10-K

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

Commission File No. 0-17973

I-LINK INCORPORATED
(Name of registrant as specified in its charter)

Florida	52-2291344
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

13751 S. Wadsworth Park Drive, Suite 200, Draper, UT 84020 (801/576-5000)
(Address and telephone number of principal executive offices)

        Securities registered pursuant to Section 12(b) of the Exchange Act: None.

        Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $.007 par value.

        Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve months (or for such period that the Registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

        The aggregate market value of Common Stock held by non-affiliates based upon the closing price on March 28, 2002, as reported by the Electronic Bulletin Board, was approximately $9,092,000.

        As of March 28, 2002, there were 116,549,547 shares of Common Stock, $.007 par value, outstanding.

PART I

Item 1. Description of Business.

Overview

        I-Link is an integrated voice and data communications company focused on developing and deploying its proprietary, software-defined communications platform which unites traditional telecommunications capabilities with data IP (Internet Protocol) systems to converge telecommunication, wireless, paging, voice-over-IP (VoIP) and Internet technologies. As such, our software defined communication platform simplifies communications, increases communication capabilities via enhanced applications, and lowers overall communication costs.

        Through our software defined platform, I-Link provides enhanced telecommunications services on a wholesale and retail basis. In addition, we license our software-defined platform and related applications to third parties for deployment and operation in foreign counties. We also provide traditional circuit-switched long distance telecommunication services to end-users via our wholly-owned subsidiary, WorldxChange Corp.—a facilities-based telecommunication carrier.

History

        In 1994, I-Link began as an Internet service provider (ISP) with a business model built around providing both network access and value-added services. I-Link quickly identified that the emerging Internet Protocol (IP) environment was a promising basis for enhanced service delivery, and soon turned to designing and building an IP telecommunication platform consisting of I-Link proprietary software, hardware and leased telecommunication lines. The goal was to create a platform with the quality and reliability necessary for voice transmission. By 1996, I-Link released its first IP-based service called "Fax-4-Less." This service provided users with a more efficient and cost-effective way to distribute facsimile information.

        In 1997, I-Link started offering enhanced services over a mixed IP-and-circuit-switched network platform. These services offered a blend of traditional and enhanced communication services and combined the inherent cost advantages of the IP-based network with the reliability of the existing public switched telephone network (PSTN). The suite of services included a one number "follow me" service, long distance calling, unified messaging, conference calling, message broadcasting, and web-based interface to manage messages and maintain personal account settings. In 1997 we formed our subsidiary I-Link Worldwide, LLC through which we began marketing our products and services thorough a network marketing channel.

        In August 1997, I-Link acquired MiBridge, Inc. (MiBridge), a New Jersey-based communications technology company engaged in the design, development, integration and marketing of a range of software telecommunication products that support multimedia communications over the PSTN, local area networks (LAN) and IP networks. Historically, MiBridge concentrated its development efforts on compression systems such as voice- and fax-over-IP. As part of I-Link, MiBridge continued to develop patent-pending technologies combining sophisticated compression capabilities with IP telephony technology. The acquisition of MiBridge permitted us to accelerate the development and deployment of IP technology across our network platform.

        In 1998, we first deployed our real-time, IP communications network platform. With this new platform, all core-operating functions such as switching, routing, and media control, became software-driven. This new platform represented the first nationwide, commercially viable VoIP platform of its kind. Following the launch of its software-defined VoIP platform in 1998, I-Link has continued to refine and enhance the platform to make it even more efficient and capable for our partners and customers.

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        In February 2000, we transitioned our direct-sales marketing program to Big Planet, Inc. (Big Planet), a subsidiary of Nu Skin Enterprises, Inc., whereupon Big Planet became one of our wholesale customers. The transition of the network marketing sales channel to Big Planet has allowed us to focus our efforts on the expansion of the VoIP platform and the development and deployment of new enhanced services and products, while at the same time maintaining existing channels for retail sales.

        On March 1, 2001, I-Link became a majority-owned subsidiary of Counsel Communications, LLC (subsequently reorganized and renamed Counsel Springwell Communications LLC), which is a majority-owned subsidiary of Counsel Corporation, (collectively, Counsel). Related to our new association with Counsel, on April 17, 2001, I-Link acquired WebToTel, Inc. (WebToTel), a subsidiary of Counsel, and also its subsidiary, Nexbell Communications Inc. (Nexbell), in a stock-for-stock transaction. Nexbell was sold in December 2001.

        In June 2001, our wholly owned subsidiary WorldxChange purchased certain assets and assumed certain liabilities of WorldxChange Communications, Inc. from a bankruptcy proceeding. WorldxChange is a facilities-based telecommunications carrier that provides international and domestic long-distance service to retail customers. Telecommunication services provided by WorldxChange consist primarily of a dial-around product that allows a customer to make a call from any phone by dialing a 10-10-XXX prefix. WorldxChange markets its services through consumer mass marketing techniques, including direct mail and direct response television and radio. WorldxChange also utilizes a network of independent commission agents recruited through its multi-level marketing programs to retain and attract new customers.

        Today, I-Link remains focused on delivering dedicated VoIP applications to our partners and customers through our software-defined network platform. With over seven years experience developing VoIP technologies, I-Link offers a proven and time-tested solution for companies who wish to enter the enhanced communications market. At present, I-Link continues to actively market its One Number and I-Link Home services through wholesale partnerships, and licenses its enhanced services platform to partners and service providers at home and abroad who wish to offer voice services without incurring high development costs.

Our Current Software-Defined Platform

        I-Link's software-defined platform is an end-to-end service delivery solution that meets a market need for a single platform to minimize deployment costs and system integration challenges, while offering enhanced communication capabilities typically available through multivendor solutions. The platform consists of a softswitch-enabled, real-time IP communications network that acts as a single, reliable, service delivery point for network and application services. It allows current telecommunications carriers to introduce new services and capabilities to customers by bridging existing networks with IP networks. For emerging carriers, I-Link's platform enables quick and inexpensive entry into the telecommunications and enhanced services markets without the high costs associated with purchasing new equipment and network infrastructure. Finally, through I-Link's GateLink application programming interface (API), our wholesale customers and licensees are able to quickly develop and deploy customized communication applications designed to operate on our platform.

I-Link's Softswitch

        I-Link's softswitch is the operating system that ties together all of the core services available to our wholesale customers, end users and third-party applications developers. Much like a PC's operating system integrates diverse hardware elements (i.e., disk drive, monitor, network interface card and memory) into a cohesive unit, I-Link's softswitch integrates communication elements into enhanced communication services. Included within the softswitch capabilities are connection services, voice recognition, interactive voice response (IVR) services, text-to-speech services, unified messaging,

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conference call services, operation support systems (OSS) and other application servers and communication elements created by us and/or other third-party applications developers. Our softswitch is readily scalable and can be quickly and successfully deployed on any existing IP network without incurring the significant costs in new components or infrastructure typically associated with expanding a telecommunication network. It provides existing carriers with the ability to bridge between disparate networks, applications, and customers.

The GateLink API

        Our GateLink API is a powerful set of developer tools that serves as the mechanism for creating new applications, user services and solutions that can be hosted within our softswitch-enabled RTIP Network, which is defined and discussed below. Companies determined to build real-time communication services face many challenges, such as developing the solution, building the network in which the solution will operate, and defining the OSS (operations support system) to properly provision and bill for the new services. Our GateLink API greatly simplifies this process by allowing software developers to focus on developing their own applications without worrying about the other requirements of I-Link's softswitch RTIP Network. Once the application is developed it can be certified by us and deployed within the RTIP Network.

        The GateLink API is our mechanism to create new value and stimulate growth from other communications services providers over time. GateLink allows third-party developers to create applications that operate on our softswitch-enabled RTIP Network. These applications deliver monthly recurring charge (MRC) revenues as well as minute-traffic revenues to I-Link. With the GateLink API, we are able to facilitate the creation of new communications applications that open new business opportunities, market segments, and distribution channels.

I-Link's RTIP Network

        Our real-time IP communications network (RTIP Network) consists of a fully-integrated, nationwide, dedicated network of I-Link equipment and leased telecommunications lines augmented by our IP softswitch software. The RTIP Network is an IP-based network like the Internet; however, it is dedicated for use only by us and our customers—an Intranet. It provides the necessary operational platform for the enhanced service applications developed by us and any third-party applications developers who partner with us. The RTIP Network is a packet-based network composed of an IP backbone that ties together local loop dial-up and broadband connections via major hubs strategically located in major metropolitan areas throughout the United States. Each of these hubs is comprised of off-the-shelf hardware elements and I-Link's proprietary software. The RTIP Network is able to integrate signaling systems such as SS7, Wireless, Public Switch Telephone Networks (PSTN), the Internet, and next generation network protocols such as SIP, MGCP, and H323 into one interoperable platform. The architecture and technological approach used by the RTIP Network has resulted in cost and capability breakthroughs unattainable through traditional circuit switch telecommunications networks. It does all this while maintaining the high voice-quality and reliability associated with traditional circuit switch networks. See Figure 1—A more detailed description of the RTIP Network.

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        Our technology enables a user to employ his/her existing telephone, fax machine, pager or modem to achieve high-quality communications with other conventional communications equipment, while exploiting the capabilities of IP technology. The RTIP Network is comprised of leased and dedicated lines carrying telecommunications transmissions converted into a data format (TCP/IP). Network access points known as gateways are comprised of sophisticated communications equipment and proprietary software. We call these gateways Communication Engines, or CE's. These are used to integrate our Intranet with the traditional telecommunications network. The CE's, including the software, represent our patent-pending technology. Through them, the RTIP Network receives traffic from the public switched telephone network as a TDM stream (time division multiplexing) and converts it to IP data packets. The data is converted from the PCM (pulse code modulation) format standard, which is the traditional telephony standard, to our proprietary coding. Our proprietary coding can distinguish among and handle voice, fax and modem communications differently. Voice is compressed using a voice coder or codec, while fax and modem traffic is demodulated/modulated. The data can then be stored (such as recording a message), altered (as in changing a fax call from 14400 BPS to 9600 BPS) or redistributed to multiple recipients (as in the case of conferencing). Our gateways are flexible such that the RTIP Network can readily integrate with other carriers' protocols and infrastructure. Accordingly, we are capable of leveraging the access infrastructure of other carriers, resellers, and Internet service providers (ISPs) and wholesaling our enhanced services to these providers and their customers while avoiding the need to build additional access infrastructure.

        Unlike the traditional telecommunication network, the RTIP Network uses TCP/IP as its communication protocol. This is the same protocol used by the Internet for computer-to-computer communication. We utilize TCP/IP because of the potential for interoperability between diverse technologies. This protocol provides for I-Link's software-defined platform to integrate fax, voice, e-mail, websites, video conferencing, speech recognition servers, intelligent call processing servers, Internet Information servers, and other technologies in an efficient way. Not all of these technologies are currently implemented within our softswitch or the RTIP Network. However, because communication is being carried over a TCP/IP protocol these solutions can be integrated into our offerings at a fraction of the cost of traditional telecommunication implementations. The advantage of communication via the TCP/IP protocol is that it allows for efficient integration of many enhanced information services as noted above. We do not need to build all of the services that are presented to the user; the platform can easily integrate additional services because the communication protocol offers interoperability between all types of conventional communication equipment. The other advantage to TCP/IP is that the cost of integration is substantially less as a result of network design. New services, enhancements and updates can be enabled at a central location and linked automatically to a subscriber's packet of services, thus eliminating the costs and time restrictions of installing the enhancement at each physical facility. The result of these benefits is lower cost with greater capabilities.

Cost Advantages

        The cost advantages realized from the creation and deployment of enhanced services over the RTIP Network are two-fold: (a) lower transmission costs, and (b) lower capital infrastructure costs. Lower transmission costs result from the inherent maximization of capacity in an IP-based packet-switch architecture (like the Internet and I-Link's RTIP Network) as opposed to traditional circuit-switch telecommunication architecture. A packet-switch network converts the information being carried (such as a voice call) into a series of data packets and is able to fill the entire capacity of the network with these data packets simultaneously during transmission. A traditional circuit-switch network processes a single call at a time. Simply put, an IP-based, packet-switch network makes more efficient use of its fixed-cost capacity than does a traditional circuit-switch network.

        The second component of cost advantages is lower capital infrastructure costs. With a traditional, enhanced-services platform, incorporating new functionality, such as conference calling, requires new

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software/hardware to be purchased and installed by the communications provider. Integration is then essential so that the new components can work alongside the traditional telecommunications switch. (A switch is a large, sophisticated piece of telecommunications equipment through which calls are routed. It has a given capacity of calls that can simultaneously be handled). The traditional switch, which is unable to process anything but low-level signals, must pass an incoming call for conferencing (in our example) to a special conference call switch for processing. These types of special switches are expensive and can cost hundreds of thousands of dollars each. An IP-based platform distinguishes itself in this situation because the transmission of signals within the RTIP Network is converted to an IP signal. Therefore, the given enhanced service signaling (conference calling in our example) occurs within a software-defined network. As such, it can be handled through standard personal computers, rather than a hardware- and/or equipment-defined network which requires specialized, redundant, costly telecommunications switches for each enhanced service offered. Due to the nature of our platform, I-Link can provide users additional services at a fraction of the cost of a traditional communication services provider because we allow customers to avoid the capital expense of acquiring, installing and servicing an array of special switches. Lower cost in both the cost of transmission and the capital infrastructure to provide the services, results in lower costs to the customer.

Flexible Integration

        In a traditional telecommunications network, each service—voicemail, fax mail, conference calling, single number forwarding—must be processed through one or more separate, non-integrated switches and a separate number is assigned for each service. For example, "Call this number to send me a fax." "Call this number for my voice mail." "Call this number for a conference call." Knowing this, imagine the complexity inherent to both providers and customers who wish to take advantage of many enhanced services. I-Link readily simplifies this problem. Because I-Link's services are provided within an IP environment and hosted on a software-defined network, all of our services can be easily integrated through one switch and operate via one customer number. This is not only critical for unifying today's communications, but provides for the easy integration of additional services as they are developed and introduced.

        I-Link intends to leverage the expanded capabilities and capacity of our softswitch-plus-RTIP-Network. Our goal is to sell our core technologies to other telecommunications service providers and application developers on a wholesale basis as well as to the residential, SOHO (small office/home office) and SME (small-to-medium enterprise) markets. We also plan to continue licensing our softswitch-enabled RTIP Network technology for use in international markets.

Advantages of Our Softswitch Enabled RTIP Network

        We believe telecommunication service providers want to increase their competitive edge by expanding their ability to provide enhanced communication products to current and new customers while at the same time decreasing the costs of network expansion and operation. With new IP-based platforms and technology, carriers are often forced to purchase separate components versus an end-to-end solution in order to provide their customers with enhanced telecommunication services. In this instance, each component may come from a different manufacturer and address only one element of their intended network and/or service delivery platform. For example, a carrier might decide to purchase a unified messaging system; but the carrier must also evaluate how to deploy the system within the context of adopting new VoIP gateways, softswitch platforms, billing systems, provisioning systems, network management and support systems, and other independent, but related, components.

