenant does not exercise its right to lease adjacent space to the Premises on the second floor of the Building or space that becomes available on the first floor of the Building pursuant to the immediately preceding paragraph, and Landlord subsequently offers to lease such space to another party at a net effective rent that is less than the net effective rent initially offered to Tenant, Landlord shall offer to Tenant a right of first refusal to lease such space at the same net effective rent as is being offered to such other party. Tenant shall have 72 hours after receipt of the Landlord's offer to respond to the Landlord of Tenant's intent to exercise its right to lease such space at such base rent. If Tenant so notifies Landlord, the parties shall enter into a new lease for such expansion space within thirty (30) days of the Tenant's receipt from the Landlord of a proposed lease, or amend this Lease to include the expansion space and other applicable rental terms within thirty (30) days of Tenant's receipt from Landlord of a proposed amendment. If Tenant fails to respond to the Landlord within such 72 hour period, or if a lease (or an amendment to this Lease) is not entered into within such thirty (30) day period, then the Tenant's right of refusal shall expire with respect to such space.

ARTICLE II

BASE RENT

1. BASE RENT; LATE CHARGE; SALES TAX. Tenant agrees to pay Landlord as rent for the first Lease Year sum of $162,024.00 (to wit: $12.00 prsf base rent
x 13,502 rsf) (the "Base Rent"), payable in twelve (12) equal monthly installments of $13,502.00 in advance on the first day of each and every month during the first year of the Lease Term. In addition, Tenant shall be responsible for the payment of Additional Rent (hereinafter defined) as provided in Article III below (the Base Rent and Additional Rent

shall sometimes be collectively referred to as the "Rent"). In the event any monthly Rent payment is not paid within five (5) days after it is due, Tenant agrees to pay a late charge of five (5%) percent of the amount of the payment due. Tenant further agrees that the late charge imposed is fair and reasonable, complies with all laws, regulations and statutes, and constitutes an agreement between Landlord and Tenant as to the estimated compensation for costs and administrative expenses incurred by Landlord due to the late payment of Rent by Tenant. Tenant further agrees that the late charge assessed pursuant to this Lease is not interest, and the late charge assessed does not constitute a lender or borrower/creditor relationship between Landlord and Tenant, and may be treated by Landlord as Additional Rent owed by Tenant. Tenant shall also pay to Landlord all sales, use or other taxes pertaining to the Rent, which Landlord agrees shall be remitted by Landlord to the Florida Department of Revenue or other appropriate taxing authority. Upon Tenant's execution of this Lease, Tenant shall pre-pay the first month's gross rent (to wit: $18,784.66 = $13,502.00 Base Rent + $4,219.38 Additional Rent + $1,063.28 sales tax) to Landlord.

2. RENTAL ADJUSTMENT. Commencing with the first month of the second Lease Year and each Lease Year thereafter during the Term of this Lease, the annual Base Rental shall be increased by four percent (4%) per annum over the annual Base Rental for the previous lease year.

3. PAYMENT WITHOUT NOTICE OR DEMAND. The Rent called for in this Lease shall be paid to Landlord without notice (except notices expressly required in this Lease) or demand, and without counterclaim, offset, deduction, abatement, suspension, deferment, diminution or reduction. Tenant hereby waives all rights now or hereafter conferred to any offset, deduction, abatement, suspension, deferment, diminution or reduction of the Rent on account of any such circumstances or occurrence.

4. PLACE OF PAYMENT. All payments of Rent shall be made and paid by Tenant to Landlord at its offices at 1475 Cypress Creek Road, Fort Lauderdale, Florida, 33309, or at such other place as Landlord may from time to time designate in writing to Tenant. All Rent shall be payable in United States currency. Any extension, indulgence or waiver permitted by Landlord in the time, manner or mode of payment of Rent, upon any one (1) or more occasions, shall not be construed as a continuing extension, indulgence or waiver and shall not preclude Landlord from demanding strict compliance herewith.

ARTICLE III

ADDITIONAL RENT

1. ADDITIONAL RENT. In addition to the Base Rent, Tenant shall pay as additional rent (hereinafter referred to as "Additional Rent") Tenant's Proportionate Share (hereinafter defined) of the Operating Expenses (hereinafter defined) of the Building and the Property which are attributable to the Lease Term. Additional Rent shall be paid to Landlord in accordance with the following provisions:

A. Landlord shall furnish to Tenant prior to thirty (30) days after the beginning of each calendar year, including the first calendar year, Landlord's estimate of Operating Expenses for the upcoming year. The Operating Expenses shall be determined as though the Building were occupied at the actual occupancy rate or at an occupancy rate of ninety-five (95%) percent, whichever is higher. Tenant shall pay to Landlord, on the first day of each month starting with the Commencement Date, as Additional Rent, an amount equal to one-twelfth (1/12th) of Tenant's Proportionate Share of Landlord's estimate of the Operating Expenses for the then applicable calendar year. If there shall be any increase or decrease in the Operating Expenses for any year, whether during or after such year, Landlord shall furnish to Tenant a revised estimate and the Operating Expenses shall be adjusted and paid or refunded, as the case may be. For purposes of determining Tenant's Proportionate Share of Operating Expenses, annual increases in Operating Expenses (excluding increases in real estate taxes and insurance premiums shall not exceed five percent (5%) of the Operating Expenses (excluding real estate taxes and insurance premiums) for the preceding calendar year. If a calendar year ends after the expiration or

termination of this Lease, the Additional Rent payable hereunder shall be prorated to correspond to that portion of the calendar year occurring within the Term of this Lease.

B. Within 120 days after the end of each calendar year, Landlord shall furnish to Tenant a statement showing a summary of the actual Operating Expenses incurred for the preceding calendar year. Tenant shall either receive a refund (in the manner set out below) or be assessed an additional sum based upon the difference between Tenant's Proportionate Share of the actual Operating Expenses (limited as provided in subsection A immediately above) and the Additional Rent payments made by Tenant on account of said year. Any additional sum owed by Tenant to Landlord shall be paid within thirty (30) days of receipt of assessment. Any refund owed by Landlord to Tenant shall be credited toward the next month's rental payment or, if such refund is due after the Expiration Date, such amount shall be refunded directly to Tenant within thirty (30) days of the date such refund becomes due. Each statement of Operating Expenses given by Landlord shall be conclusive and binding upon Tenant unless, within 30 days after Tenant's receipt thereof, Tenant shall notify Landlord that it disputes the accuracy of said statement and describe in reasonable detail what Operating Expenses are being disputed. Failure of Landlord to submit the written statement referred to herein shall not waive any rights of Landlord or Tenant nor excuse Tenant's obligation to pay Tenant's Proportionate Share of the difference in actual Operating Expenses hereunder at the time said statement is actually delivered to Tenant nor excuse Landlord from giving any refund due, as the case may be.

C. "Operating Expenses" shall mean expenses relating to the operation and maintenance of the Building and the Property, and all amenities and appurtenances relating thereto as further defined by the Building Owners and Managers Association (hereinafter referred to as "BOMA"), and shall include, without limitation, the following:

(i) wages and salaries of all persons below the grade of building manager engaged in the maintenance and operation of the Building and Property;

(ii) social security taxes and all other taxes which may be levied against Landlord for persons below the grade of building manager engaged in the maintenance and operation of the Building and Property;

(iii) medical and general benefits for all Building employees, pension payments and other fringe benefits for persons below the grade of building manager engaged in the maintenance and operation of the Building and Property;

(iv) administrative expenses and charges;

(v) all insurance premiums;

(vi) stand-by sprinkler charges, water charges and sewer charges;

(vii) electricity and fuel used in the heating, ventilation, air-conditioning, lighting and all other operations of the common areas of the Building and Property;

(viii) trash removal and recycling expenses;

(ix) painting of all common areas in the Building and Property, including painting, striping and the provision of signage on all pavement, curbs, walkways, driveways and parking areas in the Building and upon the Property;

(x) window cleaning, janitorial services and related equipment and supplies;

(xi) management fees incurred in the operation of the Building and Property not to exceed five percent (5%) of the gross rent collected for the Crown Center building complex;

(xii) cleaning, maintenance and repair of the Building and Property;

(xiii) maintenance and service contracts;

(xiv) tools, equipment and supplies necessary for the performance of repairs and maintenance (which are not required to be capitalized for federal income tax purposes);

(xv) maintenance and repair of all mechanical, electrical and intrabuilding network cabling equipment in the Building or upon the Property;

(xvi) cleaning, maintenance and repair of elevators, restrooms, lobbies, hallways and other common areas of the Building;

(xvii) cleaning, maintenance and repair of pavement, curbs, walkways, lighting facilities, landscaping, driveways, parking areas and drainage areas upon and adjacent to the Property and the Building;

(xviii) personal property taxes;

(xix) real estate taxes assessed against the Building and the Property. The term "real estate taxes: shall mean any tax or assessment levied, assessed or imposed at any time by any governmental authority upon or against the Building or the Property or any part thereof, any tax or assessment levied, or any franchise, income, profit or other tax or governmental imposition levied, assessed or imposed against or upon Landlord in substitution in whole or in part for any tax or assessment against or upon the Building and the Property or any part thereof;

(xx) assessments for public improvements imposed against the Building and the Property;

(xxi) all other costs and expenses which would be considered as an expense of cleaning, maintaining, operating or repairing the Building and Property, including, without limitation, any expense associated with administering, managing and providing a government mandated transportation demand management program;

(xxii) all amounts reasonably collected and held by Landlord with respect to reserve accounts for those items which Landlord has designated, which shall include painting, refurbishing, re-carpeting, redecorating or landscaping any portion of the Building and the Property and/or common and public areas of the Building exclusive of any work done in any Tenant's space, and which shall include (a) roof maintenance or replacement; (b) repainting of the Building; and (c) maintenance of the parking lot and garage;

(xxiii) a reasonable amortization cost due to any capital expenditures incurred to reduce or limit operating expenses of the Property and Building;

(xxiv) the amortized portion of any cost or expense for any capital expenditure which may be required by government authority for any reason, including, without

limitation, compliance with laws referred to herein, or which may be required by Landlord's insurance carrier;

(xxv) a reasonable amortization cost due to any capital expenditures incurred to provide electronic security for the Building.

The estimated Operating Expenses for 1999 are currently $3.75 per rentable square foot, plus applicable sales tax and use taxes, provided, however, Landlord and Tenant acknowledge that this is only an estimate and the actual Operating Expenses may vary. Tenant acknowledges that the estimated Operating Expenses are inclusive of janitorial service during normal business hours. Tenant also acknowledges that electricity is separately metered and shall be separately paid by Tenant.

2. TENANT'S PROPORTIONATE SHARE. "Tenant's Proportionate Share" shall, at any given time, be defined as that fraction having as a numerator the total rentable square footage (13,502 sq. ft.) leased hereunder at said time, and having as a denominator the total rentable square footage of the Building (140,183 sq. ft.) as determined by Landlord using the standard for square footage calculation at said time (to wit: 13,502/140,183 = 10.38%). The amounts to be included in Tenant's Proportionate Share as described shall be based upon the actual cost per rentable square foot paid by Landlord for those items of expense. Operating Expenses shall not include leasing commissions and expenses for Tenant improvements, incurred for other Building tenants.

3. OPERATING EXPENSES ALL INCLUSIVE. The examples set forth in Subparagraph C, above are not intended to limit the operating expenses for which Tenant is responsible, it being the intention of the parties for Tenant to pay Tenant's Proportionate Share of all expenses of Landlord in the operation, maintenance, cleaning and repair of the Building and the Property.

ARTICLE IV

SECURITY/DAMAGE DEPOSIT

SECURITY/DAMAGE DEPOSIT. Simultaneously with the execution of this Lease, Tenant shall (i) pay a sum equal to two (2) months' gross rent (not including sales tax) (to wit: $35,442.76); and (ii) provide Landlord with a $250,000.00 letter of credit issued by a financial institution and in a form acceptable to Landlord, both to be held by Landlord as security for the performance by Tenant of all of the terms, covenants and conditions hereof and the payment of Rent or any other sum due Landlord hereunder. It is expressly understood that such deposit shall not be considered an advance payment of Rent or a measure of Landlord's damages in the event of default by Tenant. Landlord shall have the right to apply all or any part of the security deposit against any costs or expenses incurred or to be incurred by Landlord as a result of any damage, injury, expense or liability caused by Tenant's default, including, but not limited to: (a) unreasonable wear and tear of the Premises; (b) loss or damage to the Premises or other property of the Landlord caused by Tenant, Tenant's officers, employees, agents, invitees, or licenses, reasonable wear and tear excepted; (c) the cost of restoring the Premises, except for reasonable wear and tear, to the same condition it was in at the time Tenant began occupancy thereof; (d) Rent or Additional Rent payments which remain due and owing beyond any applicable grace period. Landlord shall not be limited in pursuing Landlord's remedies against Tenant for costs, losses or damages to the Premises or to any other property of Landlord for any such costs, losses or damages which are in excess of the above described security deposit. Such money shall bear no interest and may be commingled with other security deposits or funds of Landlord. Tenant shall promptly replenish any security deposit used by Landlord for any of the items set forth in this Article IV. Tenant's failure to do so shall be deemed a default under this Lease. Provided that Tenant is not then in default under any provision of this Lease, Tenant has the option of replacing the letter of credit with a substitute letter of credit, issued by a financial institution reasonably acceptable to Landlord and in a form comparable to the original letter of credit provided hereunder, in the following amounts at the times indicated: (i) $150,000.00 at the end of the fourth (4th) lease year;
(ii) $100,000.00 at the end of the fifth (5th) lease year; and (iii) $50,000.00 at the end of the sixth (6th) lease year.

ARTICLE V

USE OF PREMISES

Tenant shall use the Premises for general business and office purposes, and for no other purpose without first obtaining the written consent of Landlord, such consent not to be unreasonably withheld or delayed. Tenant will not use or permit the use of the Premises or any part thereof for any unlawful purpose, or in violation of any ordinances, laws, rules or regulations of any governmental body or the rules and regulations attached hereto as EXHIBIT "D". Tenant shall not do or permit any act which would constitute a public or private nuisance or waste or which would be a nuisance or annoyance or cause damage to Landlord or Landlord's other tenants or which would invalidate any policies of insurance or increase the premiums thereof, now or hereafter written on the Building and/or Premises.

ARTICLE VI

PARKING

There shall be available at the Building up to four (4) parking spaces for each 1000 square feet of rentable square feet contained in the Premises (to wit: fifty four (54) nonreserved spaces), for the nonexclusive use of Tenant, free of charge. Five (5) of these fifty four (54) parking spaces will be designated reserved for Tenant and located in close proximity to the west entrance of the Premises.

ARTICLE VII

PREPARATION OF THE PREMISES

1. LEASEHOLD IMPROVEMENT. Landlord shall build out the leasehold improvements for the Premises in accordance with the plans and specifications approved by Tenant and described on EXHIBIT "E" attached hereto. Landlord shall pay the cost of the leasehold improvements set forth in the plans and specifications described on Exhibit "E: attached hereto, including any architectural and engineering services related to the leasehold improvements and any construction management fees. Any costs associated with Tenant change orders shall be the responsibility of Tenant and shall be paid by Tenant to the Landlord at the time of such change orders. The Premises shall be in compliance with applicable laws and regulations under the Americans with Disabilities Act of 1990, as amended upon delivery to Tenant.

The leasehold improvements shall be deemed "substantially completed" on the date due Landlord delivers to Tenant a copy of the certificate of occupancy issued by the City of Fort Lauderdale for the Premises. "Substantial completion" of the leasehold improvements shall occur within sixty (60) days of the date of the issuance of a building permit by the City of Fort Lauderdale for the construction of the leasehold improvements, which sixty (60) day period shall be extended (i) in the event Tenant requests a change order which causes or may cause the construction of the leasehold improvements to take longer than would be expected if such change order had not been given, or (ii) in the event that a force majeure (as more fully described in Article XV, Section 3 below) occurs. In either such case, the date of completion of the leasehold improvements shall be extended the appropriate number of days for the delay caused by the Tenant change order or the force majeure event.

Other than the foregoing, Landlord shall have no other responsibilities to improve the Premises unless specifically set out elsewhere in this Lease.

2. ACCEPTANCE OF PREMISES. Tenant acknowledges that, except as otherwise expressly provided in this Lease, Landlord has not made any representations or warranties with respect to the condition of the Premises and neither Landlord nor any assignee of Landlord shall be liable for any latent defect therein if Landlord has corrected such latent defect or has commenced correcting such latent defect and is diligently pursuing such correction to completion. The taking of possession of the Premises by Tenant shall be conclusive evidence that the Premises were in good and satisfactory condition at the time such possession was taken. If Landlord shall give Tenant permission to enter into possession of the Premises prior to the Commencement Date, such possession or occupancy shall be deemed to be upon all the terms, covenants, conditions, and provisions of this Lease.

3. ACCESS TO PREMISES PRIOR TO COMMENCEMENT DATE. Landlord gives Tenant, its agents, contractors and architects, permission to enter the Premises prior to the Commencement Date for the purpose of preparing and completing the Premises for Tenant's occupancy, provided, however, that any work to be done by the Tenant and/or Tenant's contractors (i) shall have received the prior written approval of Landlord, which approval shall not be unreasonably withheld or delayed, and (ii) shall be performed in full accordance with the terms and conditions of a building permit therefore issued by the City of Fort Lauderdale for such work and all applicable municipal or regulatory building rules, regulations and ordinances, and (iii) shall be scheduled so as not to interface with or hinder the build out of the leasehold improvements. The right of entry granted to Tenant in this paragraph shall include access to and use of the elevator and stairs leading to the Premises, parking at the Building and use of the electrical systems servicing the Premises without charge during the normal operating hours of the Building. Prior to beginning any such work, Tenant and Tenant's contractors shall provide to Landlord certificates to evidence that the Tenant and the Tenant's contractor has obtained and will be maintaining during such work insurance in such amounts and containing such coverages as the Landlord shall request, including, without limitation, builder's risk, worker's compensation and general liability. All such insurance shall name Landlord as an additional insured.