        I-Link's converged solution provides the advantage of an end-to-end service delivery platform. Even existing carriers can benefit from I-Link's platform by using it to bridge between disparate networks, applications, and customers. With emerging carriers, the platform offers fast and low-cost network deployment. For both of these markets, I-Link's platform acts as a single, real time, reliable,

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service delivery point for network and application services. Through licensing agreements, these benefits are made available to existing and emerging international carriers who wish to seek the same advantages I-Link has achieved within the United States.

Current Applications

        I-Link currently has several applications operating on our software-enabled RTIP Network, primarily I-Link One Number and MyACD.

I-Link One Number

        I-Link™ One Number (formerly know as V-Link) is one of the applications hosted and operated on our softswitch-enabled, RTIP Network. It is a powerful suite of basic and enhanced telecommunications services created to meet the communication needs of residential SOHO and SME customers. I-Link™ One Number services include:

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Enhanced Local or Long Distance Service. Long distance calls can be made at significantly lower costs.



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Single Number Service. Set up to ring a subscriber's office phone, home office phone, cellular phone (or any phone number the subscriber specifies) and pager simultaneously so that he may be reached wherever he is, and without the caller having to try multiple numbers or know his party's current location.



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Call Screening/Call Whisper. The subscriber can hear the name of the person calling before deciding to accept the call or send it to voice mail. If the subscriber receives a new call while already engaged in a call, the name of the new caller is "whispered" to the subscriber in a manner that is inaudible to the other call participant.



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Caller Hold. The subscriber can put a caller on hold, with music on hold.



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Conference Calling. Provides the ability to conference in up to 9 people at one time.



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Portable Fax. The subscriber receives a fax to his Single Number Service, he is notified that there is a fax in his mailbox, and he can choose to route the fax to any fax machine or to his e-mail through a fax-to-e-mail gateway.



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Voice Mail. Enables callers to leave recorded messages that can be retrieved, saved, forwarded, etc.

        Subscribers access their I-Link™ One Number service through an assigned local and/or toll-free (800) number (this becomes a single, convenient telephone number through which others can call and fax the subscriber). Once inside the I-Link™ One Number enhanced communications environment, all of the subscriber's communications functions are handled over the softswitch-plus-enabled-RTIP Network, with its associated benefits and capabilities—regardless of the call origination point. For example, long distance calls are routed primarily through the RTIP Network, and secondarily through the traditional public switched telephone network to ensure full geographic coverage. In addition to long distance calling capability, entering the I-Link™ One Number communications environment affords the user a multitude of enhanced capabilities without the need for any special equipment. Once the communications session is established by logging-in to I-Link™ One Number from any telephone, a subscriber has the ability to perform multiple operations within the session (such as multiple long distance calls, call screening, voice mail, fax, and conference calling).

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MyACD

        In January, 2002, I-Link began hosting an application known as MyACD. Developed by a third-party, MyACD was created using I-Link's proprietary network API (Gatelink). It is an automated call distribution system (ACD) application that manages all of the communication needs of contact centers or call centers. Telephone calls, e-mail, faxes, chat requests and call-back requests are all handled by the MyACD application hosted on the softswitch-enabled RTIP Network. This application distinguishes itself by providing a universal queue for all contact media. MyACD does not require the customer to purchase or maintain hardware and allows agents to work from remote locations—all a remote agent needs is a telephone and a PC with an Internet connection.

Distribution Channels

Wholesale

        Wholesale distribution channels allow I-link to leverage our established software-defined platform and services with customers wishing to provide end-users with enhanced communication products. Such wholesale partners use (or lease from us) their own sales, billing, customer care and collection services. The wholesale channel consists of two types of partners: telecommunications service providers and third-party application developers and their customers.

Telecommunications Service Providers

        We sell our enhanced services products, such as One Number, on a wholesale basis to telecommunications service providers. Big Planet is an example of an I-Link customer in this arena. Big Planet buys the service capability from I-Link and then, in turn, sells the enhanced services to its retail customers. Big Planet has non-exclusive, world-wide rights to market and sell I-Link products and services through its network marketing (sometimes referred to as multi-level marketing) sales channel to residential and small business users.

        In the future, we intend to continue to sell I-Link's enhanced services on a wholesale basis to service providers such as Big Planet, as well as other service providers such as CLECs (Competitive Local Exchange Carriers), ILECs (Independent Local Exchange Carriers), and ISPs (Internet Service Providers). These telecommunications service providers can bundle I-Link One Number and any additional, third-party-developed services by connecting to the RTIP Network through one of our hubs located strategically throughout the United States.

Third-Party Application Developers

        We provide application-hosting services to third-party applications developers and their respective customers on a wholesale basis. Third-party developers who create new applications and solutions using I-Link's GateLink API are able to host these services within our softswitch-enabled RTIP Network. These hosted services are then made available to the developers' channel of distribution and customers. Using our RTIP Network to host new applications greatly simplifies and expedites getting new services to market. In managing these relationships, I-Link has entered into revenue sharing agreements whereby we receive a portion of future sales and recurring monthly revenues. An example of a third-party application currently hosted on I-Link's platform is MyACD.

Retail

        We market our enhanced communications services directly to retail customers primarily through two methods, enterprise marketing and direct acquisition of retail customer bases.

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Enterprise Marketing

        I-Link is currently marketing our enhanced communications services to businesses and associations (called enterprises) for personal use by their employee/member base. The Enterprise solution provides a communications hook-up between a company's existing telecommunications system and I-Link's RTIP Network (typically through a T-1 or other similar telecommunications line connection). This enables a company's employees to have direct, two-digit ("00") access to I-Link™ One Number services and other third-party communications applications available on our RTIP Network via their existing telecommunications system and telephone numbers. It also provides for direct, interoffice, four-digit extension capabilities between multiple locations worldwide.

Acquisitions of Existing Customer Bases

        We intend to accelerate the expansion of our customer base through the strategic acquisition of existing customer bases and/or the acquisition of service providers controlling existing customer bases. This strategy is in the exploratory phase and there is no assurance that we will be successful in the acquisition of other customer bases or acquisition of other service providers.

Competition

I-Link's Enhanced Communication Products

        The market for business communications services is extremely competitive. We believe I-Link's ability to compete in this market will depend upon a number of factors. These include the pricing policies of competitors and suppliers; capacity, reliability, availability and security of the RTIP Network infrastructure; market presence and channel development; introductions of new products and services into the marketplace; ease of access to and navigation of the Internet or other such IP networks; our ability to support existing and emerging industry standards in the future; our ability to balance network demand with the fixed expenses associated with network capacity; and industry and general economic trends.

        While we believe there is currently no competitor in the North American market providing I-Link's capabilities in the same manner afforded by our softswitch-enabled RTIP Network, there are many companies that offer communications services, and therefore compete with us for potential customers. Current competitors range from large telecommunications companies and carriers such as AT&T, MCI Worldcom, Sprint, Excel, Leve13 and Qwest, to other VoIP carriers including iBasis, ITXC, and small, regional resellers of telephone line access. Similarly, our solution competes with companies providing basic Internet telephony. These companies, as well as others, including manufacturers of hardware and software used in the business communications industry, have announced plans to develop future products and services that are likely to compete with our products on a more direct basis. As competition grows, it is possible that future competitors will be better capitalized than I-Link and may control significant market share in their respective industry segments.

WorldxChange Dial Around Product

        The market for long distance providers is very competitive. I-Link's subsidiary, WordxChange, believes that providing multilingual customer service and advertising materials offers agents and customers familiarity and comfort. This will translate into differentiation within the long distance market for WorldxChange. WorldxChange expects to provide high-quality, yet competitive, long distance to customers of all nationalities, focusing specifically on international termination.

        WorldxChange has a very active agent program. WorldxChange has a multi-level marketing division with agents across the United States. A competitive edge is WorldxChange's Representative Advisory Board comprised of 13 xPectations Representatives from our agent base and WorldxChange employees.

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Round table discussions are conducted on a regular basis. WorldxChange believes the xPectations division is one of the most exciting and positive programs in the industry today.

        WorldxChange also is very active in the marketing of new customers via direct mail and mass public media. WorldxChange had a direct mail campaign in the later part of 2001 wherein it distributed over 75 million pieces of material.

        WorldxChange's main competitors are Excel Communications, ACN, Cognigen, Vartec and Telecom USA. These competitors provide a variety of services that are in direct competition with us from offering residential and commercial customer's competitive long distance, 800 service, flat rate and dial-around services.

Government Regulation

Non-Regulated Enhanced Services.

        General.    Traditionally, the Federal Communications Commission (FCC) has sought to encourage the development of enhanced services as well as Internet-based services by keeping such activities free of unnecessary regulation and government influence. Specifically in the area of telecommunications policy and the use of the Internet, the FCC has refused to regulate most on-line information services under the rules that apply to telephone companies. This approach is consistent with the passage of the Telecommunications Act of 1996 (1996 Act), which expresses a Congressional intent "to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation."

        Federal.    Since 1980, the FCC has refrained from regulating value-added networks (VANs), software or computer equipment that offer customers the ability to transport data over telecommunications facilities. By definition, VAN operators purchase transmission facilities from facilities-based carriers and resell them packaged with packet transmission and protocol conversion services. Under current rules, such operators are excluded from regulation that applies to telecommunications carriers under Title II of the 1996 Act.

        In the wake of the 1996 Act, however, the FCC is revisiting many of its past decisions. The FCC could impose common carrier regulation on some of the transport and resale telecommunications facilities used to provide telecommunications services as a part of an enhanced or information service package. The FCC also may conclude that our protocol conversions, computer processing and interaction with customer-supplied information are insufficient to afford us the benefits of the "enhanced service" classification, and thereby may seek to regulate some of our operations as common carrier/telecommunications services. The FCC could conclude that such decisions are within its statutory discretion, especially with respect to voice services. In December 1999, for example, the FCC found that it had regulatory authority over ILEC advanced services. In addition, the FCC is considering whether IP telephony services and networks should be made available to persons with disabilities and whether providers of these services and networks must comply with the FCC rules for persons with disabilities.

        With the exception of certain circuit switched telecommunication services, all of our services utilize a proprietary Internet protocol network involving the provision of information services, which we believe, qualifies as an exemption from common carrier regulation under current FCC rules. Historically, the FCC has not regulated companies that provide the software and hardware for Internet telephony or other Internet data functions as common carriers or telecommunications service providers. Moreover, in May 1997 the FCC determined that information and enhanced service providers are not required to contribute to federal Universal Service Funding mechanisms. This decision was later reaffirmed in April of 1998 in an FCC report to Congress.

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        Notwithstanding the current state of the rules, the FCC's potential jurisdiction over the Internet is broad because the Internet relies on wire and radio communications facilities and services over which the FCC has long-standing authority. The FCC's framework for "enhanced services" confirms that the FCC has authority to regulate computer-enriched services, but provides that carrier-type regulation would not serve the public interest. Only recently has this general deregulatory approach been questioned within the industry.

        An early example of deregulatory pressure is in the March 1996 initiative of America's Carriers Telecommunications Association (ACTA), a trade association primarily comprised of small and medium-size interexchange carriers. ACTA filed a petition with the FCC requesting the FCC to regulate Internet and IP telephony. ACTA argued that providers of software that enables real-time voice communications over the Internet should be treated as common carriers and subject to the regulatory requirements of Title II of the 1996 Act. The FCC sought comment on the request, but has never issued a decision.

        On April 10, 1998, the FCC submitted a report to Congress describing the effect of its classification of information and telecommunications services on contributions to universal service charge funds. In this report, the FCC reiterated its conclusions that information services, and Internet access services, in particular, are not subject to telecommunications service regulation or universal service contribution requirements. The FCC did, however, indicate its belief that certain gateway-based IP telephony services may be the functional equivalent of a telecommunications service. The FCC deferred a definitive resolution of this issue until it could examine a specific case of phone-to-phone IP telephony. Senators from several states with large rural areas expressed concern that migration of voice services to the Internet could erode the contribution base for universal service subsidies. Continuing pressure from those Senators to reclassify Internet telephony as a telecommunications service, rather than an information service is likely. If reclassification occurs, Internet telephony will be subjected to a regulatory assessment for universal service contributions.

        On April 5, 1999, Qwest (formerly US West) filed a Petition for Expedited Declaratory Ruling with the FCC in which Qwest seeks a declaration that interexchange carriers (IXCs) that provide phone-to-phone IP telephony are telecommunications service providers whose services are subject to access charges. The crux of the Petition claims that because there is no net protocol conversion in messages sent and received by IXCs and as IXCs claim to provide voice telephony, IP telephony does not qualify as an enhanced service under FCC rules. Qwest did not press the matter and, to date, the FCC has not issued a public notice requesting comment on the petition. We cannot predict what the Commission will rule or when. If Qwest pursues the petition and is successful, the FCC could rule that IP telephony service providers are obligated to pay interstate access charges to local telephone companies for originating and terminating interstate calls.

        Any FCC ruling that Internet-based service providers should be subject to some level of Title II regulation could affect the manner in which we operate, to the extent we use the Internet to provide facsimile or voice capabilities. Any FCC ruling would also result in additional costs to achieve compliance with federal common carrier requirements. With the passage of the 1996 Act, the precise dividing line or overlap between "telecommunications" and "information" services as applied to Internet-based service providers is uncertain. Consequently, our activities may be subject to evolving rules as the FCC addresses novel questions presented by the increased use of the Internet to offer services that appear functionally similar to traditionally-regulated telecommunications services. At this time, it is impossible to determine what effect, if any, such regulations may have on the our future operations.

        State.    While states have generally declined to regulate enhanced services, their ability to regulate the provision of intrastate enhanced services remains an uncertain possibility. For instance, Qwest petitioned Colorado and Nebraska for a ruling that IP telephony providers must pay access charges for

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intrastate calls. The proceeding was dismissed in Colorado and a decision was never reached in Nebraska. In two recent interconnection decisions, Colorado and Nebraska declined to classify IP telephony as switched access traffic subject to access charges. But a recent Florida interconnection arbitration decision ruled differently. If state regulators or legislators regulate the provision of intrastate enhanced services it may negatively impact our ability to provide enhanced services in any state that assesses access or universal service charges against us.

Regulated Telecommunication Services

        General.    We believe some of the services we provide are subject to the provisions of the 1996 Act, the regulations promulgated thereunder, as well as the applicable laws and regulations of the various states administered by the relevant state authorities. While the recent trend in the U.S., for both federal and state regulation of telecommunication service providers has been toward less regulation rather then more, the FCC and relevant state authorities continue to regulate telecommunication carriers and the terms and conditions under which telecommunication services are provided.

        Federal.    The FCC modifies its regulations of telecommunication carriers from time to time. In October 1996, the FCC adopted an order eliminating the requirement for non-dominant carriers like our subsidiaries I-Link Communications, Inc. and WorldxChange Corp. to file and maintain tariffs with the FCC for domestic interstate services. In March 2001, the FCC issued an order requiring non-dominant carriers to remove their international exchange service tariffs from the FCC by January 28, 2002. We believe we are in compliance with the FCC's detariffing orders and that achieving such compliance did not materially impact us.

        In 1997 the FCC issued an order implementing those provisions of the 1996 Act which promote universal telephone service (the USF Order). The USF Order requires interstate telecommunication carriers to contribute toward a fund for schools and libraries, a fund for rural health care and a fund to develop regions characterized by low income levels and high telecommunication costs (collectively USF). Our USF contributions are assessed based on certain end user telecommunication revenues, which we calculate in accordance with the FCC's legislative rules. The amounts we contribute to USF may be billed to our end-users and we have elected to pass those charges along to our end user customers. If we continue to bill these amounts to our end-user customers, our customers may chose to purchase similar services from our competitors. If we elect not to bill these amounts to our end-user customers, our profit margins may be less.

        During the past year the FCC increased the USF contribution percentages. Originally in May 2001 and subsequently in February 2002, the FCC proposed changes to the USF regulations that, if adopted, would alter the basis on which the we determine our USF contributions and the ability and means by which such contributions may be recovered from our customers. For example, although the FCC has not proposed to prevent carriers from passing USF charges through to customers, the FCC has proposed to limit the extent to which carrier costs for administering USF charges may be passed through to customers. These changes or other regulatory changes adopted by the FCC could have a significant negative effect upon the Company.

        State.    In addition to regulation by the FCC, the majority of the states require us to register or apply for certification prior to initiating intrastate interexchange telecommunications services. To date the Company's subsidiaries I-Link Communications, Inc. and WorldxChange Corp. are authorized through certification to provide intrastate interexchange telecommunications services. These subsidiaries are subject to the obligations that the applicable state laws place on all similarly certificated carriers including the regulation of services, the payment of regulatory fees and the preparation and submission of reports. If state regulators or legislators change current regulations or adopt new regulations it may negatively impact our ability to provide telecommunication services.

12

Delivery of Services over Existing Switched Telecommunications Networks

        A portion of I-Link's communications services are delivered over existing switched telecommunications networks through our subsidiaries, I-Link Communications, Inc. and WorldxChange, both long distance telecommunications carriers that provide long distance service to all 50 states of the United States. Access to the switched telephone network is a necessary component of the RTIP Network to ensure full geographic coverage of the RTIP Network in lesser-populated geographic areas that are not serviced by one of the RTIP Network's Hubs. I-Link maintains traditional switch facilities in Dallas, Los Angeles, Phoenix, and Salt Lake City.

        WorldxChange maintains traditional switch facilities in San Diego, Chicago, Dallas, Guam, Hawaii, Los Angeles, Miami, New York, San Francisco and Washington D.C.

Item 2. Description of Property.

        I-Link leases approximately 31,650 square feet of space for office and other facilities in Draper, Utah pursuant to commercial leases with original terms of five to seven years. These leases expire between 2003 and 2005 subject to our right to extend for an additional five years. The current aggregate base rent is approximately $41,000 per month. I-Link also leases several other co-location facilities throughout the United States to house its Communication Engines. Such spaces vary in size and length of term. We currently sublease approximately 12,000 square feet on a month to month basis at approximately $14,000 per month.

        I-Link currently leases and occupies approximately 4,100 square feet of office space in Phoenix, Arizona, pursuant to a commercial lease dated June 1, 2000. The lease term is for five years commencing June 2000 beginning with a current base rent of approximately $6,600 per month.

        On October 6, 2000, I-Link purchased an office building located in Salt Lake City, Utah consisting of approximately 14,250 square feet. We occupy the first floor of the building and lease the second floor pursuant to a commercial lease, dated June 1997. The lessee's lease term is for five years commencing June 1997 with a base rent of $7, 411. The building is subject to a promissory note, which is secured by a trust deed against the building and a certificate of deposit in the amount of $200,000.

        I-Link rents approximately 3,600 square feet of office space in Eatontown, New Jersey at a cost of approximately $5,200 per month which expires December 31, 2002. The property is subleased through December 31, 2002 at approximately $5,200 per month.

        WorldxChange rents approximately 24,312 square feet of office space in San Diego, California under a five-year commercial lease dated August 1, 1997 at a cost of approximately $25,000 per month.

13

Item 3. Legal Proceedings.

I-Link Incorporated v. Red Cube International AG, and Red Cube, Inc., Case No. 2:01CV0049C, United States District Court, District of Utah, Central Division.

We filed suit against Red Cube, International AG and Red Cube, Inc. (collectively Red Cube) on January 18, 2001, seeking damages against Red Cube for an alleged default on an agreement to provide approximately $60,000,000 in equity funding to I-Link, and instituting a scheme to drive us out of business and obtain control of our proprietary technology, telecommunications network, key employees and customers. While we obtained an initial temporary restraining order against Red Cube preventing Red Cube from interfering with our employees, vendors and customers, Red Cube subsequently filed a motion to dismiss the action and compel arbitration based upon a mandatory arbitration provision in the May 2000 Cooperation and Framework Agreement by and between I-Link and Red Cube. The court found that our claims were "related to" the Cooperation and Framework Agreement and granted Red Cube's motion to dismiss the action for lack of subject matter jurisdiction.

In the Arbitration Matter of Red Cube International AG, v. I-Link Incorporated, before the American Arbitration Association, New York, New York, AAA # 50 T 117 0002B 01.

On or about January 24, 2001 Red Cube International, AG (Red Cube AG) delivered to us a written demand for arbitration under the May 2000 Cooperation and Framework Agreement between the parties. Red Cube AG's demand constituted written notice of an alleged breach of the Cooperation and Framework Agreement stemming from I-Link's (i) threatening a shut-down of our IP telecommunications network, (ii) the resignation of Dror Nahumi as our employee, which Red Cube AG claims will cause us to breach our undertaking to provide the consulting services of John Edwards, Dror Nahumi and Alex Radulovic in the event we are unable to perform under the Agreement and Red Cube is required to assume primary operation and maintenance of its own IP telecommunications network based upon our technology, and (iii) our alleged failure to update the escrowed copy of its source code to the current version of the source code employed to maintain the IP telecommunications network. We denied these allegations, filed a counterclaim against Red Cube, AG and filed a third-party claim against Red Cube, Inc, seeking compensatory and/or punitive damages for Red Cube Inc.'s default under a subsequent agreement to provide approximately $60,000,000 in equity funding to us, engaging in a scheme to drive us out of business and obtain control of our proprietary technology, telecommunications network, key employees and customers. An evidentiary arbitration hearing is currently scheduled to begin in July 2002.

Steven J. Little, dba, Freedom Enterprises v. I-Link Worldwide, LLC, Medcross, Inc., I-Link Incorporated, John Does I-X, Civil No. 990908018, in The Judicial District Court of the Third Judicial Court in and For Salt Lake County, State of Utah and Steven J. Little, dba, Freedom Enterprises v. I-Link Worldwide, L.L.C., Medcross, Inc., I-Link Incorporated, before the American Arbitration Association, Case No. 81 181 00118 00 VSS.

Steven J. Little is a former independent representative of I-Link Worldwide, L.L.C. whose contractual relationship consisted of I-Link's standard independent representative agreement and two written agreements between himself, I-Link and I-Link Worldwide, LLC. Mr. Little filed the above action alleging that I-Link Incorporated and I-Link Worldwide, LLC wrongfully terminated his written agreements. Mr. Little's claims for damages range from $7,000,000 to $10,000,000 constituting the alleged aggregate value of the residual terms of these agreements. I-Link Incorporated and I-Link Worldwide, LLC maintained that Mr. Little's written agreements were properly terminated pursuant to the written terms and conditions of those agreements and therefore Mr. Little has suffered no damages. An evidentiary arbitration hearing was conducted from April 23, 2001 through April 27, 2001 and the matter was resolved with no material adverse effect upon I-Link Incorporated or I-Link Worldwide, L.L.C.

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        We are involved in litigation relating to claims arising out of our operations in the normal course of business, none of which is expected, individually or in the aggregate, to have a material adverse affect on us.

Item 4. Submission of Matters to a Vote of Security Holders.

        No matter was submitted during the fourth quarter of the fiscal year ended December 31, 2001, to a vote of the Company's security holders.

PART II

Item 5. Market for I-Link Incorporated's Common Stock and Related Stockholder Matters.

Price Range of Common Stock

        I-Link's common stock was delisted from The Nasdaq Small-Cap Market, effective October 1, 2001 and is now traded on the OTC-Electronic Bulletin Board under the symbol ILNK. We have no current plans to apply for listing of any preferred shares, warrants or any of our other securities.

        The following table sets forth the high and low prices for our common stock for the period as quoted on Nasdaq from January 1, 2000 to September 30, 2001 and on the Electonic Bulletin Board from October 1, 2001 to December 31, 2001 (as reported by Commodity Systems, Inc.) based on interdealer quotations, without retail markup, markdown, commissions or adjustments and may not represent actual transactions:

Quarter Ended	High		Low
March 31, 2000	$	20.00	$	2.75
June 30, 2000		11.88		2.00
September 30, 2000		5.91		2.00
December 31, 2000		3.53		0.75
March 31, 2001	$	1.22	$	0.25
June 30, 2001		0.75		0.38
September 30, 2001		0.57		0.19
December 31, 2001		0.24		0.07

        On March 28, 2002, the closing price for a share of our common stock was $0.25.

Holders

        As of July 23, 2001 (the record date for our last shareholders meeting), we had approximately 620 stockholders of common stock of record and approximately 16,000 beneficial owners.

Dividends

        To date, we have not paid and do not anticipate that we will pay dividends on our common stock in the foreseeable future. As of December 31, 2001, we do not have any preferred stock outstanding which has any preferential dividend. Preferred stock dividends in the amount of $0, $196,333 and $351,868 were paid in 2001, 2000 and 1999, respectively, in common stock (non-cash) on the converted shares of Series F redeemable preferred stock. A preferred stock dividend in the amount of $630,313 was paid in 2001 in common stock (non-cash) on the Class C preferred stock.

Item 6. Selected Financial Data.

        The following selected consolidated financial information was derived from the audited consolidated financial statements and notes thereto. The information set forth below is not necessarily

15

indicative of the results of future operations and should be read in conjunction with Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K.

			2001			2000			1999			1998			1997
Statement of Operations Data:
Revenues:
	Telecommunications services		$	74,887,557		$	18,300,548		$	26,440,017		$	19,634,681		$	11,081,007
	Marketing services			—			463,740			3,672,988			4,548,421			2,637,331
	Technology licensing and development			5,696,893			8,972,828			2,506,701			1,466,315			346,875
	Other			2,025,585			2,667,039			—			—			—
		Net sales		82,610,035			30,404,155			32,619,706			25,649,417			14,065,213
Operating expenses:
	Telecommunications network expenses			62,652,227			24,958,320			20,373,209			19,099,194			14,634,999
	Marketing services costs			—			456,354			5,400,149			5,850,873			4,294,014
	Selling, general, administrative and other			61,442,573			29,086,550			26,098,700			20,345,293			20,997,262
		Total operating expenses		124,094,800			54,501,224			51,872,058			45,295,360			39,926,275
Operating loss				(41,484,765	)		(24,097,069	)		(19,252,352	)		(19,645,943	)		(25,861,062	)
Other income (expense)				(4,104,678	)		(1,655,109	)		(4,906,936	)		(8,134,130	)		(2,806,630	)
Loss from continuing operations				(45,589,443	)		(25,752,178	)		(24,159,288	)		(27,780,073	)		(28,667,692	)
Loss from discontinued operations				—			—			(500,000	)		(178,006	)		(1,191,009	)
Loss before extraordinary gain				(45,589,443	)		(25,752,178	)		(24,659,288	)		(27,958,079	)		(29,858,701	)
Extraordinary gain on extinguishment of debt				1,092,818			—			—			—			—
Net loss			$	(44,496,625	)	$	(25,752,178	)	$	(24,659,288	)	$	(27,958,079	)	$	(29,858,701	)
Loss from continuing operations applicable to common stock			$	(30,373,607	)	$	(27,398,996	)	$	(33,086,262	)	$	(37,621,215	)	$	(118,360,731	)
Net loss per common share—basic and diluted:
Loss from continuing operations			$	(0.31	)	$	(1.03	)	$	(1.55	)	$	(2.13	)	$	(10.07	)
Loss from discontinued operations				—			—			(0.02	)		(0.01	)		(0.10	)
Gain from extraordinary gain				0.01			—			—			—			—
		Net loss per common share	$	(0.30	)	$	(1.03	)	$	(1.57	)	$	(2.14	)	$	(10.17	)
Balance Sheet Data:
Working capital			$	(29,251,249	)	$	(30,060,766	)	$	(1,318,640	)	$	(4,073,914	)	$	(2,955,180	)
Property and equipment, net				21,023,696			10,983,273			7,019,361			7,262,781			3,551,917
Net assets (liabilities) of discontinued operations				—			—			(82,629	)		417,371			595,377
Total assets				46,780,149			21,657,492			21,658,199			23,855,363			24,252,876
Long-term obligations				31,222,207			2,801,592			9,658,525			8,785,933			1,921,500
Stockholders' equity (deficit)				(36,997,854	)		(28,839,061	)		(11,049,897	)		(16,953,363	)		814,376

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        During 1997, we formed a wholly owned subsidiary, I-Link Worldwide, L.L.C. (Worldwide), through which we launched a network marketing channel to market our telecommunications services and products. On February 15, 2000, we signed a strategic marketing and channel agreement with Big Planet, a wholly owned subsidiary of Nu Skin Enterprises, Inc. Under the terms of the agreement, our independent network marketing sales force (the IRs) transitioned to Big Planet, and Big Planet was granted non-exclusive worldwide rights to market and sell our products and services through the network marketing (sometimes referred to as Multi-Level) sales channel to residential and small business users. Our other sales channels into the residential, small business, and other markets are unaffected by the agreement with Big Planet. The impact on the results of operations included a termination of marketing service revenues and marketing service costs effective February 15, 2000. Additionally, telecommunication service revenues decreased as we sold our services to the same subscribers through Big Planet at wholesale prices. The reduction in telecommunications service revenues was partially offset by a reduction in commissions paid to IRs related to telecommunication services revenues.

        On April 17, 2001, we acquired WebToTel Incorporated and its subsidiaries (including Nexbell Communications Inc.) in a stock for stock transaction. However, as WebToTel (which was a subsidiary of Counsel) and I-Link were under common control of Counsel (the majority shareholder of I-Link) as of March 1, 2001 (the date Counsel obtained its ownership in I-Link), we have accounted for the acquisition on an accounting method consistent with the pooling-of-interests method of accounting as of March 1, 2001. Accordingly, we have included the financial results of WebToTel and its subsidiaries subsequent to March 1, 2001. See "Results of Operations".