ARTICLE VIII

LANDLORD AND TENANT OBLIGATIONS

1. TENANT'S OBLIGATIONS. At Landlord's sole and exclusive discretion, Landlord may perform, at Tenant's expense throughout the Lease Term, any repairs to the fixtures and appurtenances within the Premises and Tenant's property if Tenant has failed to make such repairs and such failure continues for a period of ten (10) days after written notice thereof. Said expenses shall be reasonable and are above and beyond the Operating Expenses. Tenant shall be responsible for all repairs, the need for which arises out of: (a) the performance or existence of Tenant's Work or alterations;(b) the installation, use or operation of Tenant's property in the Premises; (c) the moving of Tenant's property in or out of the Building; (d) the act, omission, misuse or neglect of Tenant or any of its officers, employees, agents, contractors or invitees. Tenant shall also be responsible for the replacement of all scratched, damaged or broken doors and glass in and about the Premises, the maintenance and replacement of window, wall and floor coverings in the Premises, and for the repair and maintenance of all sanitary and electrical fixtures therein. All such repairs shall be performed at such times and in such a manner as shall minimize interference with the operation of the Building and the use of the Building by other occupants.

2. LANDLORD'S OBLIGATIONS. Landlord shall be obligated to keep and maintain, as part of the services covered by the Operating Expenses, the common areas of the Building, and the systems and facilities serving the Premises in good working order and shall make all repairs as and when needed in or about the common areas, except for those repairs for which Tenant is responsible pursuant to any of the provisions of this Lease. Tenant waives all claims against Landlord for damage to person or property arising for any reason except due to Landlord's gross negligence or willful misconduct. Landlord shall not

be liable for any damage to Tenant's property caused by (a) water from bursting or leaking pipes or waste-water about the Property; (b) from an intentional or negligent act of any other tenant or occupant of the Building or the Property;
(c) fire, hurricane or other acts of God; (d) riots or vandals; or (e) from any other cause except due to Landlord's gross negligence or willful misconduct; all such risks shall be assumed by Tenant. Landlord shall not be required to furnish any services or facilities to, or to make any repairs to or replacements or alterations of the Premises where necessitated due to the fault of Tenant, its officers, agents, invitees and employees, or other tenants and their agents or employees. Additionally, Tenant waives any and all claims of any kind, nature or description against Landlord arising out of the failure of Landlord from time to time to furnish any of the services requested to be furnished hereunder including, without limitation, air conditioning, heat, electricity, elevator service, and restroom facilities, except to the extent such failure was actually caused by the gross negligence or willful misconduct of Landlord.

3. FLOOR LOADS; NOISE AND VIBRATION. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot, which such floor was designed to carry or which is allowed by law. Business machines and mechanical equipment belonging to Tenant which cause noise, electrical interference or vibration that may be transmitted to the structure of the Building or to the Premises to such a degree as to be objectionable to Landlord shall, at Tenant's expense, be placed and maintained by Tenant in settings of cork, rubber or spring-type vibration eliminators sufficient to eliminate such noise, electrical interference or vibration.

4. SERVICES. Landlord shall furnish to the Premises reasonable quantities of heat, ventilation, and air conditioning at all times during the Term of this Lease from 7:00 a.m. to 6:00 p.m. on weekdays, and on Saturdays from 7:00 a.m. to 12:00 p.m. On Sundays and days observed by the Federal Government or the State of Florida as legal holidays, and such other days as shall be designated by them as holidays, such service to the common areas of the Building shall not be provided by Landlord. Landlord shall furnish elevator service and water to the Premises 24 hours a day, seven days a week.

Tenant shall not, without Landlord's prior written consent, which shall not be unreasonably withheld or delayed, in each instance, connect any fixtures, appliances or equipment (other than computers, printers, UPS systems, lamps, typewriters and similar small office machines) to the Building's electrical system. Should Landlord grant such consent, all additional risers or other equipment required shall be provided by Landlord and the cost thereof shall be paid by Tenant within 10 days after being billed therefore.

In order to insure that capacity is not exceeded and to avert possible adverse effects upon the Building's electrical service, Tenant shall not, without the Landlord's prior written consent (not to be unreasonably withheld or delayed) in each instance, connect appliances or equipment to the Building, electric distribution system, telephone system or make any alteration or addition to the electric system of the Demised Premises existing on the Commencement Date. Tenant's electrical usage under this Lease contemplates only the use of normal and customary office equipment for the conduct of Tenant's business, such as typewriters, calculators, personal computers, adding machines, telephone equipment, copiers during Business Hours for Business Days. In the event Tenant installs any office equipment which uses substantial additional amounts of electricity, then Tenant shall request Landlord's consent which shall not be unreasonably withheld. Should Landlord grant his consent, all additional risers or other equipment required therefore shall be provided by Landlord and its cost thereof shall be paid by Tenant upon Landlord's demand.

5. ENERGY CONSERVATION. Tenant shall take affirmative action to ensure that it will utilize energy-efficient equipment in the Premises, and shall notify Landlord of said specific affirmative action, including equipment specifications, in writing at Landlord's request from time to time.

6. JANITORIAL SERVICES. Landlord shall cause the Premises, including the exterior and interior of the windows thereof, to be cleaned in a manner standard to the Building. Tenant shall pay to Landlord on demand, the additional cost of janitorial services incurred by Landlord for: (a) extra cleaning work in the Premises required because of (i) misuse or neglect on the part of Tenant or subtenants or its employees or visitors; (ii) the use of portions of the Premises for purposes requiring greater or more difficult cleaning work than normal office areas; (iii) interior glass partitions or unusual quantity of interior glass surfaces, and (iv) non-building standard materials or finishes installed by Tenant or at its request; (b) removal from the Premises and the Building of any refuse and rubbish of Tenant in excess of that ordinarily accumulated in business office occupancy or at times other than Landlord's standard cleaning times; and (c) the use of the Premises by Tenant other than during business hours on business days if extra janitorial services are required or requested by Tenant.

7. ANTENNA, TELEPHONE AND CABLE. Tenant shall be solely responsible for all telephone, television, cable and other communication expenses incurred in connection with Tenant's use of the Premises.

ARTICLE IX

LANDLORD'S AND TENANT'S PROPERTY

1. LANDLORD'S PROPERTY. All fixtures, equipment, improvements and appurtenances attached to or built into the Premises at the commencement of, or during the Term of this Lease, including carpeting or other similar personal property, whether or not by or at the expense of Tenant, shall be and remain a part of the Premises and shall be deemed the property of Landlord (Landlord's Property") and shall not be removed by Tenant except as set forth herein.

2. TENANT'S PROPERTY. All business and trade fixtures, machinery and equipment, communications equipment and office equipment, whether or not attached to or built into the Premises, which are installed in the Premises by or for the account of Tenant without expense to Landlord and which can be removed without permanent damage to any fixture or Tenant Improvement nor structural damage to the Building, and all furniture, furnishings and other articles of moveable personal property owned by Tenant and located in the Premises (hereinafter collectively referred to as "Tenant's Property") shall be and shall remain the property of Tenant and may be removed by Tenant at any time during the Term of this Lease. In the event Tenant's Property is so removed, Tenant shall repair or pay the cost of repairing any damage to the Premises or to the Building resulting from the installation and/or removal thereof and restore the Premises to the same physical condition and layout as they existed at the time Tenant was given possession of the Premises, normal wear and tear excepted. Any equipment or other property for which Landlord shall have granted any allowance or credit to Tenant shall not be deemed to have been installed by or for the account of Tenant without expense to Landlord, shall not be considered Tenant's Property and shall be deemed the property of Landlord.

3. REMOVAL OF TENANT'S PROPERTY. At or before the Expiration Date of this Lease, or the earlier termination hereof, Tenant, at its expense, shall remove from the Premises all of Tenant's Property (except such items thereof as Landlord shall have expressly permitted to remain, which property shall become the property of Landlord), and Tenant shall repair any damage to the Premises or the Building resulting from any installation and/or removal of Tenant's Property, and shall restore the Premises to the same physical condition and layout as they existed at the time Tenant was given possession of the Premises, reasonable wear and tear excepted. Any other items of Tenant's Property which shall remain in the Premises after the Expiration Date of this Lease, or the earlier termination thereof, may, at the option of Landlord, be deemed to have been abandoned, and in such case, such items may be retained by, or otherwise disposed of by Landlord. Landlord may request Tenant to remove and pay to Landlord the cost of repairing any damage to the Premises or the Building resulting from any installation and/or removal of Tenant's Property and the cost of restoring the Premises to the same physical condition and layout as they existed at the time Tenant was given possession of the Premises, reasonable wear and tear excepted.

4. [DELIBERATELY OMITTED]

ARTICLE X

INSURANCE

1. TENANT'S INSURANCE.

A. Tenant shall, during the Term of this Lease, maintain insurance against public liability, including that from personal injury or property damage in or about the Premises resulting from the occupation, use or operation of the Premises, insuring both Landlord and Tenant, in an amount of not less than One Million Dollars ($1,000,000) Combined Single Limit for both bodily injury and property damage.

B. Tenant shall maintain insurance upon all property in the Premises owned by Tenant, or for which Tenant is legally liable, and shall provide Landlord with evidence of same. The insurance specified herein shall provide protection against perils included within the standard Florida form of fire and extended coverage insurance policy, together with insurance against vandalism and malicious mischief.

C. All policies of insurance provided for herein, shall be issued in a form acceptable to Landlord by insurance companies with general policyholder's rating of "A" as rated in the most current available "Best's Insurance Reports", and qualified to do business in Florida. Each and every such policy:

(i) shall be issued in the names of Landlord and Tenant and any other parties in interest designated in writing by notice from Landlord to Tenant and named as additional insured as their interests may appear;

(ii) shall be for the mutual and joint benefit and protection of Landlord and Tenant and any such other parties in interest as additional insureds as their interests may appear;

(iii) shall (or a certified copy thereof or an original certificate of insurance shall) be delivered to Landlord and any such other parties in interest designated by Landlord on or before delivery of possession of the Premises to Tenant and thereafter, within 30 days prior to the expiration of each policy, and as often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained in like manner and to like extent;

(iv) shall contain a provision that the insurer will give to Landlord and such other parties in interest designated by Landlord at least 30 days notice in writing in advance of any cancellation, termination or lapse, or the effective date of any reduction in the amount of insurance;

(v) shall be written as a primary policy which does not contribute to and is not in excess of coverage which Landlord may carry; and

(vi) shall contain a provision that Landlord and any such other parties in interest, although named as an insured, shall nevertheless be entitled to recover under said policies for any loss occasioned to it, its servants, officers, agents, invitees and employees by reason of the negligence of Tenant.

D. Any insurance provided for herein may be maintained by means of a policy or policies of blanket insurance, provided, however, that: (i) Landlord and any other parties in interest from time to time designated by Landlord to Tenant shall be named as an additional

insured thereunder as their respective interest may appear; (ii) the coverage afforded Landlord and any such other parties in interest will not be reduced or diminished by reason of the use of such blanket policy of insurance; and (iii) the requirements set forth in this Article are otherwise satisfied.

E. These insurance requirements are subject to modification in the event, and to the extent any mortgagee of Landlord requires different insurance. In such event, the requirements of such mortgagee shall control.

2. DESTRUCTION OF THE PREMISES OR BUILDING. If the Premises or the Building are totally or substantially destroyed by fire or other casualty during the Term of this Lease, the Landlord shall have the option of terminating this Lease or any renewal thereof, upon giving written notice at any time within sixty (60) days from the date of such destruction. The termination herein mentioned shall be evidenced in writing. If this Lease is so terminated, all Rent shall abate as of the date of such destruction and any prepaid Rent shall be refunded except as otherwise provided in this Lease.

In the event that Landlord does not elect to Terminate this Lease as permitted hereinabove in this Article or if less than a substantial portion of the Building or the Premises are destroyed, then Landlord shall render the Premises tenantable by repairs within one-hundred eighty (180) days from the date of such destruction. Prior to beginning such repairs and within thirty (30) days of the date of such destruction (which thirty (30) day period shall be extended as appropriate under the circumstances if the destruction is due to a major destructive event such as a hurricane, flood, tornado or similar occurrence causing an unavailability of contractors or construction personnel), Landlord shall deliver to Tenant an estimate from Landlord's contractor of the amount of time it will take to render the Premises tenantable. If such estimate shows that the repairs necessary to render the Premises tenantable shall take more than 180 days from the date of such destruction to be completed, Tenant shall have the right to terminate this Lease upon written notice to Landlord within ten (10) days of the date the Landlord delivered such estimate to Tenant. If said Premises are not rendered tenantable within the aforesaid 180 days, it shall be optional with either party hereto to then terminate this Lease upon written notice to the other party.

During any time that the Premises are untenable due to causes set forth in this paragraph, the Rent or a just and fair proportion thereof shall be abated. In such case, all Rent paid in advance shall be proportioned as of the date of damage or destruction and all Rent thereafter accruing shall be equitably and proportionately suspended and adjusted according to the nature and extent of the destruction or damage, pending completion of rebuilding, restoration or repair. The Landlord shall not be liable for any inconvenience or interruption of business of the Tenant occasioned by the fire or other casualty.

Notwithstanding the foregoing, should damage, destruction or injury occur by reason of the intentional act of Tenant, of Tenant's employee(s), or of Tenant's agent(s), Landlord shall have the option of terminating this Lease, upon giving written notice at any time within sixty (60) days from the date of such destruction or to render the Premises tenantable within 360 days of the date of damage, destruction or injury; and no abatement of Rent shall occur.

Landlord shall not be liable to carry fire, casualty or extended damage insurance on the person or property of the Tenant or any person or property which may now or hereafter be placed in the Premises.

ARTICLE XI

ALTERATIONS AND MECHANIC'S LIENS

1. ALTERATIONS BY TENANT. No alterations to the Premises (other than decorative items) shall be made by Tenant unless the following conditions are met:

A. Tenant shall provide a sealed set of plans prepared and certified by an architect to Landlord, and Tenant shall have received the prior written consent of Landlord based upon the criteria and conditions set forth below, which shall not be unreasonably withheld or delayed.

B. All such alterations or improvements shall be performed by a licensed contractor approved by Landlord, such approval not to be unreasonably withheld or delayed.

C. Tenant shall have procured all permits, licenses and other authorizations required for the lawful and proper undertaking thereof, and promptly after completion of any such alterations, Tenant shall obtain a proper Certificate of Occupancy (if the same is required) and deliver same to Landlord.

D. All alterations when completed shall be of such a nature as not to (i) reduce

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presence of the generator and fuel tank shall not detract from the aesthetic look of the Building, for the prior written approval of Landlord, and shall install such landscaping or other screening, as approved by the Landlord, at the time of the installation of the generator and fuel tank and shall maintain such landscaping or other screening at Tenant's expense during the Term of this Lease.

C. Tenant shall satisfy such other conditions as Landlord shall reasonably request in order to ensure that the fuel tank does not constitute an environmental violation or hazard.

3. MECHANIC'S, MATERIALMAN'S AND LABORER'S LIENS. Tenant agrees that it will make full and prompt payment of all sums necessary to pay for the cost of repairs, alterations, improvements, changes or other work done by Tenant to the Premises and further agrees to indemnify and hold harmless Landlord from and against any and all such costs and liabilities incurred by Tenant, and against any and all mechanic's, materialman's or laborer's liens arising out of or from such work or the cost thereof which may be asserted, claimed or charged against the Premises or the Building or Property. Notwithstanding anything to the contrary in this Lease, the interest of Landlord in the Premises shall not be subject to liens for improvements made by or for Tenant, whether or not the same shall be made or done in accordance with any agreement between Landlord and Tenant, and it is specifically understood and agreed that in no event shall Landlord or the interest of Landlord in the Premises be liable for or subjected to any mechanic's, materialman's or laborer's liens for improvements or work made by or for Tenant. This Lease specifically prohibits the subjecting of Landlord's interest in the Premises to any mechanic's, materialman's or laborer's liens for improvements made by Tenant or for which Tenant is responsible for payment under the terms of this Lease. All persons dealing with Tenant are hereby placed upon notice of this provision. In the event any notice or claim of lien shall be asserted of record against the interest of Landlord in the Premises or Building or the site on which it is located on account of or growing out of any improvement or work done by or for Tenant, or any person claiming by, through or under Tenant, for improvements or work the cost of which is the responsibility of Tenant, Tenant agrees to have such notice of claim of lien discharged of record as a claim against the interest of Landlord in the Premises or the Building or Property (either by payment or bond as permitted by law) within twenty (20) days after notice to Tenant by Landlord, and in the event Tenant shall fail to do so, Tenant shall be considered in default under this Lease. Tenant shall, prior to any work being performed, at Landlord's request, execute and record any such recordable documents as are necessary to evidence Landlord's non-responsibility to potential lienors.

ARTICLE XII

ASSIGNMENT AND SUBLETTING

1. TENANT'S TRANSFER.

A. Tenant shall not voluntarily assign or encumber its interest in this Lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first obtaining Landlord's written consent, which consent shall not be unreasonably withheld or delayed provided that the following conditions have been or are being satisfied: (i) the proposed assignee or sublessee is an entity which is of equal or greater credit worthiness and financial reputation as Tenant on the date of this Lease; Tenant shall provide to Landlord all documentation necessary or requested by Landlord to evidence the credit worthiness and financial reputation of such proposed assignee. Failure to provide any such information to Landlord, or Landlord's reasonable determination that such information does not demonstrate a credit worthiness or financial reputation of such assignee equal to that of the Tenant on the date of this Lease, shall be deemed reasonable justifications for Landlord to withhold its consent to such assignment or to conditions its consent to require that Tenant remain liable for the performance of all of Tenant's obligations under this Lease. Tenant may assign its interest in this Lease or in the Premises, or sublease all or any part of the Premises, to an affiliate or subsidiary or patent of Tenant without first obtaining Landlord's written consent, provided that such affiliate or subsidiary of Tenant is at least 51% controlled by Tenant, or such parent company owns at 51% of the issued and outstanding shares of Tenant, and Tenant remains liable for the performance of all of Tenant's obligations under this Lease. Any assignment, encumbrance or sublease without Landlord's prior written consent shall be voidable and, at Landlord's election, shall constitute a default hereunder unless expressly permitted herein. No consent to any assignment, encumbrance or sublease shall constitute a further waiver of the provisions of this provision.