        On June 4, 2001, I-Link Incorporated, through its wholly owned subsidiary WorldxChange Corp. (WorldxChange), purchased certain assets and assumed certain liabilities of WorldxChange Communications, Inc. from a bankruptcy proceeding. WorldxChange is a facilities-based telecommunications carrier that provides international and domestic long-distance service to retail customers. Telecommunication services provided by WorldxChange consist primarily of a dial-around product that allows a customer to make a call from any phone by dialing a 10-10-XXX prefix.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Information

This report contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and information relating to I-Link that are based on management's exercise of business judgment as well as assumptions made by and information currently available to management. When used in this document, the words "anticipate," "believe," "estimate," "expect," and "intend" and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements.

        Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements. Several of these factors include, without limitation:

•

our ability to finance and manage expected rapid growth;



•

the impact of competitive services and pricing;



•

our ongoing relationship with our long distance carriers and vendors;

17

•

our ability to meet our usage commitments with carriers;



•

our dependence upon key personnel;



•

subscriber attrition;



•

the adoption of new, or changes in, accounting principles;



•

legal proceedings;



•

federal and state governmental regulation of the long distance telecommunications and internet industries;



•

our ability to maintain, operate and upgrade our information systems network;



•

our success in deploying our Communication Engine network in internet telephony;



•

the demand for and acceptance of our products and services (including but not limited to dial-around service and One-Number service (formerly V-Link™ One Number);



•

our ability to efficiently integrate our recent acquisitions;



•

the migration of subscribers from a retail billing basis to a wholesale billing basis;



•

other risks referenced from time to time in our filings with the SEC.

        We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.

Results of Operations

        When reviewing the operating results for 2001 compared to 2000, and 2000 compared to 1999, it is important to note three significant changes in our operations that occurred in 2001 and 2000. Namely:

1.

Prior to February 15, 2000, our telecommunication and marketing service revenues were primarily dependent upon the sales efforts of independent representatives (IRs) functioning within a network marketing channel of distribution which targeted residential users and small businesses in the United States. These revenue sources depended directly upon the efforts of IRs. IRs personally solicited potential residential and business customers via one-to-one sales presentations. At the conclusion of the sales presentations, customers would sign order forms for our telecommunication products and services (telecommunication service revenues). IRs received commissions based upon sales of our products and services to customers who became our subscribers. Additionally revenues from the network marketing channel prior to February 15, 2000 were recorded at retail rates whereas after that date the same sales to the end-users were recorded at a wholesale rate.

On February 15, 2000, the nature of our telecommunication services revenues and marketing service revenues relating to the network-marketing channel were significantly changed. On that date we signed a strategic marketing and channel agreement with Big Planet, a wholly owned subsidiary of Nu Skin Enterprises, Inc. Under terms of the agreement, I-Link's IRs transitioned to Big Planet, and Big Planet was granted rights to market and sell our products and services through the network marketing (sometimes referred to as Multi-Level) sales channel to residential and small business users. Our other sales channels into the residential, small business, and other markets were unaffected by the agreement with Big Planet. This agreement had two significant impacts on our gross revenues.

•

telecommunication service revenues decreased as we sold our services to the same subscribers through Big Planet at wholesale prices. Even though our billed minutes increased in 2000 as compared to 1999, revenues decreased due to the transition to wholesale rates. The reduction in

18

telecommunications service revenues was partially offset by a cessation of commissions paid to IRs related to telecommunication services revenues, and

•

marketing service revenues and marketing service costs ceased effective February 15, 2000.

        As a result of this agreement with Big Planet, we ended our involvement in the network-marketing channel and Big Planet became our single largest customer.

2.

We acquired WebToTel Incorporated and its subsidiaries (including Nexbell Communications Inc.) in a stock for stock transaction on April 17, 2001. However, as WebToTel and I-Link were under common control of Counsel as of March 1, 2001 (the date Counsel obtained its ownership in I-Link), we have accounted for the acquisition on an accounting method consistent with the pooling-of-interests method of accounting as of March 1, 2001. Accordingly, we have included the financial results of WebToTel and its subsidiaries subsequent to March 1, 2001.

3.

On June 4, 2001 WorldxChange completed the purchase of certain assets and liabilities of WorldxChange Communication, Inc. WorldxChange continues to offer the dial-around telecommunications product, which WorldxChange Communications, Inc. had previously offered. We did not offer a comparable product prior to June 4, 2001.

Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000

Revenues

        Telecommunications service revenue increased $56,587,009 to $74,887,557 in 2001 as compared to $18,300,548 in 2000. The increase is primarily due to three events, namely:

(1)

revenues of $50,288,917 related to WorldxChange which was acquired in June 2001;

(2)

recognition of previously reported unearned revenue related to a prepayment from Red Cube. According to the terms of the agreement, Red Cube was to use services related to the prepayment prior to June 30, 2001. Unused services as of June 30, 2001 were approximately $9,543,000. As the Company has no further obligation under the prepayment arrangement, the $9,543,000 was recognized as revenue as of June 30, 2001. We do not expect any significant revenues from Red Cube in the future; and

(3)

revenues of $3,104,000 (representing revenues from March to December of 2001) related to Nexbell Communications Inc.'s (Nexbell) METS product that we acquired in the WebToTel acquisition. In the fourth quarter of 2001, we approved a plan to discontinue offering the METS product and accordingly the revenue source will not continue into 2002.

        These increases in telecommunications services revenues were offset by decreases in revenue of approximately $6 million, which was primarily related to the transition of our network-marketing channel to Big Planet in February 2000. The decline in revenue related to Big Planet was due to a decrease in revenues related to the transitioning of our former network marketing channel from a retail channel to a wholesale channel and a continued decline in the number of subscribers with Big Planet.

        Marketing services revenue, which included revenue primarily from independent representatives for promotional and presentation materials and ongoing administrative support decreased $463,740 to $0 in 2001 as compared to $463,740 in 2000. The decrease was a result of transition of this network-marketing channel to Big Planet in February 2000, which caused marketing service revenues to cease.

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        Technology licensing and development revenue decreased $3,275,935 to $5,696,893 in 2001 as compared to $8,972,828 in 2000. During 2001 and 2000, the revenues were primarily from a $10,000,000 licensing agreement in May 2000 between Red Cube and I-Link that is being recorded over a twenty-four month period. Accordingly, $5,000,000 and $3,333,333 were recorded in 2001 and 2000, respectively. As of December 31, 2001, the unearned balance of $1,666,667 has been recorded as unearned revenue. During 2001, we licensed our platform and I-Link™ One Number technology to a company for use in Korea. Revenues from the sale are recognized over the expected life of the contract and accordingly we recognized $680,000 in 2001. During 2000, revenues of $4,000,000 were recorded related to two licensing agreements that did not recur in 2001. The additional overall decrease in technology licensing revenue was due to other licensing agreements in 2000 that did not recur in 2001. As of December 31, 2001, we had unearned revenue of $1,986,675 which will be recognized as revenue in 2002. Technology licensing revenue will vary from year to year based on timing of technology licensing and development projects and payments.

        Other revenues in 2001 decreased $641,454 to $2,025,585 as compared to $2,667,039 in 2000. During 2000, other revenues also included royalties of $400,000 from the sale of Indavo units to a company that did not use the Indavo units over the I-Link Network. There were no comparable sales of Indavo in 2001 nor do we expect any future revenues from the Indavo product. Decreases in other revenues relating to customer care, billing and accounts receivable services performed for our single largest customer accounted for the balance of the decrease in other revenues. Revenues from these types of services vary from period to period based upon services requested.

Operating costs and expenses

        Telecommunication network expense increased $37,693,907 in 2001 to $62,652,227 as compared to $24,958,320 for 2000. These expenses include the costs related to the continuing development and deployment of our communication network and expenses related to the generation of telecommunication service revenue. The primary increase was related to inclusion of network expense ($36,009,197) related to the dial-around business that we began to offer June 4, 2001 when we acquired certain assets and liabilities of WorldxChange Communications, Inc. The remaining increase in telecommunication network expense was due to the inclusion of the expense associated with the METS product in 2001 in addition to increased expenses in 2001 related to the network build-out that began in late 2000. In late 2001 we determined it was not economically justifiable to continue to maintain a significant part of our fixed network, specifically, leased lines for origination and termination from our backbone network. Instead of using these leased lines for origination and termination, it was determined that given current revenue levels, it would be more economical to originate and terminate traffic on our subsidiary's (WorldxChange) network which we began to do in late 2001 and anticipate that transition will be completed in April 2002. We anticipate that this transition will result in net savings in network expenses of $400,000 to $600,000 per month beginning in April 2002.

        Marketing service costs decreased $456,354 to $0 in 2001 as compared to $456,354 for 2000. The decrease in expense is directly related to the transition of the network-marketing channel to Big Planet Inc. in February 2000, which resulted in the cessation of marketing service revenues and accordingly the related expenses.

        Selling, general and administrative expense increased $18,482,715 to $36,836,446 in 2001 as compared to $18,353,731 in 2000. The primary components of the net increase were additional selling, general and administrative cost of approximately $20,366,000 related to the WorldxChange dial-around business that began June 4, 2001. Further increases relating to WebToTel were offset by a reduction in other corporate expenses relating to the workforce reductions in January, May and December of 2001 including reduction in facilities, materials, etc. and other cost cutting measures instituted by management. The effect of the workforce reductions at I-Link in 2001and the sale of Nexbell in

20

December in 2001 will serve to further reduce non-WorldxChange selling, general and administrative expenses in 2002.

        The provision for doubtful accounts increased $3,953,522 to $4,066,690 in 2001 as compared to $113,168 in 2000. The increase was directly due to necessary provisions for doubtful accounts associated with two sources of revenues. During 2001 we recorded an allowance for accounts receivable from a major customer in the amount of $975,000 due to the termination of their agreement and pending arbitration. Additional reserves of $2,861,000 were recorded related to commencement of WorldxChange's dial-around business on June 4, 2001. Further increases relate to the WebToTel (primarily the METS product) acquisition included in our financial statements after March 1, 2001.

        Depreciation and amortization increased $3,717,472 to $10,116,790 in 2001 as compared to $6,399,318 in 2000. The increase is primarily due to depreciation of $2,286,150 relating to WorldxChange assets and $1,066,000 from amortization of goodwill acquired in the WebToTel acquisition.

        Research and development decreased $1,887,740 to $2,332,593 in 2001 as compared to $4,220,333 in 2000. The decrease was primarily a result of our decision to consolidate our research operations at our headquarters in Draper, Utah and to curtail research and development activities in 2001 in order to concentrate our financial resources on sales and marketing of existing products. Research and development is expected to be less in 2002 than in 2001 as we continue to focus our financial resources on sales and marketing of existing products.

        During the third quarter of 2001, we performed a review of the products we offer and their contribution to our Company and our overall strategy. As of September 30, 2001, our analysis determined that it was not economically justified to continue to maintain a portion of the Company's network related to leased lines used for local access origination and Nexbell's METS product. Accordingly, we performed an impairment analysis of the goodwill recorded in connection with the acquisition of WebToTel and subsidiaries. The analysis was performed in response to projected losses on the METS product acquired in the WebToTel acquisition. Additionally, subsequent to September 30, 2001, the Board of Directors approved a plan to discontinue offering the METS product. As a result of this review, an $8,040,054 impairment charge was recorded during the third quarter.

Other income (expense)

        Interest expense increased $3,271,960 to $4,774,636 in 2001 as compared to $1,502,676 in 2000. We recorded non-cash interest expense of $1,518,443 in 2001 related to the amortization of a beneficial conversion feature on convertible debt with Counsel and amortization of the discount related to the value of warrants issued to Counsel in connection with a loan. In addition to the non-cash interest, WorldxChange's debt accounted for interest of approximately $1,233,000 on debt to Counsel, capital leases and a revolving credit facility. Interest on other debt increased approximately $520,000 as a result of increased average balances of debt outstanding, primarily on debt to Counsel.

        Interest and other income decreased $406,117 to $81,015 in 2001 as compared to $487,132 in 2000. The decrease was primarily due to a decrease in the average balance of cash on hand in 2001 as compared to 2000.

        In December 2001 and subsequent to the time we recorded the impairment of goodwill charges related to Nexbell as discussed above, we sold our subsidiary Nexbell to an unrelated party. The sale was a sale of Nexbell's stock and accordingly the assets and liabilities of Nexbell were assumed by the purchaser with no further financial obligation on our part. At the time of the sale, the liabilities exceeded the assets of Nexbell and accordingly we have recorded a gain on sale of subsidiary in the amount of $588,943 (the amount by which the liabilities of Nexbell exceeded its assets).

21

        A settlement expense of $639,565 was recorded in 2000. This expense is the result of an obligation to issue 129,519 shares of common stock in exchange for certain trading restrictions imposed on JNC Opportunity Fund Ltd. (JNC) in relation to the common stock to be issued to JNC pursuant to a settlement and release agreement entered into in February 2000. There was no comparable expense in 2001.

Extraordinary gain

        An extraordinary gain on extinguishment of debt was recorded in the fourth quarter of 2001. In the third quarter of 2001, Nexbell was in default on two leases and at the time of settlement we were liable for $1,272,818. As the liability was settled for $180,000 in the fourth quarter of 2001, we recorded the extraordinary gain in the amount of $1,092,818.

Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999

Revenues

        Net operating revenue in 2000 and 1999 included three primary sources of revenue which were: (1) telecommunications service; (2) marketing services which began in June 1997 (and terminated in February 2000—see "Results of Operations" above) and included revenues from the network marketing channel, including revenues from independent representatives for promotional and presentation materials and national conference registration fees; and (3) technology licensing and development revenues related to communications software that supports multimedia communications over PBX, LAN's and the Internet. In 2000, we also had revenues from other sources including customer services such as billing, accounts receivable processing, customer care and special consulting services which were primarily associated with the transition of the network marketing channel to Big Planet in the first quarter of 2000.

        Telecommunication service revenues decreased $8,139,469 to $18,300,548 in 2000 as compared to $26,440,017 in 1999. The decrease is a direct result of the agreement with Big Planet effective February 15, 2000. Before February 15, 2000, our telecommunication services revenues were primarily dependent upon the sales efforts of IRs functioning within a network-marketing channel of distribution. These revenue sources were recorded at retail. Under terms of the Big Planet agreement, our independent network marketing sales force transitioned to Big Planet. This resulted in a substantial decrease in telecommunication services revenues for the year 2000 as revenues from subscribers migrating from retail sales to the sale of services to the same subscribers through Big Planet at wholesale prices. While a significant portion of the revenues converted to wholesale, we retained a portion of Big Planet's subscriber base on a retail-billing basis, for which Big Planet is paid a commission. Revenues billed to customers of Big Planet have decreased due to the decline in rate per minute billed of approximately 32% due to the transition from retail to wholesale, combined with a decrease in subscriber base and lower than expected new subscriber acquisitions. Big Planet accounted for 46% of our telecommunication services revenue in the fourth quarter of 2000. Part of the decrease in telecommunications services revenues billed through Big Planet, our largest wholesale customer, was offset by $3,230,000 in revenues generated from Gatelink partners primarily in the last half of 2000. The percentage of telecommunication services revenue from our second largest customer during the fourth quarter was 32%.

        Marketing services revenue, which included revenue from independent representatives for promotional and presentation materials, WebCentre, and ongoing administrative support decreased $3,209,248 to $463,740 in 2000 as compared to $3,672,988 in 1999. The decrease was the result of the transition of this network-marketing channel to Big Planet in February 2000. With this transition, marketing service revenues ceased.

22

        Technology licensing and development revenue increased $6,466,127 to $8,972,828 in 2000 as compared to $2,506,701 in 1999. Revenue from this source will vary from year to year based on timing of technology licensing and development projects and royalties from products previously licensed. During 2000, our increase in these revenues stemmed primarily from the following sources:

1.

we entered into two licensing agreements that resulted in revenues of nearly $4,000,000, and



2.

on May 9, 2000, we entered into an agreement with Red Cube under which Red Cube paid us an aggregate sum of $10,000,000 comprised of a $7,500,000 licensing fee and $2,500,000 for consulting services. The total of $10,000,000 is being recorded as income ratably over a twenty-four month period. Accordingly, $3,333,333 was recorded as technology licensing revenue in 2000 while the balance of $6,666,667 was recorded as unearned revenue as of December 31, 2000.

        Other revenues in 2000 of $2,667,039 includes $2,203,693 relating to customer care, billing and accounts receivable services performed for wholesale customers. During 2000, other revenues also included royalties of $400,000 from the sale of Indavo units through a distributor to a company that will not use the Indavo units over our network.

Operating costs and expenses

        Telecommunications network expenses increased $4,585,111 to $24,958,320 in 2000 as compared to $20,373,209 in 1999. The increase is related to the costs of continuing development and deployment of our communication network and expenses related to the telecommunication service revenue. While variable costs per minute remained comparable to 1999 variable costs, fixed costs increased as we continued to build our RTIP network. While network costs associated with telecommunications services revenues increased, the transition from retail to wholesale-based revenues resulted in decreased per minute revenue. However, we continued to incur the same network costs.

        Marketing services costs decreased $4,943,795 to $456,354 in 2000 as compared to $5,400,149 in 1999. These costs directly relate to our marketing services revenue that began late in the second quarter of 1997 and include commissions and the costs of providing promotional and presentation materials and ongoing administrative support of the network-marketing channel. When we transferred this network-marketing channel to Big Planet in February 2000, marketing service costs ceased.

        Selling, general and administrative expenses increased $5,924,775 to $18,353,731 in 2000 as compared to $12,428,956 in 1999. In 2000, we added significant infrastructure in the form of employees and facilities in anticipation of fulfilling obligations to various business partners including Red Cube. The increase in 2000 expenses was partly a result of the cost of this added infrastructure. In 2000, we also entered into various transactions that contributed to this increase in the form of increased outside services. In January 2001, we had a strategic work force reduction in order to reduce overhead and streamline operations.

        The provision for doubtful accounts decreased $3,589,908 to $113,168 in 2000 as compared to $3,703,076 in 1999. The decrease is directly related to two items:

(1)

the transitioning of the network marketing channel subscribers to Big Planet in February 2000. With the transition, Big Planet assumed the risk of collections from individual subscribers, thus resulting in a reduced provision for the remainder of 2000 as compared to the same period of 1999.



(2)

during the third quarter of 2000 we settled a lawsuit wherein we sued a former wholesale customer for non-payment of its bills. Prior to 2000, we had written off the receivable from this customer. Upon settling that lawsuit, we received $300,000 for past billings, which amount reduced our provision for doubtful accounts in 2000.

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        Depreciation and amortization increased $916,679 to $6,399,318 in 2000 as compared to $5,482,639 in 1999. The increase is primarily associated with increased expenditures related to continued expansion of our RTIP Network.

        In 1999 we recorded a write-down of capitalized software costs of $1,847,288 which did not recur in 2000.

        Research and development costs increased $1,583,592 to $4,220,333 in 2000 as compared to $2,636,741 in 1999. The increase is associated with our telecommunication network research and development efforts and development of new products and technologies.

Other income (expense)

        Interest expense decreased $3,583,465 to $1,502,676 in 2000 as compared to $5,086,141 in 1999. Interest expense in 1999 was significantly greater than in 2000 due to the accretion of debt discount (non-cash expense of $3,125,000 in 1999) related to certain warrants granted in connection with $8,000,000 in loans from Winter Harbor. In 1999, there was also $627,000 of interest expense on other debt instruments that were converted to equity in 1999.

        Interest and other income increased $307,927 to $487,132 in 2000 as compared to $179,205 in 1999. The increase was primarily due to interest earned in 2000 on higher average cash balances on hand during 2000 as compared to 1999.

        A settlement expense of $639,565 was recorded in 2000. This expense is the result of an obligation to issue 129,519 shares of common stock in exchange for trading restrictions imposed on JNC Opportunity Fund Ltd. (JNC) in relation to the common stock to be issued to JNC pursuant to a settlement and release agreement entered into in February 2000. The settlement and release agreement settled litigation between JNC and us over unconverted Series F preferred stock held by JNC. The amount of this expense was based upon the market price of our common stock on May 24, 2000 when the common stock was issued. There was no comparable expense in 1999.

Liquidity and Capital Resources

        Cash and cash equivalents as of December 31, 2001 were $4,662,532 and the working capital deficit was $29,251,249 (which includes debt to our parent company, Counsel, of $17,540,140 and deferred revenue of $1,986,675). Cash used in operating activities during 2001 was $29,282,791 compared to cash provided by operations of $1,869,355 in 2000 and cash used in operations of $10,381,925 in 1999. The decrease in cash provided by operating activities in 2001 compared to 2000 was primarily due to an increase in our net loss and the difference in cash receipts and revenue recognition related to unearned revenue. The increase in cash from operations in 2000 as compared to 1999 was primarily due to $20,000,000 received from Red Cube for licensing and prepayment for future services, of which $16,552,259 remained as unearned revenues at December 31, 2000.

        Net cash used by investing activities in 2001 was $15,410,328 as compared to $6,881,466 in 2000 and $1,585,299 in 1999. The net increase in cash used by investing activities in 2001 as compared to 2000 was primarily due to a $13,681,000 purchase of WorldxChange assets, which purchase was offset by a reduction in the purchase of furniture, fixtures, equipment and software of $4,947,888. Additionally, we received $233,787 in cash as part of the WebToTel acquisition, which was a stock-for-stock transaction. The net increase in cash used by investing activities in 2000 as compared to 1999 was due to an increase in purchases of furniture, fixtures equipment and software of $4,863,055 and a decrease of $412,649 in cash flows from maturing restricted certificates of deposit and $20,463 from discontinued operations.

        Financing activities in 2001 provided net cash of $47,200,023 as compared to $4,171,735 in 2000 and $13,594,301 in 1999. Cash provided in 2001 included net cash borrowings from notes payable to a

24

related party (Counsel) of $41,420,320 and net borrowing from a revolving line of credit of $6,996,604. Additionally, I-Link received $15,579 from the sale of I-Link common stock under its employee stock purchase plan. During 2001 we repaid $1,232,480 in long-term debt and capital lease obligations. Cash provided in 2000 included $4,341,659 from exercise of options and warrants and employee purchases under the employee stock purchase plan. During 2000, we repaid $145,720 in long-term debt and capital lease obligations and used $24,204 in our discontinued operations. Cash provided in 1999 included $8,200,000 from long-term debt, $7,116,408 net proceeds from the sale of preferred stock and $5,000 from the exercise of stock options and warrants. During 1999, we repaid $1,727,107 of long-term debt and capital lease obligations.

        We incurred a net loss from continuing operations of $45,589,443 for the year ended December 31, 2001, and as of December 31, 2001 had an accumulated deficit of $166,763,782. We anticipate that revenues generated from our continuing operations will not be sufficient during 2002 to fund ongoing operations, the continued expansion of our private telecommunications network facilities, product development and manufacturing, and anticipated growth in subscriber base. As described below, several events have occurred in 2002 that affect our ability to obtain the additional necessary funds and reduce liabilities requiring funds for our continuing operations in 2002.

Current Position/Future Requirements

        During 2002, we plan to use available cash to fund the development and marketing of I-Link products and services. We anticipate that cash received related to revenues from all sources of continuing operations will grow in 2002 and will increasingly contribute to meeting our cash requirements. However, we anticipate that we will need financial resources in excess of cash from revenue sources from continuing operations. In late 2001, we determined it was not cost justifiable to maintain a significant part of our fixed network, specifically, the leased lines for call origination and termination from our backbone network. Instead of using these leased lines for origination and termination, it was determined that, given current revenue levels, it would be more economical to originate and terminate traffic on our subsidiary's (WorldxChange) network, which we began to do in late 2001. We anticipate the transition will be completed in April 2002, and that this transition will result in monthly net savings of $400,000 to $600,000 per month beginning in April 2002. In addition to the anticipated cost savings, Counsel Corporation and its subsidiary Counsel Springwell Communications LLC have committed to fund, through long-term inter-company advances or equity contribution, all capital investment, working capital or other operational cash requirements of I-Link through April 15, 2003.

        While we believe that the aforementioned sources of funds will be sufficient to fund operations into 2002, we anticipate that additional funds will be necessary from public or private financing markets to successfully integrate and finance the planned expansion of our business communications services, product development and manufacturing, and to discharge our financial obligations. The availability of these capital sources will depend on prevailing market conditions, interest rates, and our financial position and results of operations. There can be no assurance that such financing will be available, that we will receive any additional proceeds from the exercise of outstanding options and warrants or that we will not be required to arrange for additional debt, equity or other financing.

Other Items

Recent Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the

25

pooling-of-interests method. We believe that the adoption of SFAS 141 will not have a significant impact on our financial statements.

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which is effective for fiscal years beginning after December 15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. We believe that the adoption of SFAS 142 will not have a significant impact on our financial statements.

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," effective for years beginning after June 15, 2002. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. We believe that the adoption of SFAS 143 will not have a significant impact on our financial statements.

        In August 2001, the FASB issued the SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 addresses financial accounting and reporting for the disposal of long-lived assets. SFAS 144 is effective for fiscal years beginning after December 15, 2001. We believe that the adoption of SFAS 144 will not have a significant impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

        Our exposure to market risk is limited to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Our cash equivalents are invested with high quality issuers and limit the amount of credit exposure to any one issuer. Due to the short-term nature of the cash equivalents, we believe that we are not subject to any material interest rate risk. We did not have any foreign currency hedges or other derivative financial instruments as of December 31, 2001.

        We do not enter into financial instruments for trading or speculative purposes and do not currently utilize derivative financial instruments. Our operations are conducted primarily in the United States and as such are not subject to material foreign currency exchange rate risk.

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Item 8. Financial Statements.

        See Consolidated Financial Statements beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        None

PART III

Item 10. Directors, Executive Officers, Promoters, and Control Persons; Compliance with Section 16(a) of the Exchange Act.

        As of March 14, 2002, the Board of Directors had seven members. Our Articles of Incorporation, as amended, provide that the Board of Directors be divided into three classes and that each director shall serve a term of three years. The term of office of Mr. Wasserson and Mr. Shimer, both Class I directors will expire at the 2002 annual shareholder's meeting. The term of office of Messrs. Toh, Heaton and Silber, Class II directors, will expire at the 2003 annual meeting of shareholders. The term of office of Mr. Chirite and Mr. Reichmann, the Class III directors, will expire at the annual meeting of shareholders in 2004.

        Biographical information with respect to the present executive officers, directors, and key employees are set forth below. There are no family relationships between any present executive officers and directors.

Name	Age (1)	Title
Allan C. Silber	52	Chairman of the Board
Helen Seltzer	56	President and CEO (effective January 3, 2002)
Frank Williams	45	Executive Vice President
John Rufener	54	Vice President of Sales
Alex Radulovic	32	Vice President of Technology
Gary J. Wasserson	45	President of WorldxChange and Director
Samuel L. Shimer	38	Director
Henry Y.L. Toh	43	Director
Albert Reichmann	72	Director
Norman Chirite	40	Director
Hal B. Heaton	51	Director

(1)

As of December 31, 2001

        Allan C. Silber, Chairman of the Board. Mr. Silber was elected to the Board of Directors as a Class II director in September 2001 and appointed as chairman of the board in November 2001. Mr. Silber is the chairman and CEO of Counsel Corporation, which he founded in 1979. Mr. Silber attended McMaster University and received a Bachelor of Science degree from the University of Toronto.

        Helen Seltzer, President and CEO. Ms. Seltzer joined I-Link as its President and CEO on January 3, 2002. Prior to joining I-Link, Ms. Seltzer was President, Chief Operating Officer and a Board Member of Messageclick from 1999 to 2001, a company which provided IP messaging solutions for telecommunication providers and enterprises. From 1997 to 1999, Ms. Seltzer was the President of BDM Technologies, an integrated software systems support firm and before that she served as Vice President. From 1994 to 1997, Ms. Seltzer was Vice President of marketing for Bell Atlantic where she

27

oversaw management of Bell Atlantic's access operating unit. Ms. Seltzer also brings with her fourteen years of executive management experience with MCI.

        Frank Williams, Executive Vice President. Mr. Williams brought 19 years telecommunications and information systems management experience to I-Link when he joined us in September 2000. Prior to joining I-Link, Williams was Chief Information Officer of Tellepsen Corporation, a Houston-based diversified construction services company from 1999 to 2000. He worked at Splitrock Services, Inc. as VP Network Operations from 1998 to 1999. From 1991 to 1998 Mr. Williams was Executive Director of the National Technical Resource Center of Williams Communications Solutions. He holds a bachelor of business administration degree from Trinity University in San Antonio, Texas.

        John Rufener, Vice President of Sales. Mr. Rufener joined I-Link as our Vice President of Sales in May 2001. Mr. Rufener was Vice President of Marketing for William Communications in Houston, a fiber communications and hardware company, until 1998. He joined US West (now Qwest) in 1998 as Director of Emerging Markets, a position responsible for the introduction of new technologies. In 1999, Mr. Rufener assumed major markets responsibility for US West in the states of Nebraska, Iowa and South Dakota. On retirement from US West, Mr. Rufener served as Vice President of Sales for Convergent Technologies from September 2000 to May 2001.

        Alex Radulovic, Vice President of Technology. Mr. Radulovic has considerable Internet and telecommunications development experience. He has been employed by I-Link since February 1996. Previously, he was a consultant to IBM for a wide range of AIX Communications projects and was also a development engineer for Novell's NetWare 386-network operating system. Mr. Radulovic is a co-developer of our patent-pending technology.