B. [Deliberately Omitted]

C. If Tenant is a corporation, any dissolution, merger or consolidation, or other reorganization of Tenant, or the sale of or the transfer of controlling percentage of the capital stock of Tenant, or the sale of 51% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding an entitled to vote for the election of directors shall be deemed a voluntary assignment subject to the requirements of Paragraph 1.A. above. Notwithstanding the foregoing a merger, consolidation or other reorganization of Tenant shall not be considered a voluntary assignment requiring Landlord's consent under this Lease provided that the surviving corporate entity (i) is of an equal or greater credit worthiness and financial reputation as Tenant on the date of this Lease; an (ii) has a ratio of long term and short term debt to liquid and tangible assets equal to or less than Tenant immediately prior to such merger, consolidation or other reorganization. Tenant shall provide to Landlord all documentation necessary or requested by Landlord to evidence the satisfaction of the foregoing conditions.

D. In the event Landlord consents to the assignment or sublease of all or any part of the Premises, Tenant and the assignee or sublessee shall enter into a sublease incorporating the same terms and conditions as contained herein (exclusive of rent), and Landlord shall be entitled to receive the total amount of any increased Rent provided for in said assignment or sublease, including sales tax, paid by a sublessee or assignee.

E. Any assignment consented to by Landlord shall be evidenced by a validly executed assignment and assumption of lease agreement, upon such terms and provisions as shall be approved by Landlord in its sole discretion.

F. If, without such prior written consent of Landlord, this Lease is transferred or assigned by Tenant, or if the Premises, or any part thereof, are sublet or occupied by anybody other than Tenant, whether as a result of any act or omission by Tenant, or by operation of law or otherwise, Landlord may, in addition to and not in diminution of, or substitution for, any other rights and remedies under this Lease, or pursuant to law to which Landlord may be entitled as a result thereof, collect and retain Rent directly from the transferee, assignee, subtenant or occupant and apply the net amount collected to the Rent due from Tenant to Landlord under this Lease.

2. TENANT'S LIABILITY. Notwithstanding any assignment or sublease, and notwithstanding the acceptance of Rent by Landlord from any such assignee or sublessee, Tenant shall continue to remain liable for the payment of Rent hereunder and for the performance of all of the agreements, conditions, covenants and terms herein contained.

3. LANDLORD'S RIGHT OF CANCELLATION. Notwithstanding anything contained herein to the contrary, should Tenant desire or attempt to assign this Lease or to sublease the entire Premises for the entire Term, except to an affiliated company of Tenant, Landlord shall have the right, which must be exercised within twenty (20) days of receipt by Landlord of notice of such attempt to assign this Lease or sublease the Premises, but not the obligation, to cancel and terminate the Lease and deal with Tenant's prospective assignee or sublessee directly and without any obligation to Tenant.

4. LANDLORD'S TRANSFER. Landlord shall have the right to sell, assign, mortgage or otherwise encumber or dispose of Landlord's interest in the Building, the Property, the Premises and this Lease. In the event of any such disposition, Landlord shall have no further liability or obligation to Tenant under this Lease provided that the new landlord assumes all of the Landlord's obligations and liabilities under this Lease.

ARTICLE XIII

OBLIGATION TO COMPLY

1. OBLIGATIONS OF TENANT. Tenant shall, during the Term of this Lease, at its sole cost and expense, comply with all valid laws, ordinances, regulations, orders and requirements of any governmental authority which may be applicable to the Premises or to its use, whether or not the same shall interfere with the use or occupancy of the Premises arising from (a) Tenant's use of the Premises; (b) the manner or conduct of Tenant's business or operation of its installations, equipment or other property therein; (c) any cause or condition created by or at the instance of Tenant; or (d) breach of any of Tenant's obligations hereunder, whether or not such compliance requires work which is structural or non-structural, ordinary or extraordinary, foreseen or unforeseen. Landlord agrees to cooperate with Tenant, as reasonable, if alterations to the Premises are mandated by any such law or requirement arising after the Commencement Date, so long as all alterations comply with the provisions of Article XI of this Lease. Tenant shall pay all of the costs, expenses, fines penalties and damages which may be imposed upon Landlord by reason or arising out of Tenant's failure to fully and promptly comply with and observe the provisions of this Section. Tenant shall give prompt notice to Landlord of any notice it receives of the violation of any law or requirement of any public authority with respect to the Premises or the use or occupation thereof. Tenant's obligation to comply with laws shall include, without limitation, those laws and regulations contemplated by Sections XXIV.2. and
XXIV.9. below and Title III of the Americans With Disabilities Act of 1990, as Amended. In the event Tenant receives any notice alleging violation of any of the aforementioned laws, ordinances, regulations, orders, rules or requirements relating to any portion of the Premises, the Building or of the Property; or any notice of regulatory action or investigation instituted in connection therewith, Tenant shall provide written notice to Landlord thereof within ten (10) days after receipt of same by Tenant.

2. RULES AND REGULATIONS. Tenant shall comply with all rules and regulations now existing (See EXHIBIT "D"), or as may be subsequently published by Landlord to tenants of the Building. Landlord shall apply the rules and regulations of the Building to all tenants on a uniform, non-discriminatory basis.

3. ATTORNEY'S FEES. With respect to any default or failure to perform on the part of Tenant, or any other dispute between Tenant and Landlord arising out of this Lease, Landlord shall be entitled to recover all costs incurred, including reasonable attorney's fees, which shall include, but not be limited to, such fees incurred prior to the institution of litigation or in litigation, including trial and appellate review, and in arbitration, bankruptcy or other administrative or judicial proceedings, and such costs, expenses and attorney's fees incurred by or on behalf of Landlord shall constitute Rent hereunder and shall be paid upon written demand therefore. In addition, from time to time, Tenant will pay, within twenty (20) days after demand, all expenses (including, without limitation, the reasonable fees and expenses of legal counsel for Landlord) relating to any request or demand made, or notice given by Tenant pursuant to the Terms of this Lease, including, without limitation, under Articles VI, XII, XX and XXIV. The prevailing party in any action or proceeding in court or mutually agreed upon arbitration proceeding to enforce the terms of this Lease is entitled to receive its reasonable attorneys' fees and other reasonable costs and expenses from the non-prevailing party.

ARTICLE XIV

RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS

1. PAYMENT OR PERFORMANCE. Landlord shall have the right, upon ten (10) days prior written notice to Tenant (or without notice in the case of emergency or in order to avoid any fine, penalty or cost which may otherwise be imposed or incurred) to make any payment or perform any act required of Tenant under any provision in this Lease, and in exercising such right, to incur necessary and incidental costs and expenses, including reasonable attorney's fees if such payment or performance has not been made by Tenant within said ten (10) day period after written notice to Tenant (if Tenant is entitled to such ten (10) day prior written notice under the terms of this paragraph). Nothing herein shall imply any obligation on the part of Landlord to make any payment or perform any act required of Tenant, and the exercise of the right to do so shall not constitute a release of any obligation, waiver of any default or obligation of Landlord to make any similar payment or perform any similar act in the future.

2. REIMBURSEMENT. All payments made, and all costs and expenses incurred in connection with Landlord's exercise of the right set forth in Paragraph 1 above, shall be reimbursed by Tenant within thirty (30) days after receipt of a bill setting forth the amounts so expended, together with interest at the annual rate of 18% from the respective dates of the making of such payments or the incurring of such costs and expenses. Any such payments, costs and expenses made or incurred by Landlord shall be treated as Additional Rent owed by Tenant.

ARTICLE XV

NON-LIABILITY AND INDEMNIFICATION

1. NON-LIABILITY OF LANDLORD. Neither Landlord, nor any joint venture partner, officer, director, agent, servant or employee of Landlord, nor any Superior Mortgagee (as defined in Article XX below), shall be liable to Tenant for any loss, injury, or damage to Tenant or to any other person, or to its property, irrespective of the cause of such injury, damage or loss, unless caused by or resulting from the gross negligence of Landlord, in the operation or maintenance of the Premises or the Building, subject to the doctrine of comparative negligence in the event of contributory negligence on the part of Tenant or any of its subtenants, licenses, employees, invitees, officers, agents or contractors. Tenant agrees that any Superior Mortgage will not be liable to Tenant for injury, damage or loss caused by or resulting from the negligence of Landlord. Further, neither Landlord, nor any Superior Mortgagee, nor any joint venture partner, director, officer, agent, servant or employee of Landlord shall be liable; (a) for any damage

caused by other tenants or persons in, upon or about the Building or caused by operations in construction of any private, public or quasi-public work; or (b) even if grossly negligent, for incidental or consequential damages or lost profits arising out of any loss of use of the Premises or any equipment or facilities therein by Tenant or any person claiming through or under Tenant.

2. INDEMNIFICATION BY TENANT. Tenant shall indemnify and hold Landlord and all Superior Mortgagees and its or their respective joint venture partners, directors, officers, agents, employees and invitees (collectively referred to hereinafter as the "Indemnified Parties" and individually as an "Indemnified Party), harmless against and from any and all claims from or in connection with:
(a) the conduct or management of the Premises or any business therein, or any condition created (other than by Landlord or its officers, agents or employees) in or about the Premises during the Term of this Lease or during the period of time, if any, prior to the Commencement Date that Tenant may have been given access to the Premises; (b) any act, omission or negligence of Tenant or any of its subtenants or licensees or its or their partners, directors, officers, agents, employees or contractors; (c) any accident, injury or damage whatsoever (unless caused solely or primarily by the gross negligence or willful misconduct of Landlord or its officers, agents or employees) occurring in, at or upon the Premises; and (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease, together with all reasonable costs, expenses and liabilities incurred in or in connection with each such claim, action or proceeding brought against an Indemnified Party, including, without limitation, all reasonable attorney's fees and expenses, provided however that Tenant shall not be responsible for indemnifying any Indemnified Party for any claim, action or proceeding brought against such Indemnified Party for an act or omission caused solely by such Indemnified Party's gross negligence or willful misconduct. In case any action or proceeding is brought against Landlord or a Superior Mortgagee, Tenant, upon notice from Landlord or such Superior Mortgagee, shall resist and defend such action or proceeding (by counsel reasonably satisfactory to Landlord or such Superior Mortgagee) at Tenant's sole cost and expense.

3. INDEPENDENT OBLIGATIONS; FORCE MAJEURE. The obligations of Tenant hereunder shall not be affected, impaired or excused, nor shall Landlord have any liability whatsoever to Tenant, because; (a) Landlord is unable to fulfill, or is delayed in fulfilling, any of its obligations under this Lease by reason of strike, other labor trouble, governmental preemption of priorities or other controls or shortages of fuel, supplies, labor or materials, acts of God or any other cause, whether similar or dissimilar, beyond Landlord's reasonable control; or (b) of any failure or defect in the supply, quantity or character of electricity or water furnished to the Premises by reason of any requirement, act or omission of the public utility or others serving the Building with electric energy, steam, oil, gas or water, or for any other reason whether similar or dissimilar, beyond Landlord's reasonable control. Tenant shall not hold Landlord liable for any latent defect in the Premises, the Property or the Building if Landlord has corrected such latent defect or has commenced correcting such latent defect and is diligently pursuing such correction to completion, nor shall Landlord be liable for injury or damage to person or property caused by fire, theft, or resulting from the operation of elevators, heating or air conditioning or lighting apparatus, or from falling plaster, or from steam, gas, electricity, water, rain or dampness which may leak or flow from any part of the Building or Property or from the pipes, appliances or plumbing work of the same.

ARTICLE XVI

DEFAULT

1. EVENTS OF DEFAULT. Tenant shall be in default under this Lease if any one or more of the following events (each, an "event of default") shall occur:

A. Tenant shall fail to pay any installment of the Rent when due, which failure continues for a period of five (5) days after written notice thereof from Landlord to Tenant (it being understood that Landlord is required to give only one such notice per Lease Year), or any other expenses called for hereunder as and when the Same shall become due and payable, which failure continues for a period of ten (10) days after written notice thereof from Landlord to Tenant; or

B. Tenant shall default in the performance of or compliance with any of the other terms or provisions of this Lease, and such default shall continue for a period of ten (10) days after the giving of written notice thereof from Landlord to Tenant, or, in the case of any such default which cannot, with bona fide due diligence, be cured within said ten (10) days, Tenant shall fail to proceed within said ten (10) day period to cure such default and thereafter to prosecute the curing of same with all due diligence (it being intended that as to a default not susceptible of being cured with due diligence within such period of ten (10) days, the time within which such default may be cured shall be extended for such period as may be necessary to permit the same to be cured with bona fide due diligence); or

C. Tenant shall assign, transfer, mortgage or encumber this Lease or sublet the Premises in a manner not permitted by Article XII; or

D. Tenant shall file a voluntary petition in bankruptcy or any Order for Relief be entered against it, or shall file any petition or answer seeking any arrangement, reorganization, composition, readjustment or similar relief under any present or future bankruptcy or other applicable law, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant of all or any substantial part of Tenant's properties; or

E. If any creditor of Tenant shall file a petition in bankruptcy against Tenant or for reorganization of Tenant under state or federal law, and if such petition is not discharged within one hundred and twenty (120) days after the date on which it is filed; or

F. Tenant shall abandon the Premises.

2. SURRENDER OF PREMISES. Upon any termination of this Lease, Tenant shall surrender the Premises to Landlord, and Landlord, at any time after such termination, may, without further notice, re-enter and repossess the Premises without being liable to any prosecution or damages therefore, and no person claiming through or under Tenant or by virtue of any statute or of any order of any court shall be entitled to possession of the Premises.

3. HOLDOVER. Should Tenant hold over and remain in possession of the Premises at the expiration of any Term hereby created, Tenant shall, by virtue of this Section, become a tenant-at-sufferance and shall pay Landlord twice the Rent per month of the last monthly installment of Rent above provided to be paid. Said tenancy shall be subject to all the conditions and covenants of this Lease as though the same had been a tenancy-at-sufferance instead of a tenancy as provided herein, and Tenant shall give to Landlord at least thirty (30) days prior written notice of any intention to remove from the Premises, and shall be entitled to ten (10) days prior notice of any intention of Landlord to remove Tenant from the Premises in the event Landlord desires possession of the Premises; provided, however, that said tenant-at-sufferance shall not be entitled to ten (10) days notice in the event the said Rent is not paid in advance without demand, the said ten (10 days written notice being hereby expressly waived.

ARTICLE XVII

REMEDIES

1. REMEDIES. Upon the occurrence of any event of default, Landlord shall be entitled to all remedies available to it under Florida law, including, but not limited to, the filing of suit for the recover of all monetary damages sustained by Landlord as a result thereof. In addition to its statutory and common law remedies in the event of a default by Tenant, Landlord shall also be entitled, at its option, to exercise any one or more of the following remedies:

A. TERMINATION. Landlord shall be entitled to declare this Lease terminated and the term ended and/or shall have the immediate right of re-entry and may remove all persons and property from the Premises and such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of Tenant, without evidence of notice or resort to legal process and without being deemed guilty of trespass or becoming liable for any loss or damage which may be occasioned thereby.

B. RIGHT TO RE-LET. Landlord may elect to re-enter the Premises, either by taking possession pursuant to legal proceedings or otherwise, and may either terminate this Lease or it may from time to time, without terminating this Lease, make such alterations and repairs as may be necessary in order to re-let the Premises, and re-let the Premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable. Upon each such re-letting all rentals and other sums received by Landlord from such re-letting shall be applied, first, to the payment of any expenses other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs and expenses of such re-letting, including reasonable brokerage fees and attorneys' fees and of costs of such alterations and repairs and costs of moving other tenants in the Building in order to re-let the Premises, such as repairs and alterations to other portions of the Building or reduced rental from other tenants; third, to the payment of Rent and other charges due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future Rent as the same may become due and payable hereunder. If such rentals and other sums received from such re-letting during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall in no event be entitled to any rent collected or payable upon any re-letting, whether or not such rent shall exceed the Rent reserved in this Lease. No such re-entry or taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such re-letting without termination, Landlord may at any time hereafter elect to terminate this Lease for such previous breach. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedies it may have, it may recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and reasonable attorney's fees, which amount shall be immediately due and payable from Tenant to Landlord.

C. ACCELERATION. Landlord may, without notice or demand, accelerate and declare all Rent, including Additional Rent, to become immediately due and payable and bring suit for the collection thereof and for damages, as hereinafter described, without entering into possession of the Premises or terminating this Lease. The amount of expenses (Additional Rent) and other sums to become due under this Lease shall be the present value of those amounts payable during the twelve (12) month period immediately preceding default, multiplied by the number of years, or a portion thereof, remaining in the Term at the date of default.

D. ADDITIONAL CHARGES. In addition to the amounts recoverable by Landlord from Tenant as described above and to the extent not already included in the expenses (Additional Rent) already collected by Landlord, Landlord may, upon a default by Tenant hereunder, recover damages from Tenant for the unamortized portion of the Cost of Landlord's Work hereunder, brokerage fees and attorneys' fees and costs, plus such other amounts in addition to or in lieu of any other damages as may be permitted by the laws of the State of Florida, plus interest thereon at the rate described in Article XIV.2. hereof.

E. WAIVER OF NOTICE. To the extent permitted by law, Tenant waives notice of termination of this Lease, any statutory notice (three day or otherwise), notice of re-entry or institution of legal proceedings and any right of redemption, re-entry or repossessions. Landlord may foreclose on the lien described in Article IX.4. hereof and enter the Premises and take possession of any and all goods, equipment, fixtures, furniture and other personal property of Tenant situated on the Premises without liability for trespass or conversion, and sell the same at public or private sale, with or without having such property at the sale, at which Landlord or its assigns may purchase and apply the proceeds thereof, less

any and all expenses connected with the taking of possession and sale of the property, as a credit against any sums due by Tenant to Landlord.

ARTICLE XVIII

EMINENT DOMAIN

1. TAKING. If the whole of the Building or Premises or if a portion of the Building or Premises which will materially and adversely affect Tenant's use and occupancy of the Premises shall be taken by condemnation or in any other manner for any public or quasi-public use or purpose, this Lease shall terminate as of the date of vesting of title on such taking )herein called "Date of Taking"), and the Base Rent and Additional Rent shall be prorated and adjusted as of such date.

2. AWARD. In the event any action is brought, it shall be in the name of Landlord, and Landlord shall be entitled to receive the entire award or payment in connection with any taking without deduction therefrom, except to the extent that Tenant shall be entitled to compensation based upon damages sustained to its personal property and moving expenses. Tenant shall not be precluded from taking its own action against the condemning authority.