        Gary J. Wasserson, Director. Mr. Wasserson was appointed by the Board of Directors as a Class I director on April 15, 2001 to fill a board vacancy. In May 2001, Mr. Wasserson was appointed CEO of I-Link which position he held until his resignation in December 2001. In June 2001, Mr. Wasserson became President and CEO of WorldxChange. From 1999 to October 31, 2001, he was been President and Chief Executive Officer of Counsel Communications LLC and since November 1, 2001 he has been a Managing Director of Counsel Corporation (US)). From 1997 to 1999, he was President and Chief Executive Officer of Call Sciences™/Virtel™, a major provider of enhanced telecommunications services deliverable over global intelligent networks. From 1992 to 1997, he was one of the founders of the Pre-Paid Calling Card Industry and served as Chief Executive Officer of Global Links/GTS, a company instrumental in creating the calling card industry trade association and its regulatory initiatives within the industry. Mr. Wasserson holds a Bachelor's degree from Babson College.

        Samuel L. Shimer, Director. Mr. Shimer was appointed by the Board of Directors as a Class I director on April 15, 2001 to fill a board vacancy. From 1997 to present he has been employed by Counsel Corporation, serving as a Managing Director since 1998. Mr. Shimer is currently serving as a director of Counsel Springwell Communications LLC, Counsel's communications merchant banking affiliate. He also is a director of SAGE BioPharma, another Counsel portfolio company. From 1991 to 1997, Mr. Shimer worked at two merchant banking funds affiliated with Lazard Frères & Co., Centre Partners and Corporate Partners, ultimately serving as a Principal. Mr. Shimer earned a Bachelor of Science in Economics degree from The Wharton School of the University of Pennsylvania, and an MBA from Harvard Business School.

        Henry Y.L. Toh, Director. The Board of Directors elected Mr. Toh as a Class II director and as Vice Chairman of the Board of Directors in April 1992. Mr. Toh became President of I-Link in May 1993, Acting Chief Financial Officer in September 1995 and Chairman of the Board in May 1996, and served as such through September 1996. Mr. Toh has served as a director of National Auto Credit, Inc. (an originator of sub-prime automobile financing) from 1998 through the present and Teletouch Communications, Inc., a retail provider of internet, cellular and paging services, beginning in

28

November 2001. He is also a director of Four M International Inc., a private investment firm. He is a graduate of Rice University.

        Albert Reichmann, Director. Mr. Reichmann was elected to the Board of Directors as a Class III director in September 2001. From 1996 to present, Mr. Reichmann served as the Chairman and Chief Executive Officer of Heathmount A.E. Corporation, a company established for the creation and development of sports and amusement parks in North America and Asia. He is the Chairman of Olympia & York Developments Limited, a leading international commercial developer recognized for revitalization projects such as the World Financial Center in New York and Canary Wharf in London. Mr. Reichmann is internationally recognized for his humanitarian and charitable efforts which range from Armenian earthquake relief to medical relief for child victims of the Chernobyl nuclear disaster to arranging the first cabinet-level meetings between the governments of Israel and the Soviet Union since the end of the Six-Day War. Mr. Reichmann holds an honorary Degree of Laws from the Faculty of Administrative Studies of York University. Mr. Reichmann has served on the Steering Committee of York University's International Management Center located in Budapest, Hungary since 1988 and is an Advisor to its East-West Enterprise Exchange initiative. Mr. Reichmann is a founder of the Canada-USSR Business Council established in 1989 by intergovernmental agreement.

        Norman Chirite, Director. Mr. Chirite was elected to the Board of Directors as a Class III director in September 2001. Mr. Chirite is a managing director and member of the Board of Directors of Counsel Corporation. Prior to joining Counsel Corporation in May 2001, Mr. Chirite was Senior Vice President and General Counsel of Convergence Holdings Corp., a privately held marketing services and communications company based in Arlington, Virginia. From 1992 to 2000, Mr. Chirite was a partner in the Corporate Department of Weil, Gotshal & Manges LLP, an international law firm based in New York City, specializing in mergers & acquisitions, corporate finance and private equity transactions. Mr. Chirite also serves as a director of Iogen Corporation, a privately-held industrial biotechnology firm based in Ottawa, Ontario, Canada. Mr. Chirite received his Bachelor's and Juris Doctor degrees from the University of Michigan.

        Hal B. Heaton, Director. Dr. Heaton was appointed by the Board of Directors as a Class II director on June 14, 2000 to fill a board vacancy. From 1982 to present he has been a professor of Finance at Brigham Young University and between 1988 and 1990 was a visiting professor of Finance at Harvard University. Dr. Heaton is a director of MITY Enterprises, Inc., a publicly traded manufacturer of furniture in Orem, Utah. Dr. Heaton holds a Bachelor's degree in Computer Science/Mathematics and a Master's in Business Administration from Brigham Young University, a Master's degree in Economics and a Ph.D. in Finance from Stanford University.

        Each officer is chosen by and serves at the pleasure of the Board of Directors and holds his or her office until his or her successor shall have been duly chosen and qualified.

        Mr. Reichmann and Mr. Heaton were non-employee independent directors as of December 31, 2001.

        There are no material proceedings to which any director, officer or affiliate of our Company, any owner of record or beneficial owner of more than five percent of any class of voting securities, or any associate of any such director, officer, affiliate or security holder is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

Committees of the Board of Directors

        The Committees of the Board of Directors are as follow:

        Audit Committee.    The audit committee is responsible for making recommendations to the Board of Directors concerning the selection and engagement of independent certified public accountants and for reviewing the scope of the annual audit, audit fees, and results of the audit. The Audit Committee

29

also reviews and discusses with management and the Board of Directors such matters as accounting policies, internal accounting controls, and procedures for preparation of financial statements. Its membership is currently comprised of Mr. Heaton (chairman), Mr. Toh and one vacancy. The Audit Committee held five meetings during the last fiscal year.

        Compensation Committee.    The compensation committee reviews and approves the compensation for executive employees. Its membership is currently comprised of Mr. Heaton and two vacancies. The Compensation Committee held one meeting during the last fiscal year.

        Finance Committee.    The finance committee is responsible for reviewing and evaluating financing, strategic business development and acquisition opportunities. Its membership is currently comprised of Mr. Heaton and two vacancies. The Finance Committee held two meetings during the last fiscal year.

        Special Committee.    From time to time the Board of Directors establishes special committees to deal with non-recurring issues. A special committee was formed in January 2001 to advise the Board of Directors on matters relating to raising funds and capitalization issues. Mr. Bradford (a former director) was Chairman of the special committee and Messrs. Toh and Heaton were members. The special committee was disbanded in March 2001 after completion of the Winter Harbor and Counsel Communications transactions. See "Current Position/Future Requirements" and "Certain Relationships and Related Transactions."

        We do not have a nominating committee or any committee serving a similar function.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act) requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership of equity securities of I-Link with the Securities and Exchange Commission (SEC). Officers, directors, and greater than ten percent shareholders are required by the SEC regulation to furnish us with copies of all Section 16(a) forms that they file.

        Based solely upon a review of Forms 3 and Forms 4 furnished to us pursuant to Rule 16a-3 under the Exchange Act during our most recent fiscal year and Forms 5 with respect to our most recent fiscal year, we believe that some forms required to be filed pursuant to Section 16(a) of the Exchange Act were not timely filed, by certain of our officers and directors: Messrs. Chirite, Reichmann, Shimer, Silber and Wasserson were each late filing their respective Forms 3 upon election to the Company's Board of Directors. All other required forms were filed timely by each of the Company's officers and directors during the fiscal year ended December 31, 2001.

Item 11. Executive Compensation

        The following table sets forth the aggregate cash compensation paid for services rendered during the last three years by each person serving as our Chief Executive Officer during the last year and our

30

five most highly compensated executive officers serving as such at the end of the year ended December 31, 2001, whose compensation was in excess of $100,000.

					Long-Term Compensation
					Awards
	Annual Compensation						Payouts($)
						Securities Underlying Options/ SARs(#)
Name and Principal Position	Year	Salary($)	Bonus($)	Other Annual Compensation($)	Restricted Stock Awards($)		LTIP Payouts	All Other Compensation($)
Gary J. Wasserson(1) Former CEO of     I-Link; CEO of     WorldxChange	2001 2000 1999	150,000 — —	— — —	— — —	— — —	— — —	— — —	— — —
John W. Edwards(2)	2001 2000 1999	75,000 225,000 201,115	— — —	— — —	— — —	25,000 25,000 230,000	150,000 — —	341 2,275 —
Frank Williams(3) Executive VP	2001 2000 1999	157,000 51,266 —	— — —	— — —	— 60,000 —	— — —	— — —
John Rufener(4) VP Sales	2001 2000 1999	112,500 — —	— — —	— — —	100,000 — —	— — —	— — —
James Sas(5) VP of WorldxChange	2001 2000 1999	137,500 — —	25,000 — —	— — —	— — —	— — —	— — —
Alex Radulovic(6) VP Technology	2001 2000 1999	200,000 200,000 164,734	— — —	— — —	— — —	— 400,000 —	— — —	615 615 —

(1)

Mr. Wasserson began his employment with I-Link in May 2001 as President and CEO of I-Link and expanded his responsibilities to include serving as President and CEO of WorldxChange upon I-Link's acquisition of WorldxChange in June 2001. Mr. Wasserson resigned as President and CEO of I-Link in December 2001. Mr. Wasserson's annual salary was $225,000 during 2001 and continues at that rate into 2002.

(2)

Mr. Edwards began his employment in April 1996 and was appointed President and CEO as of September 30, 1996 and resigned as President in December 1999. He resumed his office as President in January 2001. Mr. Edwards employment was terminated in May 2001. Mr. Edwards was paid at an annual rate of $125,000 commencing January 1, 1998 even though Mr. Edward's salary was increased to $200,000 effective May 1997. This salary increase accrued but was not paid from May 1997 to April 1999. In April 1999, we began to pay his salary at the rate of $225,000. The deferred salary in the amount of $141,875 was paid during 2000. In 2000 we contributed $1,700 as a match to Mr. Edwards' 401K contribution and paid $1,025 in 2000 and $342 in 2001 on a life insurance policy. In 2001 Mr. Edwards was paid $150,000 under his severance agreement which agreement continues until September 2002 at the rate of $18,750 per month.

(3)

Mr. Williams became our employee on September 4, 2000. Mr. Williams served as Vice President of Operations until October 11, 2001 when he became Executive Vice President. Mr. Williams annual salary is $157,000.

(4)

Mr. Rufener became an employee on May 15, 2001 as Vice President of Sales. Mr. Rufener's base salary is $120,000 exclusive of commissions. Mr. Rufener is guaranteed a minimum commission of $60,000 per year.

(5)

Mr. Sas was a consultant to WorldxChange from June 15 to July 15, 2001 for which he was paid a $25,000 consulting fee. On July 15, 2001, Mr. Sas joined WorldxChange as its Vice President at an annual salary of $300,000 until March 31, 2002 when he left WorldxChange.

(6)

Mr. Radulovic's salary was $150,000 effective November 1998 and increased to $200,000 in October 1999. In 2001 and 2000 we paid $615 on a life insurance policy for Mr. Radulovic.

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Option/SAR Grants in Last Fiscal Year (2001)

        The following table sets forth certain information with respect to the options granted during the year ended December 31, 2001, for the persons named in the Summary Compensation Table (the Named Executive Officers):

Name	Number of Securities Underlying Options/SARs Granted (#)	Percent of Total Options/SARs Granted to Employees in Fiscal Year		Exercise or Base Price ($/Share)		Grant Date Value(1)		Expiration Date
Gary J. Wasserson	—	—			—		—	—
John W. Edwards	25,000	5	%	$	0.78	$	11,470	1/1/11
Frank Williams	—	—			—		—	—
John Rufener	100,000	20	%	$	0.60	$	35,210	5/15/11
James Sas	—	—			—		—	—
Alex Radulovic	—	—			—		—	—

(1)

Determined using the Black Scholes option-pricing model.

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

        The following table sets forth certain information with respect to options exercised during 2001 by the Named Executive Officers and with respect to unexercised options held by such persons at the end of 2001.

			Number of Securities Underlying Unexercised Options/SARs at FY-End (#)
					Value of Unexercised in the Money Options/SARs at FY-End ($)(1)
Name	Shares Acquired on Exercise (#)	Value Realized ($)
			Exercisable	Unexercisable	Exercisable	Unexercisable
Gary J. Wasserson	—	—	—	—	—	—
John W. Edwards	—	—	1,950,000	—	—	—
Frank Williams	—	—	25,000	35,000	—	—
John Rufener	—	—	16,666	83,337	—	—
James Sas	—	—	—	—	—	—
Alex Radulovic	—	—	1,300,000	100,000	—	—

(1)

Value ascribed to unexercised options at December 31, 2001 was minimal as the exercise price exceeded the closing bid price at December 31, 2001.

Director Compensation

        On the first business day in January each year prior to 2002, each director then serving was to receive an option to purchase 20,000 shares of common stock and for each committee on which the director serves an option to purchase 5,000 shares of common stock. The exercise price of such options is equal to the fair market value of the common stock on the date of grant. The directors are also eligible to receive options under our stock option plans at the discretion of the Board of Directors.

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        In 2002 the Board voted to only award options to the independent directors in accordance with the above described arrangement. In addition, each independent director will be paid $1,000 for each in-person board meeting attended and $500 for each telephonic board meeting attended.

        During 2001, Messrs. Toh and Heaton received $12,500 and $9,000, respectively, for services rendered as part of a special committee in early 2001.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

        On January 3, 2002, an agreement between Springwell Capital Corporation, I-Link, Counsel Springwell Communications LLC (the majority shareholder of I-Link Incorporated), Counsel Corporation and Helen Seltzer was executed to whereby Ms. Seltzer became I-Link's Chief Executive Officer (CEO). The term of the agreement is four years at an annual salary of $275,000 base and a minimum bonus of $137,500 and an additional bonus of up to $137,500 based upon performance criteria to be set by the board. In the event that I-Link becomes a wholly-owned subsidiary of Counsel Springwell Communications LLC, Counsel Springwell Communications LLC agrees that ten percent (10%) of the equity of I-Link, on a fully-diluted basis, but excluding equity in WorldxChange, will be reserved for issuance to the management of I-Link under an incentive plan to be proposed by Ms. Seltzer, subject to the approval of the board. Counsel Springwell Communications LLC further agrees that pursuant to such incentive plan, Ms. Seltzer shall be awarded two and one-half percent (2.5%) of the equity of I-Link on a fully-diluted basis, but excluding any equity in WorldxChange, and that, in the event Ms. Seltzer is reassigned to a position with an entity directly or indirectly controlled by Counsel Corporation other than I-Link, Ms. Seltzer will receive a similar equity opportunity in her new employment assignment.

        In addition to serving as CEO of I-Link, Ms. Seltzer agreed to serve as a member of the Management Executive Committee of Counsel Springwell Communications LLC. and has the right to participate in Counsel Corporation's 2001 Executive Stock Purchase Plan.

        On January 3, 2000, we entered into a three-year employment agreement with Alex Radulovic as Vice President Technology. Pursuant to the terms of the employment agreement Mr. Radulovic is required to devote substantially all of his working time to our business and affairs. Mr. Radulovic is entitled under his employment agreement to receive compensation at the rate of $200,000 per year and is entitled to a profitability bonus at the discretion of the Board of Directors and to participate in such fringe benefits as are generally provided to executive officers. In addition, Mr. Radulovic was granted options to purchase 400,000 shares of common stock at an exercise price of $2.75 per share based on the market price at the date of grant. Of such options, 33,333 vested immediately and the same amount vest and become exercisable on the first calendar day of each quarter beginning October 1, 1999. In the event of termination by I-Link or in the event of a violation of a material provision of the agreement by I-Link which is unremedied for thirty (30) days and after written notice, Mr. Radulovic is entitled to receive, as liquidated damages or severance pay, an amount equal to the Monthly Compensation (as defined in the corresponding agreement) for twelve months and all options shall thereupon be fully vested and immediately exercisable. The agreement contains non-competition and confidentiality provisions.

Compensation Committee Interlocks and Insider Participation

        Messrs. Heaton, Toh and Reichmann are non-employee directors of I-Link.

Director Stock Option Plan

        Our Director Stock Option Plan (the DSOP) authorizes the grant of stock options to our directors. Options granted under the DSOP are non-qualified stock options exercisable at a price equal to the

33

fair market value per share of common stock on the date of any such grant. Options granted under the DSOP are exercisable not less than six (6) months or more than ten (10) years after the date of grant.

        As of December 31, 2001, options for the purchase of 7,002 shares of common stock at prices ranging from $.875 to $3.875 per share were outstanding. As of December 31, 2001, options to purchase an aggregate of 31,623 shares of common stock were exercised. In connection with adoption of the 1995 Director Plans (as hereinafter defined) the Board of Directors authorized the termination of future grants of options under the DSOP; however, outstanding options granted under the DSOP will continue to be governed by the terms of the DSOP until the options are exercised or expire.

1995 Director Stock Option Plan

        In October 1995, our stockholders approved adoption of our 1995 Director Stock Option and Appreciation Rights Plan, which plan provides for the issuance of incentive options, non-qualified options and stock appreciation rights (the 1995 Director Plan).

        The 1995 Director Plan provides for automatic and discretionary grants of stock options which qualify as incentive stock options (the Incentive Options) under Section 422 of the Internal Revenue Code of 1986, as amended (the Code), as well as options which do not so qualify (the Non-Qualified Options) to be issued to directors. In addition, stock appreciation rights (the SARs) may be granted in conjunction with the grant of Incentive Options and Non-Qualified Options. No SARs have been granted to date.

        The 1995 Director Plan provides for the grant of Incentive Options and Non-Qualified Options to purchase up to 250,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits and other similar events). To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified in the 1995 Director Plan, it will expire as to the then-unexercised portion. If any Incentive Option or Non-Qualified Option terminates prior to exercise and during the duration of the 1995 Director Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1995 Director Plan for the grant of additional options or rights to any eligible employees. The shares of common stock subject to the 1995 Director Plan may be made available from either authorized but unissued shares, treasury shares, or both.

        The 1995 Director Plan also provides for the grant of Non-Qualified Options on a non-discretionary basis. Each option is immediately exercisable for a period of ten years from the date of grant. We have 190,000 shares of common stock reserved for issuance under the 1995 Director Plan. As of December 31, 2001, options exercisable to purchase 170,000 shares of common stock at prices ranging from $1.00 to $1.25 per share are outstanding under the 1995 Director Plan. As of December 31, 2001, options to purchase 60,000 shares have been exercised under the 1995 Director Plan.

1995 Employee Stock Option Plan

        In October 1995, the stockholders approved adoption of our 1995 Employee Stock Option and Appreciation Rights Plan (the 1995 Employee Plan), which plan provides for the issuance of Incentive Options, Non-Qualified Options and SARs.

        Directors are not eligible to participate in the 1995 Employee Plan. The 1995 Employee Plan provides for the grant of stock options which qualify as Incentive Stock Options under Section 422 of the Code, to be issued to officers who are employees and other employees, as well as Non-Qualified Options to be issued to officers, employees and consultants. In addition, SARs may be granted in conjunction with the grant of Incentive Options and Non-Qualified Options. No SARs have been granted to date.

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        The 1995 Employee Plan provides for the grant of Incentive Options and Non-Qualified Options of up to 400,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits and other similar events). To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then-unexercised portion. If any Incentive Option or Non-Qualified Option terminates prior to exercise thereof and during the duration of the 1995 Employee Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1995 Employee Plan for the grant of additional options or rights to any eligible employee. The shares of common stock subject to the 1995 Employee Plan may be made available from either authorized but unissued shares, treasury shares, or both. We have 400,000 shares of common stock reserved for issuance under the 1995 Employee Plan. As of December 31, 2001, options to purchase 302,000 shares of common stock have been granted under the plan and 145,250 were outstanding with an exercise price of $3.90 per share. As of December 31, 2001, 119,250 options have been exercised under the 1995 Employee Plan.

1997 Recruitment Stock Option Plan

        In October 1997, our stockholders approved adoption of the 1997 Recruitment Stock Option and Appreciation Rights Plan, which plan provides for the issuance of incentive options, non-qualified options and SAR's (1997 Plan).

        The 1997 Plan provides for automatic and discretionary grants of Incentive Options and Non-Qualified Options under the Code. In addition SARs may be granted in conjunction with the grant of Incentive Options and Non-Qualified Options. No SARs have been granted to date.

        The 1997 Plan, as amended in 2000, provides for the grant of Incentive Options and Non-Qualified Options to purchase up to 7,400,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits and other similar events). The price at which shares of common stock covered by the option can be purchased is determined by our Board of Directors; however, in all instances the exercise price is never less than the fair market value of our common stock on the date the option is granted. To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then unexercised portion. If any Incentive Option or Non-Qualified Option terminates prior to exercise thereof and during the duration of the 1997 Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1997 Plan for the grant of additional options or rights. The shares of common stock subject to the 1997 Plan may be made available from either authorized but unissued shares, treasury shares, or both. As of December 31, 2001, options to purchase 5,843,563 shares of common stock have been granted under the plan and 2,882,382 were outstanding with exercise prices of $0.27 to $13.88 per share. As of December 31, 2001, 411,420 options have been exercised under the 1997 Plan.

2000 Employee Stock Purchase Plan

        In October 2000, the stockholders of I-Link approved adoption of I-Link's 2000 Employee Stock Purchase Plan which plan provides for purchase and issuance of common stock. (the Stock Purchase Plan).

        The purpose of the Stock Purchase Plan is to induce all eligible employees of I-Link (or any of its subsidiaries) who have been employees for at least three months to encourage stock ownership of I-Link by acquiring or increasing their proprietary interest in I-Link. The Stock Purchase Plan is designed to encourage employees to remain in the employ of I-Link. It is the intention of I-Link to have the Stock Purchase Plan qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Code.

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        The Stock Purchase Plan provides for the purchase of common stock in the aggregate, up to 2,500,000 shares of common stock (which number is subject to adjustment in the event of stock dividends, stock splits and other similar events). As of December 31, 2001, 58,012 shares of common stock had been purchased under the Stock Purchase Plan.

2001 Stock Option and Appreciation Rights Plan

        In September 2001, the shareholders of the Company approved the 2001 Stock Option and Appreciation Rights Plan which provides for the issuance of incentive stock options, non-qualified stock options and stock appreciation rights (SARs) up to an aggregate of 14,000,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events). The price at which shares of common stock covered by the option can be purchased is determined by the Company's Board of Directors or its committee; however, in the case of incentive stock options the exercise price shall not be less than the fair market value of the Company's common stock on the date the option is granted. There were no options granted under this plan in 2001.

Changes in Control

        On March 1, 2001, Counsel Communications LLC (subsequently reorganized and renamed Counsel Springwell Communications LLC) entered into a Securities Purchase Agreement with Winter Harbor. Pursuant to the terms of the Securities Purchase Agreement, Counsel Springwell Communications LLC (Counsel LLC) purchased from Winter Harbor all of the debt and equity securities of I-Link held by Winter Harbor, including all shares of Series M and Series N preferred stock held by Winter Harbor. Additionally, Counsel obtained the right to immediately name two Counsel designees to I-Link's Board of Directors, and seek to obtain I-Link shareholder approval to appoint an additional three Counsel director nominees, resulting in a nine member board, five members of which will be directors nominated or designated by Counsel LLC. As a result of the above mentioned transactions pursuant to the terms of the Securities Purchase Agreement, a change in control may be deemed to have occurred. To date, there are five Counsel designees or nominees serving on the board consisting of seven persons.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

        The following table shows, as of March 18, 2001, all directors, executive officers, and, to the best of our knowledge, all other parties we know to be beneficial owners of more than 5% of the common

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stock. As of March 18, 2001, there were issued and outstanding the following: 116,549,547 shares of common stock and 769 shares of Series N preferred stock.

Name and Address of Beneficial Owner(1)	Title of Class	Number of Shares Beneficially Owned		% of Common Stock Beneficially Owned(2)
Allan C. Silber	Common Stock	0	(3)	0	%
Helen Seltzer	Common Stock	0		0	%
Frank Williams	Common Stock	30,000	(4)	*
John Rufener	Common Stock	33,333	(4)	*
Gary J. Wasserson	Common Stock	0	(5)	0	%
Samuel L. Shimer	Common Stock	0		0	%
Norman Chirite	Common Stock	0	(3)	0	%
Albert Reichmann	Common Stock	25,589	(4)	*
Hal B. Heaton	Common Stock	88,958	(4)	*
Alex Radulovic	Common Stock	1,372,103	(6)	*
Henry Y.L. Toh	Common Stock	312,802	(7)	*
Counsel Corporation 130 King Street West Suite 1300, P.O. Box 435 Toronto, Ontario, Canada M5X IE3	Common Stock	117,253,052	(8)(9)	75.9	%
All Executive Officers and Directors as a Group (11 people)	Common Stock	1,862,785	(10)	1.6	%

*

Indicates less than one percent.

(1)

Unless otherwise noted, all listed shares of common stock are owned of record by each person or entity named as beneficial owner and that person or entity has sole voting and dispositive power with respect to the shares of common stock owned by each of them. All addresses are c/o I-Link Incorporated unless otherwise indicated.1

(2)

As to each person or entity named as beneficial owners, that person's or entity's percentage of ownership is determined based on the assumption that any options or convertible securities held by such person or entity which are exercisable or convertible within 60 days have been exercised or converted, as the case may be.

(3)

Allan C. Silber is the Chairman, CEO and a shareholder of Counsel. Norman Chirite is a managing director, director and shareholder of Counsel. Messrs. Silber and Chirite disclaim beneficial ownership of the shares of I-Link beneficially owned by Counsel via its majority ownership of Counsel Springwell Communications LLC. (see notes 8 and 9 below).

(4)

Represents shares of common stock issuable pursuant to options and warrants.

(5)

Mr. Wasserson is a director of Counsel Springwell Communications LLC. Mr. Wasserson disclaims beneficial ownership of the shares of I-Link owned by Counsel Springwell Communications LLC (see 8 and 9 below).

(6)

Represents 1,333,333 shares of common stock subject to options and 38,770 shares of common stock owned.

(7)

Represents shares of common stock issuable pursuant to options. Does not include shares held of record by Four M International, Ltd., of which Mr. Toh is a director. Mr. Toh disclaims any beneficial ownership of such shares.

(8)

Includes: (1) 61,966,057 shares of common stock issued upon conversion of Series M and N convertible preferred stock in March 2001 which were obtained from Winter Harbor L.L.C. in

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March 2001, (2) 17,434,489 shares of common stock issued in connection with I-Link's acquisition of WebToTel in April 2001; (3) 22,852,506 shares of common stock issuable upon conversion of up to $12,000,000 principal (and accrued interest) amount of a Senior Convertible Loan and Security Agreement which the named stockholder will be entitled to receive should it convert its convertible note to common stock, subject to conversion price adjustments provisions set forth in the Senior Convertible Loan and Security Agreement dated March 1, 2001; and (4) 15,000,000 shares of common stock issuable pursuant to warrants granted to Counsel in connection with the acquisition of the assets of WorldxChange in June 2001.

(9)

Counsel owns indirectly in excess of eighty percent (80%) of the ownership interests in Counsel Springwell Communications LLC, a Delaware limited liability company, which entity is the owner of the shares, warrants in and convertible instruments (see 8 above) of I-Link.

(10)

Represents 38,770 shares of common stock issued and 1,824,015 shares of common stock that may be obtained pursuant to options and warrants exercisable within 60 days of the date hereof.

Item 13. Certain Relationships and Related Transactions.

Transactions with Management and Others

        See Item 11 hereof for descriptions of the terms of employment and consulting agreements between us and certain officers, directors and other related parties.

Transactions with Counsel Corporation

        On March 1, 2001, we entered into a Senior Convertible Loan and Security Agreement, (the Loan Agreement) with Counsel Corporation and Counsel LLC, (collectively, Counsel). Pursuant to the terms and provisions of the Loan Agreement, Counsel LLC was to make periodic loans to us in the aggregate principal amount not to exceed $10,000,000. This agreement was amended in May 2001 to increase the aggregate principal amount to $12,000,000. During 2001 the full $12,000,000 was loaned to us pursuant to these agreements.

        The $12,000,000 capital investment is structured as a 3-year note convertible with interest at a rate of 9% per annum, compounded quarterly. Counsel LLC can convert the loan into shares of our common stock at a conversion price of $0.56 per common share. At any time after September 1, 2002, on the first date that is the twentieth consecutive trading day that the common stock has closed at a price per share that is equal to or greater than $1.00 per share, the outstanding debt including accrued interest shall automatically convert into common stock using the then conversion rate. The conversion price is subject to adjustment in accordance with the terms and provisions of the Loan Agreement. The Loan Agreement provides for traditional anti-dilution protection and is subject to certain events of default. Proceeds to I-Link were $12,000,000 less debt issuance costs of approximately $700,000.

        By executing the above Loan Agreement, we granted Counsel LLC a first priority security interest in all of our assets owned at the time of the execution of the Loan Agreement or subsequently acquired, including but not limited to our accounts receivable, general intangibles, inventory, equipment, books and records, and negotiable instruments held by I-Link. The Loan Agreement also included demand registration rights for common stock issuable upon conversion of the Loan Agreement.

        In addition to the foregoing agreements, Counsel LLC and I-Link executed a Securities Support Agreement, dated March 1, 2001 (the Support Agreement) for the purpose of providing certain representations and commitments by us to Counsel LLC as an inducement to Counsel to enter into a separate agreement with Winter Harbor and First Media, L.P, (the Securities Purchase Agreement). We were not a party to the Securities Purchase Agreement. In accordance with the terms and provisions of the Securities Purchase Agreement, Counsel agreed to purchase from Winter Harbor all of our debt

38

and equity securities owned by Winter Harbor, including shares of our Series M and Series N preferred stock, beneficially owned by Winter Harbor for an aggregate consideration of $5,000,000.