3. TEMPORARY TAKING. If the temporary use or occupancy of all or any part of the Premises shall be taken by condemnation or in any other manner for any public or quasi-public use or purpose during the Term of this Lease, Tenant shall be entitled, except as hereinafter set forth, to receive that portion of the award or payment for such taking, if any, which represents compensation for the temporary use and occupancy of the Premises, for the taking of Tenant's Property and for moving expenses, and Landlord shall be entitled to receive all other award or payment, including, without limitation, that portion which represents reimbursement for the cost of restoration of the Premises. This Lease shall be and remain unaffected by such taking and Tenant shall continue to pay the Rent in full when due. If the period of temporary use or occupancy shall extend beyond the Expiration Date of this Lease, that part of the award which represents compensation for the use and occupancy of the Premises (or a part thereof) shall be divided between Landlord and Tenant so that Tenant shall receive so much thereof as represents the period up to and including such Expiration Date and Landlord shall receive so much as represents the period after such Expiration Date. All monies received by Landlord as, or as part of, an award for temporary use and occupancy for a period beyond the date through which the Rent has been paid by Tenant, shall be held and applied by Landlord as a credit against the Rent becoming due hereunder.

4. PARTIAL TAKING. In the event of any taking of less than the whole of the Building which does not result in termination of this Lease: (a) subject to the prior rights of a Superior Mortgagee, Landlord, at its expense, shall proceed with reasonable diligence to repair the remaining parts of the Building and the Premises (other than those parts of the Premises which are Landlord's property and Tenant's property) to substantially their former condition to the extent that the same is feasible (subject to reasonable changes which Landlord shall deem desirable), so as to constitute a complete and tenantable Building and Premises; and (b) Tenant, at its expense, shall proceed with reasonable diligence to repair the remaining parts of the Premises which are deemed Landlord's Property and Tenant's Property pursuant hereto, to substantially their former condition to the extent feasible, subject to reasonable changes which Tenant shall deem desirable and Landlord shall approve. Such work by Tenant, shall be deemed alterations as described in Section XIX.1 hereinabove. In the event of any partial taking, Tenant shall be entitled to a reduction in Rent for the remainder of the Lease Term following such partial taking based upon the percentage of Premises taken and untenantable relative to the original Premises leased.

ARTICLE XIX

QUIET ENJOYMENT

Landlord agrees that Tenant, upon paying all Rent and all other charges herein provided for and observing and keeping the covenants, agreements, terms and conditions of this Lease and the rules and regulations of Landlord affecting the Premises on its part to be performed, shall lawfully and quietly hold, occupy and enjoy the Premises during the Term hereof, expressly subject to the terms, limitations and conditions contained in this Lease.

ARTICLE XX

SUBORDINATION AND ATTORNMENT

1. SUBORDINATION. This Lease and all rights of Tenant hereunder are and shall be subordinate to any Superior Mortgage (as defined below). Notwithstanding that such subordination is self-operative without any further act of Tenant, Tenant shall, from time to time, within twenty (20) days of request from Landlord, execute and deliver any documents or instruments that may be requested by a lender to confirm such subordination, including an estoppel certificate in substantially the form attached hereto as EXHIBIT "C". Any mortgage, long-term lease or other encumbrance to which this Lease is subject and subordinate is hereinafter referred to as a "Superior Mortgage" and the holder of a Superior Mortgage is hereinafter referred to as a "Superior Mortgagee".

2. NOTICE TO LANDLORD AND SUPERIOR MORTGAGEE. If any act or omission of Landlord would give Tenant the right, immediately or after the lapse of a period of time, to cancel this Lease or to claim a partial or total eviction, Tenant shall not exercise such right; (a) until it has given written notice of such act or omission to Landlord and any Superior Mortgagee; and (b) until a reasonable period of time for remedying such act or omission shall have elapsed following the giving of such notice and following the time when such Superior Mortgagee shall have become entitled under such Superior Mortgage to remedy the same. In the event any Superior Mortgagee shall request reasonable modifications to this Lease (excluding any modification of Rent, use of the Premises or which would otherwise diminish Tenant's rights or increase Tenant's obligations hereunder) as a condition to financing or refinancing, Tenant shall not withhold, delay or defer in providing its consent thereto. In the event Tenant has not provided its consent to modifications requested by a Superior Mortgagee within twenty (20) days after written notice from Landlord, Landlord, at its sole option, shall have the right to execute any instrument for and on behalf of Tenant as its attorney-in-fact for the purpose of executing such instrument required to carry out the intent of this Section. In acknowledgment thereof, Tenant hereby appoints Landlord as its irrevocable attorney-in-fact for the purpose of executing any instruments required to carry out the intent of this Section on behalf of Tenant after proper notice, and default hereunder by Tenant.

3. ATTORNMENT. If any Superior Mortgagee shall succeed to the rights of Landlord hereunder, whether through possession or foreclosure action or delivery of a new lease or deed, then, at the request of such party (hereinafter referred to as "Successor Landlord"), Tenant shall attorn to and recognize such Successor Landlord as Tenant's Landlord under this Lease and shall promptly execute and deliver any instrument such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct Lease between Successor Landlord and Tenant, upon all terms, conditions, and covenants as set forth in this Lease, except that the Successor Landlord shall not: (a) be liable for any previous act or omission of Landlord under this Lease; (b) be subject to any offset; or (c) be bound by any previous modification of this Lease or by any previous prepayment, unless such modification or prepayment shall have been previously approved in writing by such Successor Landlord if such approval was required. Further, upon such attornment, Landlord shall be released from any further obligation hereunder.

ARTICLE XXI

LANDLORD'S RIGHT OF ACCESS

1. ACCESS FOR MAINTENANCE AND REPAIR. Except for the space within the inside surfaces of all walls, hung ceilings, floors, windows and doors bounding the Premises, all of the Building including, without limitation, exterior walls, core interior walls and doors and any core corridor entrance, any terraces or roofs adjacent to the Premises and any space in or adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other facilities of the Building, and the use thereof, as well as access thereto throughout the Premises for the purposes of operation, maintenance, decoration and repair, are reserved to Landlord. Landlord reserves the right, and Tenant shall permit Landlord, to install, erect, use and maintain pipes, ducts and conduits in and through the Premises, so long as such work by Landlord does not lower the height of the ceiling from that which existed on the Commencement Date. Landlord shall be allowed to take all materials into and upon the Premises that may be required in connection therewith, without any liability to Tenant and without any reduction of Tenant's covenants and obligations hereunder. Landlord and its agents shall have the right to enter upon the Premises for the purpose of making any repairs therein or thereto which shall be considered necessary or desirable by Landlord in such a manner as to minimize the interference with Tenant's business on the Premises; and in addition, Landlord and its agents shall have the right to enter the Premises at any time in cases of emergency.

2. ACCESS FOR INSPECTION AND SHOWING. Upon reasonable notice to Tenant and during normal business hours, Landlord and its agents shall have the right to enter and/or pass through the Premises at any time to examine the Premises and to show them to prospective purchasers, mortgagees or lessees of the Building. During the period of six (6) months prior to the Expiration Date of this Lease, Landlord and its agents may exhibit the Premises to prospective tenants upon reasonable notice to Tenant and during normal business hours.

3. LANDLORD'S ALTERATIONS AND IMPROVEMENTS. If, at any time, any windows of the Premises are temporarily darkened or obstructed by reason of any repairs, improvements, maintenance and/or cleaning in or about the Building, or if any part of the Building, other than the Premises or access to the Premises, is temporarily or permanently closed or inoperable, the same shall be without liability to Landlord and without any reduction or diminution of Tenant's obligations under this Lease. Landlord reserves the right to make such changes, alterations, additions and improvements in or to the Building and the fixtures and equipment thereof, as well as in or to the street entrances, doors, halls, passages, elevators, escalators and stairways thereof, and other public portions of the Building and the Property, as Landlord shall deem necessary or desirable, and no such alterations or changes shall be deemed a breach of Landlord's covenant of quiet enjoyment or a constructive eviction.

ARTICLE XXII

SIGNS AND OBSTRUCTION

1. SIGNS. Tenant shall not place or suffer to be placed or maintained upon any exterior door, roof, wall or window of the Premises or the Building, any sign, awning, canopy or advertising matter of any kind, and will not place or maintain any decoration, lettering or advertising matter on the glass of any window or door of the Premises except as previously approved in writing by Landlord, in Landlord's sole discretion. Tenant shall not place or maintain any freestanding standard within or upon the Common Area of the Premises or the Building or immediately adjacent thereto without first obtaining Landlord's express prior written consent. No exterior sign or interior sign visible from the exterior of the Building shall be permitted unless expressly permitted herein. Said Building signage shall be subject to Landlord's reasonable approval and is subject to all appropriate government approvals. At Tenant's sole expense, Tenant agrees to maintain any such signage approved by Landlord (which approval shall not be

unreasonably withheld or delayed) in good condition and repair at all times and to remove the same at its sole cost and expense at the end of the Term of this Lease. Upon removal thereof, Tenant agrees to repair any damage to the Premises caused by such installation and/or removal at Tenant's sole expense. Landlord shall add Tenant's name to the tenant directory in the lobby of the Building. Tenant may, at Tenant's expense, put a sign on the entrance doors of the Premises, identifying the Tenant as the tenant of the Premises, provided that such sign has first been approved by Landlord in writing. Tenant may also, at its expense, place signage identifying the Tenant as a tenant of the Building on a monument sign constructed or to be constructed at the Building, provided that the location of such sign and form of such sign has received the prior written consent by the Landlord.

2. OBSTRUCTION. Tenant shall not obstruct the corridors, elevators, stairs, common areas, sidewalks, parking lots or other public portions of the Building or the Property in any manner whatsoever.

ARTICLE XXIII

NOTICES

1. NOTICES. Any notice or other information required or authorized by this Lease to be given by either Party to the other may be given by hand with receipt; or sent by facsimile transmission; or by certified prepaid mail, return receipt requested; or by nationally recognized overnight courier service, to the other Party at the address stated below. Such address may be changed by either respective Party at any time by giving prior written notice as herein provided. Any notice or information given pursuant to this Section shall be deemed to have been given when received by the Party to whom it has been directed.

AS TO LANDLORD:            1475 Cypress Creek Road, Suite 202
                           Fort Lauderdale, FL  33309
                           Attention: James E. Goldstein
                           Fax No.: (954) 771-8667

WITH A COPY TO:            Clifford I. Hertz, P.A.
                           Broad and Cassel
                           400 Australian Avenue South, Fifth Floor
                           West Palm Beach, FL  33401
                           Fax No.: (561) 655-1109

AS TO TENANT:              Fusion Telecom International
                           1801 South Federal Highway
                           Suite 305
                           Delray Beach, FL  33483
                           Attention:
                           Fax No.:

WITH A COPY TO:            Greenberg Traurig
                           200 Park Avenue
                           New York, NY  10166
                           Attention: Marvin Rosen, Esq.
                           Fax No.: (212) 801-6400

ARTICLE XXIV

MISCELLANEOUS

1. [DELIBERATELY OMITTED]

2. ENVIRONMENTAL INDEMNITY. Tenant agrees to indemnify and hold Landlord harmless from and against any and all loss, claim, liability, damages, injuries to person, property or natural resources, cost, expense, action or cause of action arising in connection with the release or presence of any Hazardous Substances at the Property through the acts of Tenant, its officers, employees, contractors, agents or invitees, whether foreseeable or unforeseeable, regardless of the source of such release and when such release occurred or such presence is discovered. The foregoing indemnity includes, without limitation, all costs in law or in equity of removal, remediation of any kind, and disposal of such Hazardous Substances; all costs of determining whether the Premises or other portions of the Property used by Tenant are in compliance and to cause the Premises or other portions of the Property used by Tenant are to be in compliance with all applicable environmental laws, all costs associated with claims for damages to persons, property or natural resources, and Landlord's reasonable attorneys' and consultants' fees and costs, whether or not litigation is instituted. For the purposes of definition, "Hazardous Substances" includes, without limitation, any toxic or hazardous wastes, pollutants (or substances, including, without limitation, asbestos, PCBs, petroleum products and by-products, substances defined or listed as "hazardous substances" or "toxic substances" or similarly identified in or pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9061 ET. SEQ., hazardous materials identified in or pursuant to the Hazardous Materials Transportation Act 49 U.S.C. Section 1802 ET. SEQ.). To the best of the knowledge of Landlord, and based solely upon its review of the environmental assessment report of the Property prepared by Property Solutions, Inc. dated as of April 16, 1999, there are no Hazardous Substances at the Property.

3. RADON GAS. Pursuant to Florida Statutes, Section 404.056[6], the following disclosure is required by law: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of Radon that excel federal and state guidelines have been found in buildings in Florida. Additional information regarding Radon and Radon testing may be obtained from your county public health unit.

4. BROKER COMMISSION. Landlord and Tenant covenant, warrant and represent that Coldwell Banker Commercial Brenner Real Estate Group and Stiles Corporation ("Brokers") were instrumental in bringing about or consummating this Lease. Further, neither Landlord nor Tenant have had any conversations or negotiations with any broker except Brokers concerning the leasing of the Premises. Both parties agree to indemnify the other against and from any claims for any brokerage commissions (except those payable to Brokers) and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, for any breach of the foregoing representation. Landlord shall pay all brokerage commissions due Brokers in accordance with a separate agreement between Landlord and Brokers.

5. FINANCIAL STATEMENTS. Prior to the Commencement Date, Tenant shall provide to Landlord, Tenant's most current and complete financial statement including, but not limited to, its balance sheet and profit and loss statement, certified by an officer of Tenant. Further, Tenant shall provide its most current financial information specified above to Landlord within twenty (20) days after written request from Landlord, not to exceed two (2) times in any twelve (12) month period, if the Landlord requires such financial statements in connection with a proposed or pending sale or refinancing of the Building, or in connection with reviewing any request from Tenant for consent to an assignment by Tenant of its interest in this Lease or the Premises or any portion thereof, or if an event of default shall have occurred.

6. ESTOPPEL CERTIFICATES. Each party agrees, at any time and from time to time as requested by the other party, to execute and deliver to the other a statement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same are in full force and effect as modified and stating the modifications), certifying the dates to which the rent and other charges have been paid, stating whether or not the other party is in default in performance of any of its obligations under this Lease, to the best of the certifying parties' knowledge, and, if so, specifying each such default, and stating whether or not any event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default, and, if so, specifying each such event. Tenant also shall include in any such statements such other information concerning this Lease as Landlord may reasonably request. It shall be a condition precedent to the Landlord's obligation to deliver possession of the Premises to Tenant, that Tenant executes an Estoppel Certificate accepting the Premises and acknowledging the Lease. A form of such Estoppel Certificate is attached hereto as EXHIBIT "C". In the event either party fails to comply with this Section, such failure shall constitute a material breach of this Lease. If Tenant fails to execute the initial Estoppel Certificate, Rent shall continue to accrue, but Landlord shall be under no obligation to deliver possession of the Premises.

7. NO RECORDATION. This Lease shall not be recorded by Tenant in the Public Records of Broward County, Florida. Any attempted recordation by Tenant shall render this Lease null and void and entitle Landlord to the remedies provided for Tenant's default. At the request of Landlord, Tenant shall promptly execute, acknowledge and deliver to Landlord a Memorandum of Lease with respect to this Lease and a Memorandum of modification of Lease with respect to any modification of this Lease, prepared by Landlord and sufficient for recording. Such Memorandum shall not be deemed to change or otherwise affect any of the obligations or provisions of this Lease.

8. GOVERNING LAW. This Lease shall be governed by and construed in accordance with the laws of the State of Florida, and in the event litigation arises between the Parties in connection with any of the terms of this Lease, venue shall lie in the Circuit Court in Broward County, Florida, or in the Federal District Court for the Southern District of Florida. If any provision of this Lease or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Lease shall remain in full force and effect. The table of contents, captions, headings and titles in this Lease are solely for convenience of reference and shall not affect its interpretation. This Lease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Lease to be drafted. Each covenant, agreement, obligation or other provision of this Lease on Tenant's part to be performed shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease. All terms and words used in this Lease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender, as the context may require.

9. NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in this Lease will be deemed or construed to create a partnership or joint venture between Landlord and Tenant, or to create any other relationship between the parties other than that of Landlord and Tenant.

10. CAPACITY TO EXECUTE LEASE. If Tenant is other than a natural person, Tenant represents that it is legally constituted, in good standing and authorized to conduct business in the State of Florida. Tenant further represents that the person who is executing this Lease on its behalf has the full power and authority to perform such execution and deliver the Lease to Landlord, and that upon such execution and delivery, the Lease shall be valid and binding upon Tenant in accordance with its respective terms and conditions. To further evidence the foregoing, upon request by Landlord, Tenant shall deliver to Landlord an appropriate corporate or partnership resolution specifying that the signatory to the Lease has been duly authorized to execute same on behalf of Tenant, and a Certificate of Good Standing from the State of Florida if Tenant is anything other than a natural person or a general partnership. Landlord represents that it is legally constituted, in good standing and authorized to conduct business in the State of Florida and that the person who is executing this Lease on its behalf has the full power and authority to perform such execution and deliver this Lease to Tenant, and that upon such

execution and delivery, this Lease shall be valid and binding upon Tenant in accordance with its respective terms and conditions.

11. EXCULPATION OF LANDLORD. Landlord's obligations and liability to Tenant with respect to this Lease shall be limited solely to Landlord's interest in the Property and neither Landlord nor any officer, director or shareholder of Landlord, shall have any personal liability whatsoever with respect to this Lease.

12. WAIVER OF TRIAL BY JURY. IT IS MUTUALLY AGREED BY AND BETWEEN LANDLORD AND TENANT THAT THE RESPECTIVE PARTIES HERETO SHALL, AND THEY HEREBY DO, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER ON ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT OR TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR BY ANY COURSE OF CONDUCT OR COURSE OF DEALING. TENANT FURTHER AGREES THAT IT SHALL NOT INTERPOSE ANY COUNTERCLAIM (OR COUNTERCLAIMS IN ANY SUMMARY PROCEEDING) IN ANY ACTION INITIATED BY LANDLORD OR BASED UPON NONPAYMENT OF RENT OR OTHER PAYMENTS REQUIRED OF TENANT HEREUNER.

13. TIME OF ESSENCE. Time is of the essence as to all matters set forth in this Lease.

14. ENTIRE AGREEMENT. This Lease constitutes the entire understanding between the parties and shall bind the parties, their successors and assigns. No representations, except as herein expressly set forth, have been made by either party to the other, and this Lease cannot be amended or modified except by a writing signed by Landlord and Tenant.

[SIGNATURES CONTAINED ON NEXT PAGE]

IN WITNESS WHEREOF, the parties have executed this Lease the day and year first above written.

WITNESSES:                                           "LANDLORD"
(2 witness required)
                                                     FORT LAUDERDALE CROWN CENTER,
                                                     INC., a Florida corporation


______________________________________               By: __________________________________

______________________________________               Name: ________________________________

                                                     Title: _______________________________


                                                     "TENANT"

                                                     FUSION TELECOM INTERNATIONAL
                                                     a Delaware corporation

_____________________________________                By: __________________________________

_____________________________________                Name: ________________________________

                                                     Title: _______________________________

                                                               (SEAL)

EXHIBIT "C"

ESTOPPEL CERTIFICATE

RE: Premises: 1415 Cypress Creek Road, Fort Lauderdale, FL 33309 Suite No:

LEASE DATED:

BETWEEN:        Fort Lauderdale Crown Center, Inc. (Landlord) and Fusion Telecom
                International (Tenant)


1.       The Lease is  presently  in full  force and  effect  and is  unmodified
         except as indicated herein, if any.

2. Tenant took possession of the Premises on ____________________________and has paid Rent commencing on _____________________________, and all Rent due under the Lease has been paid to________________________________.

3. The Term of the Lease commenced on _____________, and terminates on _______________.

4. Tenant has accepted possession of the Premises and all improvements required by the terms of the Lease to be made by Landlord, if any, have been completed to the satisfaction of Tenant [exclude punch list items if applicable].

5. No Rent under the Lease has been paid more than 30 days in advance of its due date.

6. Landlord has not defaulted in its obligations under the Lease to Tenant.

7. Tenant, as of this date, has no charge, lien, cause of action, claim or right of offset against Landlord under the Lease or otherwise, against Rents or other charges due or to become due under the Lease.

8. Tenant is leasing _____rentable square feet in the Building.

9. The present Base Rent is $________per square foot, per year.

10. Tenant's security deposit is $______and has been paid in full and to the best of Tenant's knowledge is presently held by Landlord.

"TENANT"

FUSION TELECOM INTERNATIONAL,

                                            a Delaware corporation

___________________________________         By: ________________________________

___________________________________         Name: ______________________________

                                            Title: _____________________________

                                                       (SEAL)

EXHIBIT "D"

TENANT RULES & REGULATIONS

1. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed, printed, or affixed on or to any part of the outside or inside of the building without the written consent of Landlord which consent shall be uniform and non- arbitrarily applied against all occupants. Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of the Tenant.

2. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by any of the Tenants or used by them for any purpose other than for ingress and egress from their respective premises.

3. Tenant shall not alter any lock or install any new or additional locks without giving Landlord keys therefore, except Tenant's vault, or install any bolts on any doors or windows of the premises which would deny access to firefighters.

4. The Toilet rooms, urinals, wash bowls and other apparatus not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose, employees or invitees shall have caused it.

5. Tenant shall not overload the floor of the premises or in any way deface the premises or any part thereof.

6. No furniture of any kind shall be brought into the building without prior notice to Landlord and all moving the same into or out of the building shall be done at such time and in such manner as Landlord shall reasonably designate. Landlord shall have the right to prescribe the weight, size and position of all heavy equipment brought into the building and also the times and manner of moving the same in and out of the building. Said heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such objects or property from any cause except its negligent willful acts or omissions and all damage caused by Tenant to the building by moving or maintaining any such object or other property shall be repaired at the Tenant's expense.

7. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the premises, or permit or suffer the premises to be occupied or used in a manner offensive or objectionable to the Landlord or other occupants of the building by reason of noise, odors and/or vibrations, or interfere in any way with other Tenants or those having business therein, nor shall any animals or birds be brought in or kept in or about the premises or the building.

8. No cooking shall be done or permitted by Tenant on the premises, nor shall the premises be used for the storage of merchandise, for washing clothes, for lodging, or for any improper, objectionable or immoral purposes.

9. Tenant shall not use or keep in the premises or the building any kerosene, gasoline or inflammable or combustible fluid or material, or use any method of heating or air conditioning other than that supplied by Landlord.

EXHIBIT "D"

TENANT RULES & REGULATIONS

10. No boring or cutting for telephone, telegraph or computer terminal wires will be allowed without the reasonable consent of the Landlord. The location of telephones, call boxes and other office equipment affixed to the premises shall be subject to the reasonable approval of Landlord.

11. On Saturdays, Sundays and legal holidays, and on other days between the hours of 6:00 p.m. and 8:00 a.m. the following day, access to the building, or to the halls, corridors, elevators or stairways in the building, or to the premises, may be refused unless the person seeking access is known to the person or employee of the building in charge and has a pass or is properly identified. The Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the building of any person. In case of invasion, mob, riot, public excitement or other commotion, the Landlord reserves the right to prevent access to the building during the continuance of the same by closing of the doors or otherwise, for the safety of the Tenants and protection or property in the building and the building itself.

12. Landlord reserves the right to exclude or expel from the building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the building.

13. No vending machines or machines of any description shall be installed, maintained or operated upon the premises without the written consent of the Landlord which consent is herein granted Tenant within Tenant's demised for the exclusive use of Tenant's employees and business invitees.

14. Landlord shall have the right to change the street address of the building which the premises are a part upon giving a reasonable notice.

15. Tenant shall not disturb, solicit or canvass any occupant of the building and shall cooperate to prevent same.

16. Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the Tenant's business, except as part of Tenant's address.

17. All entrance doors in the premises shall be left locked when the premises are not in use, and all doors opening to public corridors shall be kept closed except for normal ingress and egress from the premises.

18. Landlord shall furnish parking facilities near the building for use by Tenant. Tenant's employees, agents, guests, or invites, but Landlord does not guarantee the availability of parking spaces. The driveways, entrances and exits upon, into and from such parking areas shall not be obstructed by Tenant, Tenant's employees, agents, guests, or invitees provided however Landlord shall not be responsible or liable for failure of any person to observe this rule. Tenant and its employees shall not park in spaces designated for visitor parking.

19. Tenants shall execute such estoppel certificates to confirm the term of Tenant's lease; renewal options; rent paid; occupancy acceptance subject only to minor punch-list items; obligations to pay rent, etc., as may from time to time may be reasonably requested by Landlord.

20. The Landlord reserves the right to make such other and further rules and regulations as in its reasonable judgment may, from time to time, be needed for the proper operations and cleanliness of the premises and for the preservation of good order therein.

EXHIBIT "E"

LIST OF PLANS AND SPECIFICATIONS FOR
LEASEHOLD IMPROVEMENTS BUILDOUT
AND
LANDLORD'S WORK OUTLINE

The following outline represents the extent of Landlord's responsibility for the Construction of the Tenant improvements for the Leased Premises. The lease premise, located at 1415 Cypress Creek Road, 2nd floor, is more particularly illustrated on Drawing # A-1 of "Ritter Architecture, Inc", dated August 23, 1999, "hereinafter EXHIBIT A". The following is meant to outline the intent of the parties; however, the obligations regarding the Construction improvements to be made by the Landlord shall be those indicated on the final working drawings to be prepared by the designated Project Architect. Providing that said drawings generally conform to that contained herein, the parties shall sign off on same plans within seventy two (72) hours of receipt thereof acknowledging their approval; or otherwise note any changes or discrepancies on same plans within same time period. In order to avoid any substantial discrepancies on the Final working drawings, the parties shall meet together with the designated Project Architect to input the necessary information for the preparation of a final floor plan layout. After receipt of same (floor plan), the parties shall provide in writing their consent to said plan (layout or otherwise provide notification of any discrepancies, errors or omissions no later than 48 hours from receipt thereof. Following receipt of approval of the floor plan, preparation of the working drawings shall immediately commence.

The parties to this Agreement acknowledge that "TIME IS OF THE ESSENCE", and shall cooperate with one another to expedite all phases of the work from design / permit to Construction / Completion.

Landlord shall provide rest room facilities in compliance with the City of Fort Lauderdale code requirements within the Building common areas, and generally in the area indicated on the attached "EXHIBIT A".

Landlord's work shall consist of the following items:

1. Demolition: All required demolition of any existing work or improvements to accommodate the proposed Tenant build out.

2. Plans and Permits: Provided by Landlord. Notwithstanding anything to the contrary herein, all work required to meet the requirements of the Building Department and related Governing Agencies, shall be the responsibility of the Landlord.

3. Plumbing: ADA code compliant bathrooms to be provided in building common area in accordance with City of Ft. Lauderdale requirements.

4. Site: New Entry walk way and Architectural canopy overhang to be provide by Landlord at West elevation of Building.

5. Building: Landlord shall provide all work to the building shell to allow for new window wall construction along the west elevation of the building which shall accommodate full width fenestration at the executive offices, all as indicated on the attached "EXHIBIT A".

6. Hardware: All door hardware shall be lever type and conforming to "ADA" requirements. Hardware shall be commercial grade with "626" (brushed chrome) finish.

7. Doors: All doors shall be 1-3/4 inch thick solid core wood - paint grade. Doors shall be 7'0" high and unless noted otherwise, 36" wide.

8. Walls: All interior partitions shall be constructed from 3-5/8" metal studs with 1/2" drywall on both sides. All walls shall receive paint finish. Walls shall receive latex finish, and all wood work (doors, frames & casings) to receive semi gloss / oil base finish.

9. Insulation. "Executive offices" and "Conference Rooms" shall receive R-11 thermal insulation for sound attenuation. All new Tenant separation walls shall likewise receive R-11 thermal insulation for sound attenuation.

10. Ceilings: All new 2 x 4 suspended acoustical tile ceiling system.

11. Flooring: Where designated on the attached room finish schedule ("EXHIBIT B"), VCT flooring shall be 1/8" commercial grade 12" x 12" vinyl composite tiles. Where carpet is designated on finish schedule, same shall be a 28-32 oz. commercial grade, glue down application, level loop nylon carpet.

12. Cabinetry: Cabinetry, built in and modular furniture to be provided by Tenant.

13. Entry: Landlord to provide new double storefront entry door at the east entry to the space.

14. HVAC: Landlord to provide complete air conditioning systems conforming to the intended use.

15. Fire Alarm: Landlord shall make all required modifications to suit Tenant layout and meet all code requirements.

16. Electrical: Landlord to provide complete electrical and lighting systems to suit Tenant layout including use of 2 x 4 prismatic lens lay in commercial lighting fixtures, exit and emergency lighting, phone and computer outlets, duplex receptacles, light switching, connect A.C. equipment. Include power supply to feed modular furniture stations. Power to the modular furniture units shall be provided by way of Power poles, supplied form ceiling area. Power poles shall be provided for groupings of stations only. Tenant supplied modular units shall include internal raceway provisions ("UL Approved").

17. General: All dimensions on plan ("EXHIBIT "A") are approximate and shall be subject to final field measurements. Architect shall field measure before production of floor plans. Prior to Architect's preparation of the "final working drawings", a floor plan layout shall be submitted to Tenant and Landlord for approval; which approval shall be made within two (2) business days from receipt thereof, or alternatively provide written notice of any discrepancies. Following preparation of the final working drawings by the project Architect, such final working drawings shall be submitted to Tenant and Landlord for approval; which approval shall be made within two (2) business days from receipt thereof, or alternatively provide written notice of any discrepancies. The parties agree and acknowledge that the floor plan to be prepared by the Architect shall accommodate leaving existing mechanical chases and electrical equipment room at their current locations.

18. Exclusions: The following items are specifically excluded from Landlord's scope of work: "FFE" (Furniture, fixtures and equipment), Sound and Security systems, Telephone and Computer systems and wiring, window coverings, identification systems.

Crown Center - "FUSION"                                        September 3, 1999

Landlord's Work Outline

                                  CROWN CENTER
                                TENANT'S RECEIPT

Receipt is hereby acknowledged by Landlord of the total sum of _________________

and ____________________Dollars ($______), which represents payment by Tenant

of the following:

1. $ ____ First month's Base Rent.

2. $ ____ First month's Additional Rent.

3. $ ____ First month's Base Rent and Additional Rent Sales Tax.

4. $ ____ Security Deposit.

$ TOTAL

DATED this _____ day of __________, 1999.

LANDLORD:

FORT LAUDERDALE CROWN CENTER, INC.

BY ITS AGENT:

By: _____________________________________

AMENDMENT NUMBER ONE TO LEASE AGREEMENT

THIS AMENDMENT NUMBER ONE TO LEASE AGREEMENT (this "Amendment") is entered into this 10th day of December, 1999 between FORT LAUDERDALE CROWN CENTER, INC., a Florida corporation, as landlord (the "Landlord") and FUSION TELECOM INTERNATIONAL, a Delaware corporation, as tenant (the "Tenant"), and hereby amends that certain Lease Agreement dated October ______, 1999 between the Landlord and Tenant (the "Lease") concerning the lease of Suite 220 in the building known as Crown Center, 1475 Cypress Creek Road, Fort Lauderdale, Florida 33309 (the "Premises").

AGREEMENT:

The parties hereto, for good and valuable consideration, the receipt and sufficiency which is hereby acknowledged, hereby amend the Lease as follows:

1. SECURITY/DAMAGE DEPOSIT. Article IV of the Lease (Security/Damage Deposit is hereby amended by adding the following paragraph to the end of said Article IV:

"If Landlord receives notice from the issuer of the letter of credit provided by Tenant at the commencement of the Lease, or any substitute letter of credit provided by Tenant thereafter in accordance with this Article IV (hereinafter collectively referred to as the "Letter of Credit"), that the Letter of Credit is not being renewed, then Landlord shall send a copy of such notice to the Tenant, and Tenant shall be obligated, within ten (10) days thereafter, to obtain a substitute Letter of Credit, issued by a financial institution reasonably acceptable to the Landlord and in a form comparable to the Letter of Credit which is not being renewed; provided, however, notwithstanding any other time table contained in this paragraph, the substitute Letter of Credit must be received by the Landlord no later than thirty (30) days prior to the expiration date of the then current Letter of Credit. If the substitute Letter of Credit is not received by the thirtieth (30th) day prior to the then applicable expiration date of the current Letter of Credit, then the Landlord shall have the right to draw upon the Letter of Credit for the full amount of the Letter of Credit. All such amounts drawn shall be held in non-interest bearing account and may be co-mingled with other security deposits or funds of Landlord. Such amounts shall be used by the Landlord solely for the purposes set forth in the first paragraph of this Article IV.

The original Letter of Credit provided by the Tenant as required by the Lease contains an expiration date of four years from the date of its issuance. Tenant shall be required to provide Landlord with an amendment of such Letter of Credit which renews same for a term ending no earlier then, or a substitute Letter of Credit, issued by a financial institution reasonably acceptable to Landlord and in a form comparable to the original Letter of Credit with an expiration date no earlier than, sixty (60) days after the Expiration Date of the Lease, by no later than the thirtieth (30th) day prior to the expiration date of the original Letter of Credit. It Tenant does not provide such amendment or new Letter of Credit on or before the thirtieth (30th) day prior to the expiration date of the original Letter of Credit, Landlord shall be entitled to draw upon the current Letter of Credit in the full amount of the Letter of Credit and shall deposit the proceeds of the draw into a non-interest bearing account, as set forth in this Article, subject to the terms and conditions of this Article. Such amounts shall be used by the Landlord solely for the purposes set forth in the first paragraph of this Article IV.

In the event that the Landlord has drawn upon the Letter of Credit pursuant to either of the two (2) preceding paragraphs, Landlord shall return the proceeds thereof to Tenant upon Landlord's receipt of a new Letter of Credit which complies with the provisions of this Article IV.

Regardless of whether or not Landlord has drawn upon the Letter of Credit, Landlord agrees that the Letter of Credit shall be reduced, or that a portion of the monies drawn by Landlord under the Letter of Credit, shall be released to Tenant upon Tenant's written request provided that Tenant is not then in default under any provision of the Lease, such that the amount of the Letter of Credit or the proceeds drawn thereunder, as the last may be, being held by the Landlord after such reduction or release is equal to the following amounts at the times indicated: (i) $150,000.00 at the end of the fourth (4th) lease year; (ii) $100,000.00 at the end of the fifth (5th) lease year; and (iii) $50,000.00 at the end of the sixth (6th) lease year."

2. ADDITIONAL EVENT OF DEFAULT. Article XVI of the Lease (Events of Default is hereby amended by adding the following paragraphs to said Article XVI.

"G. Tenant shall fail to provide any substitute or replacement Letter of Credit at the times required by Article IV of the Lease, as amended by Section I of Amendment Number One to Lease Agreement, which failure continues for a period of five
(5) days after written notice thereof from Landlord to Tenant."

3. NO OTHER MODIFICATIONS: RATIFICATIONS AND CONFIRMATION OF LEASE. No other modification, except as expressly set forth herein, is being made to the Lease, and all other terms and conditions of the Lease are hereby ratified and confirmed, as amended hereby, by the parties hereto.

4. COUNTERPARTS: FACSIMILE SIGNATURE. This Amendment may be executed in multiple counterparts, which, when taken together, shall constitute one and the same instrument. This Amendment may be executed by facsimile signature or the parties, which facsimile signature shall constitute originals for all purposes.

5. EFFECTIVE DATE. The effective date (the "Effective Date") of this Amendment is the date upon which this Amendment is signed by the Landlord.