        Our commitments to Counsel LLC set forth in the Support Agreement included our agreement to appoint two designees of Counsel, reasonably acceptable to us, to our Board of Directors. We also agreed that immediately following the initial funding (which was received in March 2001) of the Loan Note, we would solicit the proxies of our shareholders to elect three additional nominees designated by Counsel, thus, increasing the size of our Board of Directors to nine members.

        Under the Support Agreement, we also agreed to engage appropriate advisors and proceed to take all steps necessary to merge WebToTel (a subsidiary of Counsel LLC) and its subsidiary Nexbell Communications Inc. into I-Link. The merger took place in April 2001 when we exchanged 17,454,333 shares of common stock for WebToTel and its subsidiaries.

        On March 7, 2001, as part of the agreements discussed above, Counsel converted all of the Series M and N convertible preferred stock it obtained from Winter Harbor into 61,966,057 shares of our common stock. The Series N shares were converted at equivalent of $1.25 per common share and Series M at $.56 per common share.

        To fund the acquisition of the assets purchased and liabilities assumed by WorldxChange, Counsel provided a loan on June 4, 2001 to WorldxChange in the aggregate amount of $15,000,000. The loan is collateralized against all assets of WorldxChange. The loan is also guaranteed by I-Link and collateralized by the assets of I-Link. Outstanding balances (including any accrued and unpaid interest) under the loan bear interest of 10% per annum and are payable quarterly in arrears and in cash on the last business day of each quarter. Counsel may waive the payment of cash interest by WorldxChange. The loan will mature in December 2004. The loan may be prepaid at any time prior to the maturity, without penalty.

        In connection with the $15,000,000 loan, I-Link issued to Counsel a warrant to purchase 15,000,000 shares of common stock of I-Link at an exercise price of $0.60 per share. The warrants were exercisable in three tranches as follows; 5,000,000 on the date of the agreement, September 4, 2001 and December 4, 2001, respectively, in the event the loan is still outstanding on those dates. The warrants expire on June 4, 2003. The Company has recorded $2,170,059 as a discount against the $15,000,000 loan from Counsel representing the relative fair value attributed to the warrants.

        On June 6, 2001, I-Link and Counsel entered into a Loan and Security Agreement (Loan Agreement). Any monies advanced to I-Link between June 6, 2001 and April 15, 2002, (in the amount not to exceed $10,000,000) will be governed by the Loan Agreement. In connection with the Loan Agreement, I-Link executed a note payable to Counsel, due June 6, 2002. The loan is secured by all of the assets of I-Link. Outstanding balances (including any accrued and unpaid interest) under the loan bear interest at 10% per annum which interest is payable quarterly in arrears following the last business day of each quarter. However, Counsel may (and has to December 31, 2001) at its sole election allow interest to accrue and become payable at the end of the term. The full amount of the agreement ($10,000,000) was advanced to I-Link during 2001.

        During 2001 and as of December 31, 2001, Counsel had also advanced $7,070,320 to I-Link for which the conditions and terms of repayment are anticipated (as there are no written agreements) to be similar to the $10,000,000 agreement dated June 6, 2001 (discussed above). Subsequent to year end, Counsel has advanced an additional $3,816,602 in under similar anticipated conditions and terms.

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PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)

The following financial statements and those financial statement schedules required by Item 8 hereof are filed as part of this report:

1.

Financial Statements:

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999

Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

Notes to Consolidated Financial Statements

2.

Financial Statement Schedule:

        Schedule II—Valuation and Qualifying Accounts

All other schedules are omitted because of the absence of conditions under which they are required or because the required information is presented in the Financial Statements or Notes thereto.

(b)

We did not file any reports on Form 8-K during the fourth quarter of 2001.

(c)

The following exhibits are filed as part of this Registration Statement:

Number	Title of Exhibit
3.1(6)	Amended and Restated Articles of Incorporation, as further amended.
4.1(4)	Form of Hardy Group Warrant to purchase 175,000 shares of Common Stock.
4.2(3)	Securities Purchase Agreement by and between I-Link and Winter Harbor, dated as of September 30, 1997.
4.3(7)	Amended and Restated Registration Rights Agreement dated as of January 15, 1999 by and between I-Link and Winter Harbor, amending Registration Rights Agreement dated October 10, 1997.
4.4(3)	Form of Shareholders Agreement by and among I-Link and Winter Harbor and certain holders of I-Link's securities, which constitutes Exhibit D to the Purchase Agreement.
4.5(3)	Form of Warrant Agreement by and between Medcross, Inc. and Winter Harbor, which constitutes Exhibit F to the Purchase Agreement.
4.6(10)	Senior Convertible Loan and Security Agreement dated March 1, 2001, by and between Counsel Communications, LLC and I-Link Incorporated.
4.7(10)	Loan Note, dated as of March 1, 2001, by and between Counsel Communications LLC and I-Link Incorporated.
4.8(10)	Security Agreement, dated as of March 1, 2001, by and between I-Link Communications, MiBridge Inc and Counsel Communications, LLC.

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10.1(1)	1997 Recruitment Stock Option Plan.
10.2(2)	2001 Stock Option and Appreciation Rights Plan
10.3(5)	Agreement dated April 14, 1998, by and between I-Link and Winter Harbor.
10.4(5)	Pledge Agreement dated April 14, 1998, by and between I-Link and Winter Harbor.
10.5(5)	Security Agreement dated April 14, 1998, by and among certain of I-Link's subsidiaries and Winter Harbor.
10.6(5)	Form of Promissory Notes issued to Winter Harbor.
10.7(5)	Warrant to purchase 250,000 shares of Common Stock of I-Link, dated June 30, 1998, issued to JNC.
10.8(5)	Warrant to purchase 100,000 shares of Common Stock of I-Link, dated July 28, 1998, issued to JNC.
10.9(7)	Loan Agreement dated as of January 15, 1999 by and between I-Link and Winter Harbor.
10.10(7)	First Amendment to Loan Agreement dated March 4, 1999 by and between I-Link and Winter Harbor.
10.11(7)	Promissory Note dated November 10, 1998, in principal amount of $8,000,000 executed by I-Link in favor of Winter Harbor.
10.12(7)	Series K Warrant Agreement dated as of January 15, 1999 by and between I-Link and Winter Harbor and form of Series K Warrant.
10.13(7)	Agreement dated as of January 15, 1999 by and between I-Link and Winter Harbor.
10.14(7)	First Amendment to Security Agreement dated as of January 15, 1999, by and among I-Link, five of its wholly-owned subsidiaries and Winter Harbor, amending Security Agreement dated April 14, 1997.
10.15(7)	First Amendment to Pledge Agreement dated as of January 15, 1999, by and among I-Link and Winter Harbor, amending Pledge Agreement dated April 14, 1997.
10.16(7)	Series D, E, F, G, H, I and J Warrant Agreement dated as of January 15, 1999 by and between I-Link and Winter Harbor, and related forms of warrant certificates.
10.17(8)	Employment agreement with Alex Radulovic dated January 3, 2000
10.18(8)	Form of Wholesale Service Provider and Distribution Agreement between I-Link and Big Planet, Inc. dated February 1, 2000
10.19(9)	Form of Cooperation and Framework Agreement between I-Link Incorporated and CyberOffice International AG dated May 8, 2000
10.20(9)	Form of Revenue Sharing Agreement between I-Link Incorporated and Red Cube International AG (formerly known as CyberOffice International AG.) dated June 30, 2000.
10.21(9)	Form of Letter dated June 30, 2000, clarifying a Cooperation and Framework Agreement issue.
10.22(11)	Loan and Security Agreement, dated December 10, 2001, by and among WorldxChange Corp. and Foothill Capital Corporation.
23.1(11)	Consent of Independent Accountants.

41

99.1(10)	Warrant Exchange Agreement, dated as of March 1, 2001, by and between Winter Harbor, LLC and I-Link Incorporated.
99.2(10)	Securities Support Agreement, dated as of March 1, 2001, by and between Counsel Communications, LLC and I-Link Incorporated.

(1)

Incorporated by reference to our Annual Report on Form 10-KSB for the year ended December 31, 1996, file number 0-17973.

(2)

Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended September 30, 2001, file number 0-17973.

(3)

Incorporated by reference to our Current Report on Form 8-K, dated September 30, 1997, file number 0-17973.

(4)

Incorporated by reference to our Pre-Effective Amendment No. 3 to Registration Statement on Form SB-2, file number 333-17861.

(5)

Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended June 30, 1998, file number 0-17973.

(6)

Incorporated by reference to our Annual report on Form 10-K for the year ended December 31, 1998, file number 0-17973.

(7)

Incorporated by reference to our Current Report on Form 8-K filed on March 23, 1999, file number 0-17973.

(8)

Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended March 31, 2000, file number 0-17973.

(9)

Incorporated by reference to our Quarterly Report on Form 10-Q for the period ended June 30, 2000, file number 0-17973.

(10)

Incorporated by reference to our Current Report on Form 8-K filed on March 16, 2001, file number 0-17973.

(11)

Filed herewith

42

INDEX OF FINANCIAL STATEMENTS & SUPPLEMENTAL SCHEDULES

Title of Document	Page
Report of Independent Accountants	F-1
Consolidated Balance Sheets as of December 31, 2001 and 2000	F-2
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999	F-3
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2001, 2000 and 1999	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999	F-8
Notes to Consolidated Financial Statements	F-10
Schedule of Valuation and Qualifying Accounts	S-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
I-Link Incorporated and Subsidiaries:

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of I-Link Incorporated and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Salt Lake City, Utah
April 3, 2002

F-1

I-LINK INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
as of December 31, 2001 and 2000

			2001			2000
ASSETS
Current assets:
	Cash and cash equivalents		$	4,662,532		$	2,155,628
	Accounts receivable, less allowance for doubtful accounts of $1,862,988 and $100,665 as of December 31, 2001 and 2000, respectively			16,009,386			3,357,856
	Other current assets			2,632,629			385,891
		Total current assets		23,304,547			5,899,375
Furniture, fixtures, equipment and software, net				21,023,696			10,983,273
Other assets:
	Intangible assets, net			1,330,839			3,939,226
	Other assets			1,121,067			835,618
			$	46,780,149		$	21,657,492
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
	Accounts payable		$	7,719,595		$	5,370,490
	Accrued liabilities			12,270,231			3,327,900
	Unearned revenue			1,986,675			14,885,592
	Revolving credit facility and other current debt			10,004,862			785,971
	Notes payable to a related party			17,540,140			7,768,000
	Accrued interest on notes payable to a related party			—			2,376,498
	Current portion of obligations under capital leases			3,034,293			1,445,690
		Total current liabilities		52,555,796			35,960,141
Notes payable				1,147,364			796,662
Notes payable to a related party				23,088,535			—
Obligations under capital leases				6,986,308			338,263
Unearned revenue				—			1,666,667
		Total liabilities		83,778,003			38,761,733
Commitments and contingencies (notes 9 and 13)
Redeemable preferred stock—Series M				—			11,734,820
Stockholders' deficit:
	Preferred stock, $10 par value, authorized 10,000,000 shares, issued and outstanding 769 and 24,435 as of December 31, 2001 and 2000, respectively; liquidation preference of $761,310 at December 31, 2001			7,690			244,350
	Common stock, $.007 par value, authorized 300,000,000 shares, issued and outstanding 116,549,547 and 28,136,506 at December 31, 2001 and 2000, respectively			815,849			196,957
	Additional paid-in capital			128,942,389			106,622,114
	Accumulated deficit			(166,763,782	)		(135,902,482	)
		Total stockholders' deficit		(36,997,854	)		(28,839,061	)
			$	46,780,149		$	21,657,492

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

F-2

I-LINK INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2001, 2000 and 1999

			2001			2000			1999
Revenues:
	Telecommunication services		$	74,887,557		$	18,300,548		$	26,440,017
	Marketing services			—			463,740			3,672,988
	Technology licensing and development			5,696,893			8,972,828			2,506,701
	Other			2,025,585			2,667,039			—
		Total revenues		82,610,035			30,404,155			32,619,706
Operating costs and expenses:
	Telecommunication network expense			62,652,227			24,958,320			20,373,209
	Marketing services			—			456,354			5,400,149
	Selling, general and administrative			36,836,446			18,353,731			12,428,956
	Provision for doubtful accounts			4,066,690			113,168			3,703,076
	Depreciation and amortization			10,166,790			6,399,318			5,482,639
	Write-down of capitalized software costs			—			—			1,847,288
	Research and development			2,332,593			4,220,333			2,636,741
	Impairment of goodwill			8,040,054			—			—
		Total operating costs and expenses		124,094,800			54,501,224			51,872,058
Operating loss				(41,484,765	)		(24,097,069	)		(19,252,352	)
Other income (expense):
	Interest expense			(4,774,636	)		(1,502,676	)		(5,086,141	)
	Interest and other income			81,015			487,132			179,205
	Gain on sale of subsidiary			588,943			—			—
	Settlement expense			—			(639,565	)		—
		Total other expense		(4,104,678	)		(1,655,109	)		(4,906,936	)
Loss from continuing operations				(45,589,443	)		(25,752,178	)		(24,159,288	)
Discontinued operations:
	Loss during phase-out period of discontinued operations			—			—			(500,000	)
Loss before extraordinary gain				(45,589,443	)		(25,752,178	)		(24,659,288	)
Extraordinary gain on extinguishment of debt (net of $0 tax)				1,092,818			—			—
		Net loss	$	(44,496,625	)	$	(25,752,178	)	$	(24,659,288	)

F-3

			2001			2000			1999
Calculation of net loss per common share:
Loss from continuing operations			$	(45,589,443	)	$	(25,752,178	)	$	(24,159,288	)
Cumulative preferred stock dividends not paid in current year				(27,610	)		(1,646,818	)		(1,948,557	)
Dividends accrued and paid on Class M redeemable preferred stock				(269,027	)		—			—
Net effect on retained earnings of redemption and reissuance of Class M and N preferred stock, including beneficial conversion features				15,512,473			—			—
Deemed (non-cash) preferred stock dividend on Series N convertible preferred stock				—			—			(6,978,417	)
	Loss from continuing operations applicable to common stock		$	(30,373,607	)	$	(27,398,996	)	$	(33,086,262	)
Basic and diluted weighted average shares outstanding				99,184,427			26,669,058			21,413,772
Net loss per common share — basic and diluted:
	Loss from continuing operations		$	(0.31	)	$	(1.03	)	$	(1.55	)
	Loss from discontinued operations			—			—			(0.02	)
	Extraordinary gain from extinguishment of debt			0.01			—			—
		Net loss per common share	$	(0.30	)	$	(1.03	)	$	(1.57	)

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

F-4

I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended December 31, 2001, 2000 and 1999

	Preferred Stock					