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

WITNESES:                                    "LANDLORD"
(2 witnesses required)
                                             FORT LAUDERDALE CROWN CENTER,
                                             INC., a Florida corporation

________________________________             By: _______________________________
Print Name:_____________________             Name:______________________________
                                             Title :____________________________
________________________________             Date Signed:_______________________
Print Name:_____________________

                                             "TENANT"

                                             FUSION TELECOM INTERNATIONAL,
                                             a Delaware corporation

________________________________             By:________________________________
Print Name:_____________________             Name:______________________________
                                             Title: ____________________________
________________________________             Date Signed:_______________________
Print Name:_____________________
                                                  (SEAL)

EXHIBIT 10.10 AMENDMENT

SECOND AMENDMENT TO LEASE AGREEMENT

THIS SECOND AMENDEMENT TO LEASE AGREEMENT (this "Second Amendment" is entered into this 24th day of April, 2003 between FORT LAUDERDALE CROWN CENTER, INC., a Florida corporation, and FUSION TELECOMMUNICATIONS INTERNATIONAL, INC., a Delaware corporation (the "Tenant").

WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated on or about October, 1999 concerning the leasing of Suite 220 in the building known as Crown Center, located at 1475 Cypress Creek Road , Fort Lauderdale, Florida 33309 (the "Premises"), as amended by that certain Amendment Number One to Lease Agreement ("First Amendment") between Landlord and Tenant dated December 10, 1999 (collectively, the "Lease"); and

WHEREAS, pursuant to the Lease, Tenant provided Landlord with a security deposit in the amount of $35,442.76 ("Security Deposit") and a letter of credit in the amount of $250,000 ("Letter of Credit") issued by the Chase Manhattan Bank ("Bank"); and

WHEREAS, the parties acknowledge and agree that Tenant's account was past due and delinquent under the Lease for its failure to pay Landlord the Base Rent and Additional Rent (as defined in the Lease, hereinafter referred to as "Rent") for the months of December 2002, January 2003, and February 2003; and

WHEREAS, Landlord applied $30,000 of the Security Deposit against Tenant's obligations for Rent for the months of December 2002, January 2003, and February 2003 ("First Security Deposit Application"), and except as otherwise set forth in this Second Amendment, Tenant's account is current for such months; and

WHEREAS, Landlord and Tenant desire to enter into this Second Amendment in order to set forth Tenant's method of payment for certain Rent payments due under the Lease and otherwise modify the Lease as hereinafter detailed.

NOW THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the parties hereto agree as follows:

1. RECITATIONS. The foregoing recitations of fact are true and correct and are incorporated herein by this reference.

2. RENT PAYMENTS. From March through May, 2003, the parties agree that Tenant's payments of Rent due under the Lease shall be accomplished as follows:
For March 2003, Landlord shall apply $5,000 of the Security Deposit ("Second Security Deposit Application") and apply the sum of $5,679.83 from a $35,000 draw against Tenant's Letter of Credit ("LC Draw") against Tenant's Rent obligation for such month. Landlord's LC Draw will occur simultaneously upon the execution of this Second Amendment, and Tenant will take all necessary actions with the Bank in connection therewith to provide Landlord with all necessary documentation with which to complete the LC Draw. Landlord shall apply the remaining $29,320.17 proceeds of the LC Draw against Tenant's Rent obligations as follows: (a) $1,359.64 due for the increased CAM charges, including sales tax thereon, for January and February 2003, (b) $2,254.00 for 2002 CAM reconciliation, including sales tax thereon, (c) late fees for October and November, 2002 in the amount of $997.67 (the negotiated amount agreed to between Landlord and Tenant), (d) $20,633.30 representing Tenant's Base Rent and Additional Rent obligations, including sales tax thereon, for April 2003, and
(e) $4,075.56 representing a portion of Tenant's Rent obligations for May 2003. Tenant shall pay Landlord the remainder of its Rent obligations for May 2003 on or prior to the tenth (10th) day of such month. Tenant agrees that commencing June 1, 2003, Tenant shall continue to timely pay Landlord its monthly installments of Rent in accordance with the terms and conditions of the Lease.

3. RESTORATION OF SECURITY DEPOSIT. On or about April 25, 2004 ("LC Draw Date"), Landlord shall draw upon the Letter of Credit in the amount of $35,000.00 ("Second LC Draw") as restoration of the Security Deposit to such sum prior to the Landlord's First and Second

Security Deposit Applications ("Security Deposit Restoration"). Tenant shall take all necessary actions with the Bank in connection therewith to provide Landlord with all necessary documentation with which to complete the Second LC Draw. If at anytime prior to the LC Draw Date, Landlord receives notice of any kind that the Letter of Credit is not being renewed, or if Tenant shall otherwise be in default under the Lease beyond any applicable cure period, then, in addition to any other right or remedy provided under the Lease, at law or in equity, Landlord shall be entitled to immediately draw upon the Letter of Credit and apply a portion of such proceeds against the Security Deposit Restoration. Notwithstanding such application, Landlord shall be entitled to pursue any remedies against Tenant under the Lease, at law or in equity, for any and all outstanding sums then owed to Landlord under the Lease. In the event Tenant fails to pay Landlord any payments of its Rent as provided herein, or if Tenant shall otherwise be in default under the Lease as amended or this Second Amendment, Landlord shall be entitled to avail itself of any and all remedies available to it under the Lease, this Second Amendment, or at law or in equity. Except as expressly set forth in this Second Amendment, nothing herein shall affect any of Tenant's obligations under the Lease including its obligations to pay Landlord Base Rent and Additional Rent for each month of the Lease Term pursuant to the terms and conditions of the Lease, as amended.

4. SUBLEASE. Landlord agrees that notwithstanding anything to the contrary contained in Article XII, Section 1 of the Lease, Tenant shall have the right to sublease the Premises, upon Landlord's prior written consent, which shall not be unreasonably withheld or conditioned, so long as such proposed sublessee has in Landlord's reasonable discretion: (a) a strong financial background; (b) substantial experience in the reputable business that it will be conducting at the Premises; and (c) a use that is compatible with the other tenants of the Building and which does not violate any exclusive use provisions then existing in other leases of the Building.

5. NO OTHER MODIFICATIONS. Except as expressly set forth herein, all of the terms and conditions of the Lease, as amended, shall remain in full force and effect and shall apply to this Second Amendment.

6. OTHER AGREEMENTS. This Second Amendment, together with the Lease and the First Amendment, is the complete agreement of the parties and supersedes all prior agreements and representations concerning the Lease. Any further amendments to the Lease must be in writing and signed by both parties.

7. NO LANDLORD DEFAULTS/RELEASE. Tenant acknowledges that Landlord is not in default of any of the terms or conditions of the Lease, as amended, as the date of this Second Amendment and knows of no facts which, given the passage of time, would constitute a default by Landlord under the Lease. Tenant herein releases Landlord from any and all monetary or other claims Tenant may have against Landlord pursuant to the Lease for any past reconciliation of Operating Expenses, prior to the date of this Second Amendment and agrees never to challenge same without the written consent of the Landlord, except as to any reconciliation of the current calendar year's Operating Expenses, and only as such reconciliation may be handled in accordance with the terms of the Lease.

8. DEFAULTS. Any default under the Lease, as amended, shall be deemed a default under this Second Amendment, and any default under this Second Amendment, shall be deemed a default under the Lease, as amended.

9. DUE AUTHORIZATION. The person or persons executing this document on behalf of Landlord and Tenant each, respectively, certify and warrant that they are duly authorized to execute this Second Amendment and that this Second Amendment is a valid, binding and enforceable agreement on such party.

10. DEFINITIONS. All capitalized terms contained in this Second Amendment shall have the meaning ascribed to them in the Lease unless otherwise defined herein.

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

WITNESS:                                   "LANDLORD:"
(2 witnesses required)
                                           FORT LAUDERDALE CROWN CENTER,
                                           INC., a Florida corporation

________________________________           By:    ______________________________
Print Name: ____________________           Name:  ______________________________
                                           Title: ______________________________

________________________________
Print Name:  ___________________

"TENANT"

FUSION TELECOMMUNICATIONS

                                           INTERNATIONAL, a Delaware corporation

________________________________           By:    ______________________________
Print Name:  ___________________           Name:  ______________________________
                                           Title: ______________________________

________________________________
Print Name:  ___________________

                                                    SEAL)

EXHIBIT 10.10 AMENDMENT

THIRD AMENDMENT TO LEASE AGREEMENT

THIS THIRD AMENDEMENT TO LEASE AGREEMENT (the "Amendment") is dated the 28th day of April, 2004 between FORT LAUDERDALE CROWN CENTER, INC., a Florida corporation (hereinafter referred to as "Landlord") and FUSION TELECOMMUNICATIONS INTERNATIONAL, INC., a Delaware corporation (hereinafter referred to as "Tenant").

W I T N E S S E T H:

WHEREAS, Landlord and Tenant entered into that certain Lease Agreement dated on or about October, 1999 (the "Original Lease") for approximately 13,502 rentable square feet (the "Original Premises") located on the second (2nd) floor in Suite 220 of that certain building known as "Crown Center" located at 1475 Cypress Creek Road , Fort Lauderdale, Florida 33309 (the "Original Building"); and

WHEREAS, the Original Lease was amended by: (i) that certain Amendment Number One to Lease Agreement Dated December 19, 1999 (the "First Amendment") and (ii) that certain Second Amendment to Lease Agreement dated April 24, 2003 (the "Second Amendment"); and

WHEREAS, the Original Lease was amended by the First Amendment and the Second Amendment shall be collectively hereinafter referred to as the "Lease"; and

WHEREAS, Tenant desires to relocate the Original Premises to certain premises in the "Crown Center" located at 1475 Cypress Creek Road, Fort Lauderdale, Florida 33309 (the "Relocated Building") containing approximately 9,716 rentable square feet located on the second (2nd) floor in Suite 204 of the Relocated Building (the "Relocated Premises") and Landlord desires Tenant to so relocate the Original Premises; and

WHEREAS, in connection with the relocation of the Original Premises, Tenant desires to thereafter extend the Term of the Lease for a term of sixty
(60) months commencing on the "Relocated Premises Commencement Date" (as hereinafter defined); and

WHEREAS, in connection with the foregoing, Landlord and Tenant desire to amend the Lease as hereinafter set forth.

NOW, THEREFORE, for and in consideration of the sum of Ten and 00/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:

1. The foregoing recitations are true and correct and are incorporated herein by this reference.

2. In the event of any conflict between the provisions of the Lease and the provisions of this Amendment, the provisions of this Amendment shall control. The initial capitalized terms used herein shall have the same meaning given such terms in the Lease, unless otherwise defined herein or unless the context otherwise indicates.

3. Effective as of the Relocated Premises Commencement Date, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Relocated Premises, as such Relocated Premises are more particularly described on Schedule "1" attached hereto and made a part hereof. From and after the Relocated Premises Commencement Date, all references in the Lease to the "Premises" (including, without limitation, all references to rentable square feet of the "Premises") shall mean the Relocated Premises and all the references in the Lease to the "Building" (including, without limitation, all references to the rentable square feet of the "Building") shall mean the Relocated Building. As used herein, the term " Relocated Premises Commencement Date" shall mean the tenth (10th) day following the date on which Landlord

shall provide Tenant with written notice that Landlord has substantially completed the "Work" as more particularly described and defined on Schedule "2" attached hereto and made a part hereof. Effective as of the Relocated Premises Commencement Date, Exhibit "A" to the Lease is hereby deleted in its entirety and Schedule "1" attached hereto and made a part hereof shall thereafter be deemed, for all purposes, Exhibit "A" to the Lease. In connection with the foregoing, as an accommodation to Tenant, Landlord estimates, in good faith, that the Relocated Premises Commencement Date shall occur on or about May 24, 2004; provided, however, that Tenant expressly acknowledges and agrees that the foregoing is merely an estimate only and not a representation or warranty by Landlord in any manner whatsoever and Landlord is providing such estimate with respect to the Relocated Premises Commencement Date solely as an accommodation to Tenant and, as such, Tenant is expressly acknowledging that Tenant is not relying on Landlord's estimate of the Relocated Premises Commencement Date and that Landlord shall have no liability and that Landlord shall not be in default under the Lease in the event the Relocated Premises Commencement Date shall not occur on or about May 24, 2004.

4. Except as otherwise set forth herein, on the Relocated Premises Commencement Date all of the terms and provisions of the Lease shall be applicable to the Relocated Premises. Landlord agrees to deliver the Relocated Premises to Tenant on the Relocated Premises Commencement Date (or such earlier date as the parties may agree) with the Work set forth on Schedule "2" attached hereto substantially completed. Except to the extent of the Work as set forth on Schedule "2", Landlord shall deliver possession of the Relocated Premises in its "as-is" condition, without warranty, express or implied. Notwithstanding any provision to the contrary contained herein, Tenant acknowledges and agrees that Tenant shall be solely responsible for all costs and expenses incurred in connection with the performance of all the items of work not included in the description of the Work on Schedule "2" (the "Tenant's Work"). In connection with the performance of any Tenant's Work, Tenant may use Florida licensed and insured subcontractors reasonably approved by Landlord.

5. Effective as of the Relocated Premises Commencement Date (and subject to the terms and conditions of this Amendment), the Lease, solely with respect to the Original Premises, shall be terminated, cancelled and of no further force or effect. In the event Tenant shall not have vacated the Original Premises on or after the Relocated Premises Commencement Date, then, commencing on the Relocated Premises Commencement Date (at Landlord's option and in addition to all rights and remedies which Landlord shall have at law or in equity) and in addition to the Base Rent, Additional Rent and all other costs and charges due from Tenant to Landlord with respect to the Relocated Premises, Tenant shall pay Landlord "holdover" rent with respect to the Original Premises (in accordance with the terms and conditions of Article XVI, Paragraph 3 of the Lease) until such time that Tenant shall surrender and deliver the Original Premises to Landlord in the condition required by the terms and provisions of the Lease.

6. On the Relocated Premises Commencement Date, Tenant acknowledges and agrees that Tenant shall surrender and deliver possession of the Original Premises to Landlord in the condition required by the terms and provisions of the Lease. Tenant agrees that it shall be obligated to pay all Base Rent and Additional Rent under the Lease (as modified herein including, without limitation, the modifications set forth in Paragraphs 12 and 14 below) with respect to the Original Premises for the period up to and including the Relocated Premises Commencement Date. Tenant acknowledges and agrees that Tenant's failure to vacate and deliver possession of the Original Premises on the Relocated Premises Commencement Date to Landlord in the condition required pursuant to the Lease shall be a default under the Lease.

7. Effective as of the Effective Date of this Amendment, Tenant shall have the right to reduce the $250,000.00 letter of credit issued by Chase Manhattan Bank as part of the security deposit under the Lease (as more particularly described in Article IV of the Lease) to a $150,000.00 letter of credit (issued by a financial institution reasonably acceptable to Landlord and in a form reasonably accepted to Landlord). Upon Landlord's reasonable approval of such $150,000.00 letter of credit, Tenant may cause the $250,000.00 letter of credit to be cancelled and, thereafter, such $150,000.00 letter of credit shall be substituted in place thereof. In addition to the foregoing, on June 30, 2004 and provided that Tenant shall not then be in default under the terms and provisions of the Lease beyond applicable notice and cure period, Tenant shall have the right to reduce the $150,000.00 letter of credit to a $50,000.00 letter of credit (issued by a financial institution reasonably acceptable to Landlord and in a form reasonably acceptable to Landlord). Upon Landlord's reasonable approval of such $50,000.00 letter of credit, Tenant may

cause the $150,000.00 letter of credit to be cancelled and, thereafter: (a) such $50,000.00 letter of credit shall be substituted in place thereof and shall serve as security for the full performance and observance by Tenant of all the terms, covenants and conditions of the Lease with respect to the Relocated Premises; and (b) Paragraph 3 of the Second Amendment shall be deleted in its entirety and shall be of no further force or effect. In addition to the foregoing, on June 30, 2007 and provided Tenant shall not then be in default under the terms and provisions of the Lease beyond applicable notice and cure period, Tenant shall have the right to reduce the $50,000.00 letter of credit to a $10,000.00 letter of credit (issued by a financial institution reasonably acceptable to Landlord and in a form reasonably acceptable to Landlord). Upon Landlord's reasonable approval of such $10,000.00 letter of credit, Tenant may cause the $50,000.00 letter of credit to be cancelled and, thereafter, such $10,000.00 letter of credit shall be substituted in place thereof.

8. Effective as of the Relocated Premises Commencement Date, Landlord and Tenant hereby release and forever discharge each other, including their respective officers, directors, employees, representatives, agents, contractors, subsidiaries, affiliates, heirs, personal representatives, successors and assigns, from any and all manner of action and actions, cause and causes of action, suits, debts, sums of money, accounts, reckonings, covenants, warranties, obligations, agreements, contracts, promises, damages, claims and demands whatsoever, in law or in equity, which either party ever had, now has or may have in the future, which any personal representative, successor, heir or assign of either party hereafter can, shall or may have against the other party (whether known or unknown as of the date hereof), accruing or arising, directly or indirectly, in whole or in part, for, upon, or by reason of the Lease with respect to the Original Premises, except: (i) Landlord does not release Tenant from its obligations under this Amendment regarding the Original Premises, which obligations shall survive the Relocated Premises Commencement Date; and (ii) neither party releases the other from any indemnities and/or obligations under the Lease with respect to the Original Premises as to matters occurring prior to the Relocated Premises Commencement Date, which obligations and indemnities shall survive the Relocated Premises Commencement Date pursuant to the terms and conditions of the Lease. Notwithstanding anything to the contrary contained herein, Tenant expressly acknowledges and agrees that, subject to the terms and conditions of Paragraph 7 above, nothing contained in this Paragraph 8 shall be deemed to waive, release or modify Paragraph 3 of the Second Amendment, which Paragraph 3 Tenant hereby expressly reaffirms and ratifies as being in full force and effect and which shall survive the occurrence of the Relocated Premises Commencement Date.

9. Commencing on the Relocated Premises Commencement Date, the Term of the Lease shall be extended for a period of sixty (60) months (the "Extended Term"), and shall thereafter expire at midnight (Eastern Standard Time) on the date which is the last day of the fifth (5th) Lease Year (the "Extended Expiration Date") and all references in the Lease to the Expiration Date of the Term of the Lease shall hereafter be deemed to refer to the Extended Expiration Date unless the Tenant has timely and validly exercised the Option Term, in which case all references to the Expiration Date of the Term of the Lease shall mean the date of the expiration of the Option Term, or such earlier date as may otherwise be provided in the Lease.

10. Effective as of the Relocated Premises Commencement Date, Article I, Paragraph 3 of the Lease is hereby deleted in its entirety and the following shall be inserted in lieu thereof:

"FOLLOWING THE EXPIRATION OF THE EXTENDED TERM, PROVIDED IN ALL CASES THAT TENANT IS NOT THEN IN DEFAULT HEREUNDER BEYOND APPLICABLE NOTICE AND CURE PERIOD, TENANT SHALL HAVE ONE (1) OPTION TO EXTEND THE EXTENDED TERM FOR AN ADDITIONAL PERIOD OF THIRTY-SIX (36) FULL CALENDAR MONTHS. SUCH EXTENSIONS SHALL BE UPON ALL OF THE SAME TERMS AND CONDITIONS AS ARE CONTAINED IN THIS LEASE AND THIS AMENDMENT. SUCH EXTENSION IS REFERRED TO HEREIN AS THE "OPTION TERM". TO EXERCISE THE OPTION TERM, TENANT MUST GIVE IRREVOCABLE WRITTEN NOTICE TO LANDLORD OF ITS ELECTION TO EXTEND THE EXTENDED TERM FOR THE OPTION TERM NOT LATER THAN TWO HUNDRED SEVENTY (270) DAYS PRIOR TO THE EXTENDED EXPIRATION DATE. IF TENANT FAILS TO GIVE PROPER AND TIMELY NOTICE OF THE EXERCISE OF THE OPTION TERM, THE OPTION TERM SHALL AUTOMATICALLY BE NULL AND VOID IN ALL RESPECTS, AND THIS LEASE SHALL TERMINATE ABSOLUTELY ON THE EXTENDED EXPIRATION DATE, IF NOT SOONER AS ELSEWHERE PROVIDED IN THIS LEASE.

UPON TENANT'S TIMELY AND VALID GIVING OF THE FOREGOING WRITTEN NOTICE TO LANDLORD, LANDLORD AND TENANT SHALL BECOME BOUND UNDER THIS LEASE FOR THE OPTION TERM. FURTHER, TENANT SHALL EXECUTE SUCH OTHER DOCUMENTS AS LANDLORD DEEMS REASONABLY NECESSARY TO EVIDENCE AND CONFIRM THE EXTENSION OF THIS LEASE, AND TO RATIFY THE TERMS AND CONDITIONS OF THIS LEASE FOR THE ENTIRE OPTION TERM."

11. Commencing on the Relocated Premises Commencement Date, and continuing on the first (1st) day of each calendar month occurring during Lease Year 1 of the Extended Term, the Base Rent payable by Tenant to Landlord in accordance with Article II of the Lease (exclusive of sales tax), with respect to the Relocated Premises shall be in the amount of $1111,734.00 per annum (to wit: $11.50 per rentable square foot x 9,716 rentable square feet), payable in twelve (12) equal monthly installments of $9,311.17 each in the manner and in accordance with Article II of the Lease (as modified herein). On the first (1st) day of Lease Year 2 of the Extended Term, and on the first (1st) day of each Lease Year thereafter occurring during Extended Term (and the Option Term if the same has been timely exercised by Tenant in accordance with the terms and provisions of this Amendment), the Base Rent payable by Tenant to Landlord in accordance with Article II of the Lease shall increase by four percent (4%).

12. Notwithstanding any provision to the contrary contained herein, commencing effective as of April 1, 2004 on the "Effective Date of this Amendment" (as hereinafter defined) and continuing on the first (1st) day of each calendar month occurring during the Term thereafter through and including the Relocated Premises Commencement Date, the Base Rent payable by Tenant to Landlord in accordance with Article II of the Lease (exclusive of sales tax), with respect to the Original Premises, shall be in the amount of $9,311.17 per month ($111,734.00 per annum).

13. Effective as of the Relocated Premises Commencement Date and throughout the Extended Term of the Lease, Tenant shall continue to pay to Landlord, in the form of Additional Rent, plus applicable sales tax thereon, Tenant's Proportionate Share of the Operating Expenses of the Building and the Property (with respect to the Relocated Premises) for the applicable calendar year in accordance with the terms of the Lease. Upon the Relocated Premises Commencement Date and throughout the Extended Term, Tenant Proportionate Share (with respect to the Relocated Premises) shall be modified to mean 14.16% (to wit: 9,716/68,608 x 100). The estimated Operating Expenses for calendar year 2004 are currently $6.15 per rentable square foot, plus applicable sales tax thereon. The amounts to be included in Tenant's Proportionate Share shall be based upon the actual cost per square foot paid by Landlord for Operating Expenses. Operating Expenses shall not include leasing commissions and expenses for Tenant improvements incurred for other Building tenants. In connection with the foregoing, effective as of the Relocated Premises Commencement Date, Article III, Paragraph 2 of the Lease is hereby deleted in its entirety. Tenant's Proportionate Share of the Operating Expenses shall be pro-rated for any partial calendar year.

14. Notwithstanding anything to the contrary contained in the Lease, effective as of the Effective Date of this Amendment and through and including the Relocated Premises Commencement Date, Tenant's Proportionate Share (with respect to the Original Premises) shall be modified to mean 6.93% (to wit:
9,716/140,183 x 100). The amounts to be included in Tenant's Proportionate Share shall be based upon the actual cost per square foot paid by Landlord for Operating Expenses.

15. Effective as of the Effective Date of this Amendment, the second to last sentence of Article III.1.A of the Lease, to wit: "FOR PURPOSES OF DETERMINING TENANT'S PROPORTIONATE SHARE OF OPERATING EXPENSES, ANNUAL INCREASES IN OPERATING EXPENSES (EXCLUDING INCREASES IN REAL ESTATE TAXES AND INSURANCE PREMIUMS SHALL NOT EXCEED FIVE PERCENT (5%) OF THE OPERATING EXPENSES (EXCLUDING REAL ESTATE TAXES AND INSURANCE PREMIUMS) FOR THE PRECEDING CALENDAR YEAR" is hereby deleted in its entirety.

16. Effective as of the Relocated Premises Commencement Date, Article VI of the Lease shall be deleted in its entirety and the following shall be inserted in lieu thereof:

"THERE SHALL BE AVAILABLE AT THE BUILDING UP TO FOUR (4) PARKING SPACES FOR EACH 1000 SQUARE FEET OF RENTABLE SQUARE FEET CONTAINED IN THE PREMISES (TO WIT: THIRTY-EIGHT (38) NONRESERVED SPACES), FOR THE NONEXCLUSIVE USE OF TENANT, FREE OF CHARGE. THREE (3)

COVERED PARKING SPACES OF THESE THIRTY-EIGHT (38) PARKING SPACES WILL BE DESIGNATED RESERVED FOR TENANT AND LOCATED IN AN AREA AS REASONABLY DESIGNATED BY LANDLORD. IN ADDITION TO THE FORGOING, IN THE EVENT ANY MORE COVERED PARKING SPACES SHALL BECOME AVAILABLE (AS AVAILABILITY SHALL BE REASONABLY DETERMINED BY LANDLORD), TENANT SHALL HAVE THE RIGHT TO USE UP TO TWO (2) ADDITIONAL COVERED RESERVED PARKING SPACES LOCATED IN AN AREA AS REASONABLY DESIGNATED BY LANDLORD. IN THE EVENT ANY SUCH COVERED PARKING SPACES SHALL BECOME AVAILABLE (AS REASONABLY DETERMINED BY LANDLORD) FOR USE BY TENANT, LANDLORD SHALL PROVIDE WRITTEN NOTICE OF THE SAME TO TENANT ("LANDLORD'S PARKING SPACE NOTICE") AND TENANT, WITHIN THREE (3) DAYS FROM RECEIPT OF LANDLORD'S PARKING SPACE NOTICE, SHALL PROVIDE WRITTEN NOTICE TO LANDLORD OF TENANT'S ELECTION TO USE THE ADDITIONAL COVERED PARKING SPACE(S), UP TO TWO (2) PARKING SPACES, IDENTIFIED IN THE LANDLORD'S PARKING SPACE NOTICE, TIME BEING OF THE ESSENCE. IN THE EVENT TENANT SHALL FAIL TO TIMELY PROVIDE WRITTEN NOTICE TO LANDLORD OF TENANT'S ELECTION TO USE ANY SUCH ADDITIONAL COVERED PARKING SPACE(S), UP TO TWO (2) PARKING SPACES, IDENTIFIED IN THE LANDLORD'S PARKING SPACE NOTICE OR TENANT SHALL TIMELY PROVIDE WRITTEN NOTICE TO LANDLORD IN WHICH TENANT SHALL ELECT NOT TO USE SUCH ADDITIONAL COVERED PARKING SPACE(S), THEN, IN SUCH CASE, TENANT SHALL HAVE NO FURTHER RIGHTS TO USE THE ADDITIONAL COVERED PARKING SPACE(S) (OR THE REMAINING ADDITIONAL COVERED PARKING SPACES IN THE EVENT TENANT TIMELY ELECTS TO USE ONE (1) OF SUCH PARKING SPACES), ALL AS IDENTIFIED IN THE LANDLORD'S PARKING SPACE NOTICE, AND THE TERMS AND CONDITIONS OF THIS ARTICLE VI SHALL BE OF NO FURTHER FORCE AND EFFECT WITH RESPECT TO ANY SUCH ADDITIONAL COVERED PARKING SPACES (OR THE REMAINING ADDITIONAL COVERED PARKING SPACES IN THE EVENT TENANT TIMELY ELECTS TO USE ONE (1) OF SUCH PARKING spaces) AS IDENTIFIED IN THE LANDLORD'S PARKING SPACE NOTICE."

17. Effective as of the Effective Date of this Amendment, the Tenant's Expansion Option as set forth in Article I, Paragraph 4 is hereby deleted in its entirety and is hereby restated in full as follows:

"NOTWITHSTANDING ANY PROVISION TO THE CONTRARY CONTAINED HEREIN, AND PROVIDED THAT NO "EVENT OF DEFAULT" SHALL THEN BE OCCURRING, LANDLORD HEREBY GRANTS TENANT, FROM AND AFTER THE OCCURRENCE OF THE RELOCATED PREMISES COMMENCEMENT DATE THROUGH AND INCLUDING THE EXPIRATION OF THE TERM OF THIS LEASE, THE RIGHT OF FIRST OFFER ("RIGHT OF FIRST OFFER") WITH RESPECT TO THOSE CERTAIN PREMISES DEPICTED ON SCHEDULE "1" ATTACHED HERETO AND MADE A PART HEREOF AS THE "ROFO SPACE", TO THE EXTENT THAT SUCH ROFO SPACE SHALL BE "AVAILABLE FOR LEASE". AS USED IN THIS LEASE, THE TERM "AVAILABLE FOR LEASE" MEANS THAT THE ROFO SPACE, AT ANY TIME DURING THE TERM OF THIS LEASE, IS NOT FROM TIME TO TIME LEASED OR OTHERWISE COMMITTED TO A THIRD PARTY. IF THE ROFO SPACE SHALL BE AVAILABLE FOR LEASE, THEN LANDLORD SHALL GIVE WRITTEN NOTICE THEREOF TO TENANT (THE "OFFER NOTICE"). AFTER RECEIPT OF THE OFFER NOTICE FROM LANDLORD, TENANT SHALL HAVE THE RIGHT OF FIRST OFFER, EXERCISABLE AT ANY TIME WITHIN FIVE (5) BUSINESS DAYS AFTER TENANT'S RECEIPT OF SUCH OFFER NOTICE (THE "ACCEPTANCE PERIOD"), TO NOTIFY LANDLORD IN WRITING OF TENANT'S ELECTION TO LEASE THE ROFO SPACE UPON THE TERMS SET FORTH IN THE OFFER NOTICE. IF TENANT TIMELY ELECTS TO EXERCISE THE RIGHT OF FIRST OFFER (TIME BEING OF THE ESSENCE), TENANT SHALL DELIVER WRITTEN NOTICE (THE "ACCEPTANCE ELECTION") TO LANDLORD OF ITS EXERCISE OF SUCH RIGHT OF FIRST OFFER DURING THE ACCEPTANCE PERIOD. IF TENANT DOES NOT TIMELY EXERCISE SUCH RIGHT OF FIRST OFFER DURING THE ACCEPTANCE PERIOD, OR FAILS TO DELIVER THE ACCEPTANCE ELECTION AS PROVIDED ABOVE, TIME BEING OF THE ESSENCE, LANDLORD SHALL BE FREE TO LEASE THE ROFO SPACE, OR ANY PART THEREOF, TO ANY PERSON, OR ENTITY, ON ANY TERMS OR CONDITIONS ACCEPTABLE TO LANDLORD, AND TENANT SHALL HAVE NO FURTHER RIGHTS WITH RESPECT TO THE ROFO SPACE. IF TENANT TIMELY PROVIDES THAT ACCEPTANCE ELECTION TO LANDLORD, LANDLORD AND TENANT SHALL ENTER INTO A NEW LEASE FOR THE FIFTEEN (15) BUSINESS DAYS OF THE TENANT'S RECEIPT FROM THE LANDLORD OF A PROPOSED NEW LEASE OR AMENDMENT TO THIS LEASE WITH RESPECT TO THE ROFO SPACE. IF ANY SUCH NEW LEASE (OR AN AMENDMENT TO THIS LEASE) IS NOT ENTERED INTO WITHIN SUCH FIFTEEN (15) BUSINESS DAY PERIOD, THEN THE TENANT'S RIGHT OF FIRST OFFER SHALL IMMEDIATELY BECOME NULL AND VOID AND OF NO FURTHER FORCE AND EFFECT WHATSOEVER.

IN THE EVENT TENANT SHALL ELECT TO LEASE THE ROFO SPACE IN ACCORDANCE WITH THIS ARTICLE I, PARAGRAPH 4, THEN ALL OF THE FOLLOWING SHALL APPLY:

A. UNLESS OTHERWISE AGREED TO BY BOTH LANDLORD AND TENANT, TENANT SHALL TAKE THE ROFO SPACE IN ITS THEN EXISTING "AS-IS" CONDITION AT THE TIME SUCH ROFO SPACE IS DELIVERED TO TENANT, AND LANDLORD SHALL HAVE NO OBLIGATION TO IMPROVE THE ROFO SPACE. THE ROFO SPACE SHALL BECOME PART OF THE PREMISES AND (EXCEPT AS OTHERWISE SET FORTH HEREIN) SHALL BE SUBJECT TO ALL THE TERMS AND CONDITIONS OF THIS LEASE, INCLUDING, WITHOUT LIMITATION, BASE RENT, TENANT'S PROPORTIONATE SHARE OF OPERATING EXPENSES AND ALL OTHER ITEMS OF ADDITIONAL RENT.

B. THE RIGHT OF FIRST OFFER SHALL BE SUBJECT AND SUBORDINATE TO ANY RIGHTS THAT ANY OTHER TENANT OF THE UNDER A LEASE DATED PRIOR TO THIS LEASE, MAY HAVE WITH RESPECT TO SUCH ROFO SPACE.

C. TENANT SHALL NOT BE ENTITLED TO EXERCISE THE RIGHT OF FIRST OFFER AT ANY TIME WHEN AN EVENT OF DEFAULT UNDER THIS LEASE SHALL BE OCCURRING. IN ADDITION TO THE FOREGOING, TENANT SHALL NOT BE ENTITLED TO THE ROFO SPACE IF, UPON THE COMMENCEMENT OF THE TERM OF THE ROFO SPACE, AN EVENT OF DEFAULT BY TENANT SHALL THEN BE OCCURRING.

D. SUBJECT TO TENANT AND LANDLORD ENTERING INTO A NEW LEASE OR AMENDMENT TO THIS LEASE WITH RESPECT TO THE ROFO SPACE, THE RENTABLE SQUARE FOOTAGE OF THE ROFO SPACE SHALL BE ADDED TO THE THEN RENTABLE SQUARE FOOTAGE OF THE PREMISES (THE RENTABLE SQUARE FOOTAGE OF THE ROFO SPACE TOGETHER WITH THE THEN RENTABLE SQUARE FOOTAGE OF THE PREMISES SHALL BE REFERRED TO AS THE "NEW RENTABLE SQUARE FOOTAGE"), AND THEREAFTER THE NEW RENTABLE SQUARE FOOTAGE SHALL BE USED FOR ALL PURPOSES OF THIS LEASE, INCLUDING, WITHOUT LIMITATION, THE CALCULATION OF BASE RENT, TENANT'S PROPORTIONATE SHARE OF OPERATING EXPENSES AND ANY OTHER ITEMS OF ADDITIONAL RENT, WHICH AMOUNTS SHALL BE PAYABLE TO LANDLORD IN THE MANNER AS PROVIDED FOR IN THIS LEASE.

E. LANDLORD SHALL NOT BE LIABLE FOR FAILURE TO GIVE POSSESSION OF THE ROFO SPACE BY REASON OF ANY HOLDING OVER OR RETENTION OF POSSESSION BY ANY PREVIOUS TENANTS OR OCCUPANTS WHICH ARE NOT AUTHORIZED BY LANDLORD, NOR SHALL SUCH FAILURE IMPAIR THE VALIDITY OF THIS LEASE; PROVIDED, HOWEVER, THAT THE COMMENCEMENT DATE OF THE ROFO SPACE SHALL NOT OCCUR UNTIL LANDLORD CAN DELIVER POSSESSION OF THE ROFO SPACE IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE NEW LEASE OR AMENDMENT TO THIS LEASE ENTERED INTO BY LANDLORD AND TENANT WITH RESPECT TO THE ROFO SPACE.

F. TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT: (I) IN THE EVENT TENANT SHALL EXERCISE THE RIGHT OF FIRST OFFER IN THE MANNER SET FORTH HEREIN; AND (II) EFFECTIVE AS OF THE COMMENCEMENT DATE OF THE ROFO SPACE LESS THAN THIRTY-SIX (36) FULL CALENDAR MONTHS SHALL REMAIN UNTIL THE EXPIRATION OF THE THEN APPLICABLE TERMS OF THIS LEASE, THEN, AS A CONDITION PRECEDENT TO THE EFFECTIVENESS OF THE TENANT'S EXERCISE OF THE RIGHT OF FIRST OFFER, TENANT SHALL BE REQUIRED TO ADDITIONALLY ELECT TO EXTEND THE THEN APPLICABLE TERM OF THIS LEASE FOR SUCH PERIOD OF TIME WHICH MAY BE REQUIRED TO PROVIDE FOR A THIRTY-SIX (36) FULL CALENDAR MONTH TERM OF THIS LEASE COMMENCING ON THE COMMENCEMENT DATE OF THE ROFO SPACE."

18. The parties represent and warrant to each other that they have not dealt with any real estate brokers, salesmen, or finders in connection with this Amendment. If a claim for commission in connection with this transaction is made by any broker, salesmen, or finder claiming to have dealt through on behalf of one of the parties hereto, such party shall indemnify, defend and hold the other party hereunder harmless from and against all liabilities, damages, claims, costs, fees and expenses (including reasonable attorney's fees and costs at trial and all appellate levels) with respect to said claim for brokerage.

19. This Amendment shall be construed and interpreted in accordance with the laws of the State of Florida, contains the entire agreement of the parties hereto with respect to the subject matter hereof, and may not be changed or terminated orally or by course of conduct, or

by any other means except by a written instrument, duly executed by the party to be bound thereby. This Amendment shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns.

20. Except as modified hereby, the Lease shall remain in full force and effect in accordance with the terms and provisions thereof and Tenant hereby ratifies and affirms all of the terms and conditions thereof.

21. This Amendment may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.

22. As used herein, the term "Effective Date of this Amendment" shall mean the date of the last of Landlord and Tenant to execute this Amendment.

23. In the event that it shall become necessary for either Landlord or Tenant to employ the services of attorneys to enforce any of their respective rights under the Lease or to collect any sums due to them under the Lease or to remedy the breach of any covenant of the Lease on the part of the other to be kept or performed, the nonprevailing party (Tenant or Landlord as the case may be) shall pay to the prevailing party such reasonable fee as shall be charged by the prevailing party's attorneys for such services at all trial and appellate levels and post judgment proceedings and such prevailing party shall also have and recover from the nonprevailing party (Landlord or Tenant as the case may be) all other costs and expenses of such suit and any appeal thereof or with respect to any postjudgment proceedings.

24. RADON GAS: RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARRDING RADON AND RADON TESTING MAY BE OBTAINED FROM OUR COUNTY PUBLIC HEALTH UNIT.

25. IT IS MUTUALLY AGREED BY AND BETWEEN LANDLORD AND TENANT THAT THE RESPECTIVE PARTIES HERETO SHALL, AND THEY HEREBY DO, WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER ON ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT OR TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR BY ANY COURSE OF CONDUCT OR COURSE OF DEALING. TENANT FURTHER AGREES THAT IT SHALL NOT INTERPOSE ANY COUNTERCLAIM (OR COUNTERCLAIMS IN ANY SUMMARY PROCEEDING) IN ANY ACTION INITIATED BY LANDLORD OR BASED UPON NONPAYMENT OF RENT OR OTHER PAYMENTS REQUIRED OF TENANT HEREUNDER.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURES APPEAR ON NEXT PAGE]

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first mentioned above.

                                            "LANDLORD"

WITNESS:                                    FORT LAUDERDALE CROWN
                                            CENTER,  INC., a Florida corporation

________________________________            By:    _____________________________
Print Name: ____________________            Name:  _____________________________
                                            Title: _____________________________

________________________________
Print Name: ____________________

"TENANT"

FUSION TELECOMMUNICATIONS

                                            INTERNATIONAL, INC., a Delaware
                                            corporation

________________________________            By:    _____________________________
Print Name:  ___________________            Name:  _____________________________
                                            Title: _____________________________

________________________________
Print Name:  ___________________

                                                    (SEAL)

SCHEDULE 1

RELOCATED PREMISES

SCHEDULE 1-1

"ROFO SPACE"

SCHEDULE 2

WORK LETTER AGREEMENT

This Work Letter Agreement ("Work Letter") is executed simultaneously with that certain Third Amendment to Lease Agreement dated of even date herewith, which amends that certain Lease Agreement dated on or about October, 1999, as further amended by that certain Amendment Number One to Lease Agreement dated December 19, 1999 and that certain Second Amendment to Lease Agreement dated _____________, 2003 (collectively, the "Lease") between and FUSION TELECOMMUNICATIONS INTERNATIONAL, INC., a Delaware corporation (hereinafter referred to as "Tenant") and FORT LAUDERDALE CROWN CENTER, INC., a Florida corporation (hereinafter referred to as "Landlord"), relating to demised premises ("Premises") located on the second (2nd) floor in Suite 204 of that certain building known as the "Crown Center" located at 1475 Cypress Creek Road, Fort Lauderdale, Florida 33309 (the "Building"), which Premises are more fully identified in the Lease. Capitalized terms used herein, unless otherwise defined in this Work Letter, shall have the respective meanings ascribed to them in the Lease.

For and in consideration of the agreement to lease the Premises and the mutual covenants contained herein and in the Lease, Landlord and Tenant hereby agree as follows:

1. TENANT'S INITIAL PLANS; THE WORK. Tenant desires Landlord to perform certain leasehold improvements in the Premises in substantial accordance with Schedule 2-1 (collectively, the "Initial Plan"). Such work, as described on the Initial Plan and as shall be more fully detailed in the Working Drawings (as defined and described in Paragraph 2 below), shall be hereinafter referred to as the "Work". In connection with the foregoing, upon Landlord's request, Tenant shall promptly furnish to Landlord such additional plans, drawings, specifications and finish details as Landlord may reasonably request to enable Landlord's architects and engineers to prepare mechanical, electrical and plumbing plans and to prepare the Working Drawings, including a final telephone layout and special electrical connection requirements, if any. All plans, drawings, specifications and other details describing the Work which have been or are hereafter furnished by or on behalf of Tenant shall be subject to Landlord's approval, which Landlord agrees shall not be unreasonably withheld. Landlord shall not be deemed to have acted unreasonably if it withholds its approval of any plans, specifications, drawings or other details or of any Additional Work (as defined in Paragraph 7 below) because, in Landlord's reasonable opinion, the work, as described in any such item, of the Additional Work, as the case may be: (a) is likely to adversely affect Building systems, the structure of the Building or the safety of the Building and/or its occupants; (b) might impair Landlord's ability to furnish services to Tenant or other tenants in the Building; (c) would increase the cost of operating the Building; (d) would violate any governmental laws, rules or ordinances (or interpretations thereof); (e) contains or uses hazardous or toxic materials or substances; (f) would adversely affect the appearance of the Building; (g) might adversely affect another tenant's premises; (h) is prohibited by any ground lease affecting the Building or any mortgage, trust deed or other instrument encumbering the Building; or (i) is likely to be substantially delayed because of unavailability or shortage of labor or materials necessary to perform such work or the difficulties or unusual nature of such work. The foregoing reasons, however, shall not be the only reasons for which Landlord may withhold its approval, whether or not such other reasons are similar or dissimilar to the foregoing. Neither the approval by Landlord of the Work or the Initial Plan or any other plans, drawings, specifications or other items associated with the Work nor Landlord's performance, supervision or monitoring of the Work shall constitute any warranty by Landlord to Tenant of the adequacy of the design for Tenant intended use of the Premises.

2. WORKING DRAWINGS. If necessary for the performance of the Work and not included as part of the Initial Plan attached hereto, Landlord shall prepare or cause to be prepared final working drawings and specifications for the Work (the "Working Drawings") based on and consistent with the Initial Plan by Tenant to Landlord and approved by Landlord pursuant to Paragraph 1 above. So long as the Working Drawings are consistent with the Initial Plan, Tenant shall approve the Working Drawings within the three (3) days after receipt of same from Landlord by initialing and returning to Landlord each sheet of the Working Drawings or by executing Landlord's approval form then in use, whichever method of approval Landlord may designate.

3. PERFORMANCE OF THE WORK. Except as hereinafter provided to the contrary, Landlord shall cause the performance of the Work using (except as may be stated or shown otherwise in the Working Drawings) building standard materials, quantities and procedures then in use by Landlord, but no less than commercially reasonable standards for like office buildings of like class in Fort Lauderdale, Florida ("Building Standards").

4. SUBSTANTIAL COMPLETION. The Work shall be deemed to be "substantially completed" for all purposes under this Work Letter and the Lease if and when both of the following shall have occurred: (i) Landlord's architect issues a written certificate to Landlord and Tenant, certifying that the Work has been substantially completed (i.e., completed except for "punchlist" items listed in such architect's certificate) in substantial compliance with the Working Drawings; and (ii) Landlord has obtained, and delivered to Tenant, a certificate of occupancy (or its equivalent) for the Relocated Premises, issued by the appropriate governmental agency having jurisdiction over the Relocated Premises. Landlord agrees to use reasonable and continuous diligence to complete all punchlist work listed in the aforesaid architect's certificate promptly after substantial completion.

5. TENANT DELAYS. Landlord shall not be liable for failure to complete the Work by reason of any delay attributable to Tenant ("Tenant Delays"), including without limitation:

(a) the failure of Tenant to furnish all or any plans, drawings, specifications, finish details or the other information required under Paragraph 1 above on or before the date stated in Paragraph 1;

(b) the failure of Tenant to grant approval of the Working Drawings within the time required under Paragraph 2 above;

(c) Tenant's requirements for special work or materials, finishes, or installations other than the Building Standards or Tenant's requirements for special construction staging or phasing;

(d) the performance of any Additional Work (as defined in Paragraph 6 below) requested by Tenant or the performance of any work in the Premises by any person, firm or corporation employed by or on behalf of Tenant, or any failure to complete or delay in completion such work; or

(e) any other act or omission of Tenant that causes a delay.

6. ADDITIONAL WORK. Upon Tenant's request and submission by Tenant (at Tenant's sole cost and expense) of the necessary information and/or plans and specifications for work other than the Work described in the Working Drawings approved by Tenant, including, without limitation, any change orders to the Work (in accordance with Paragraph 2 above) ("Additional Work") and the approval by Landlord of such Additional Work, which approval Landlord agrees shall not be unreasonably withheld, Landlord shall perform such Additional Work, at Tenant's sole cost and expense, subject, however, to the following provisions of this Paragraph 6. Prior to commencing any Additional Work requested by Tenant, Landlord shall submit to Tenant a written statement of the cost of such Additional Work, which cost shall include a fee payable to Landlord in the amount of 15% of the total cost of such Additional Work as compensation to Landlord for monitoring the Additional Work and for administration, overhead and field supervision associated with the Additional Work and an additional charge payable to Landlord in the amount of 5% of the total Cost of the Additional Work as compensation for Landlord's general conditions (such fee and additional charge being herinafter referred to collectively as "Landlord's Additional Compensation"), and, concurrently with such statement of cost, Landlord shall also submit to Tenant a proposed tenant extra order (the "TEO") for the Additional Work in the standard form then in use by Landlord. Tenant shall execute and deliver to Landlord such TEO and shall pay to Landlord the entire cost of the Additional Work, including Landlord's Additional Compensation (as reflected in Landlord's statement of such cost), within five (5) days after Landlord's submission of such statement and TEO to Tenant. If Tenant fails to execute or deliver such TEO or pay the entire cost of such Additional Work within such 5-day period, then Landlord shall not be obligated to do any of the Additional Work and may proceed to do only the Work, as specified in the Working Drawings.

7. LEASE PROVISIONS. The terms and provisions of the Lease, insofar as they are applicable to this Work Letter, are hereby incorporated herein by reference. All amounts payable by Tenant to Landlord hereunder shall be deemed to be Additional Rent under the Lease and, upon any default in the payment of same, Landlord shall have all of the rights and remedies provided for in the Lease.

8. MISCELLANEOUS.

(a) This Work Letter shall be governed by the laws of the state in which the Premises are located.

(b) This Work Letter may not be amended except by a written instrument signed by the party or parties to be bound thereby.

(c) Any person signing this Work Letter on behalf of Tenant warrants and represents he/she has authority to sign and deliver this Work Letter and bind Tenant.

(d) Notices under this Work Letter shall be given in the same manner as under the Lease.

(e) The headings set forth herein are for convenience only.

(f) This Work Letter sets forth the entire agreement of Tenant and Landlord regarding the Work.

(g) In the event that the final working drawings and specifications are included as part of the Initial Plan attached hereto, or in the event Landlord performs the Work without the necessity of preparing working drawings and specifications, then whenever the term "Working Drawings" is used in this Agreement, such term shall be deemed to refer to the Initial Plan and all supplemental plans and specifications approved by Landlord.

9. EXCULPATION OF LANDLORD. Notwithstanding anything to the contrary contained in this Work Letter, it is expressly understood and agreed by and between the parties hereto that:

(a) The recourse of Tenant or its successors or assigns against Landlord with respect to the alleged breach by or on the part of Landlord of any representation, warranty, covenant, undertaking or agreement contained in this Work Letter (collectively, "Landlord's Work Letter Undertakings") shall extend only to Landlord's interest in the real estate of which the Premises demised under the Lease are a part (hereinafter, "Landlord's Real Estate") and not to any other assets of Landlord or its constituent partners; and

(b) Except to the extent of Landlord's interest in Landlord's Real Estate, no personal liability or personal responsibility of any sort with respect to any of Landlord's Work Letter Undertakings or any alleged breach thereof is assumed by, or shall at any time be asserted or enforceable against, Landlord, its constituent partners, or against any of their respective directors, officers, employees, agents, constituent partners, beneficiaries, trustees or representatives.

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[SIGNATURES APPEAR ON NEXT PAGE]

IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the ____ day of _________________, 2003.

                                            "LANDLORD"

WITNESS:                                    FORT LAUDERDALE CROWN
                                            CENTER,  INC., a Florida corporation

________________________________            By:    _____________________________
Print Name: ____________________            Name:  _____________________________
                                            Title: _____________________________

________________________________
Print Name:  ___________________

"TENANT"

FUSION TELECOMMUNICATIONS

                                            INTERNATIONAL, INC., a Delaware
                                            corporation

________________________________            By:    _____________________________
Print Name:  ___________________            Name:  _____________________________
                                            Title: _____________________________

________________________________
Print Name:  ___________________

                                                    (SEAL)

SCHEDULE 2-1

WORK

LANDLORD WORK LETTER

Tenant:     FUSION TELECOM
Area:       9,754
Location:   1475 CYPRESS CREEK ROAD

Suite No.:  204
Date:       March 7, 2004

LANDLORD SHALL PROVIDE THE DEMISED PREMISES WITH THE FOLLOWING IMPROVEMENTS:

1. DEMOLITION of existing installations as required for new construction to suit Tenant layout as designated on the attached plan "Exhibit A", as well as required to allow for construction of new one hour rated Tenant separation wall separating Tenant space from adjacent space to the south. This
(rated) wall shall include R- 11 thermal insulation.

2. Construction of Tenant space per the attached floor plan layout ("Exhibit A"). Finish standards to match existing.

3. Entire Tenant space shall be REPAINTED. Color selection by Tenant.

4. All new DOORS and hardware to match existing / including finish (paint color selection) - by Tenant.

5. Existing CABINETRY in break room to remain.

6. New FLOOR COVERINGS for entire space. Use commercial grade carpet. Carpet shall be based on Landlord's Building standard carpet. Tenant shall pick color / pattern from Landlord's selection.

7. 4" HIGH VINYL COVE BASE for entire space - color selection by Tenant.

8. Rework CEILING electrical, fire sprinklers, air conditioning to suite floor plan. Installations and materials shall match existing. Where practical to leave ceiling bulkheads from removed partitions so as not to disrupt existing ceiling installations, Landlord may, at Landlord's discretion, do so.

9. All costs for construction PLANS AND BUILDING PERMITS.

10. FIRE ALARM system compliant with City of Ft. Lauderdale's Fire Department current requirements.

11. ELECTRICAL: Lighting shall be altered to suit Tenant layout and modular furniture configuration. Power shall meet requirement's of Tenant's use, consistent with Tenant's existing set up at 1415 Cypress Creek Road. Include required data / phone stubs.

12. CEILINGS: All ceiling work as required to suit layout, including lighting & HVAC grills. All new installations to match existing. All ductwork and A.C. grills to be modified / added, all as required to suit Tenant space plan. LIGHTING:
Repair and re-lamp all existing lighting fixtures. New exit and emergency lighting, as well as modification of existing - to suite Tenant layout.

13. INTERIOR WINDOWS: Install at eight (8) offices as shown on floor plan Exhibit "A".

14. FIRE EXTINGUISHERS: As required by code / City of Ft.
Lauderdale.

LANDLORD DOES NOT INCLUDE THE FOLLOWING ITEMS:

1. "FFE" - Furniture, Fixtures, Equipment.

2. Window Coverings (existing to remain).

3. Wall coverings.

4. Sound, Phone, T.V., Computer, Data, Security wiring and systems.

5. Kitchen appliances.

THE FOLLOWING PROVISIONS SHALL APPLY TO LANDLORD'S WORK:

1. All work provided by Landlord shall comply with current applicable codes and building standards.

2. Landlord shall re-use existing doors, frames and hardware wherever possible subject to materials being in a reasonably good condition prior to finishing. Where same materials are not available or reusable, Landlord shall provide new materials to match existing - finish selection per Tenant.

3. Where new materials are required, Landlord shall use best available for matching color and texture. The parties acknowledge that this provision is subject to availability; however, due to such conditions related to availability, as well as product discontinuation, dye lot changes, shade and color variations; Landlord's obligations in this regard shall be limited to "best efforts".

4. Construction drawings showing all details of the work shall be prepared by Landlord's Design Professionals. Prior to commencement of any work, Landlord and Tenant shall review said Construction drawings to assure that the proposed design meets the intent of this Landlord Work Letter and the proposed Tenant's use of the space. The formal method of plan approval / acceptance shall be specified in the Lease Agreement.

SHAREHOLDERS JOINT VENTURE AGREEMENT

This Agreement is made on this the 11th day of March 2000 between:

WHEREAS

C. FUSION is engaged, inter alia, in the business of provision of independent facilities based internet services including establishment and operation of earth stations and gateways.

D. Parties have agreed to collaborate and to the participation of FUSION in ESTEL with a view to emerging as a competitive access and internet service provider in India.

E. Pursuant to the foregoing the Parties wish to record their agreement upon which ESTEL shall be managed and operated as a jointly owned company and the Parties relationship therein; and matters incidental thereto.

1 DEFINITIONS

1.1 As used in this Agreement the following terms shall have the respective meanings set forth below: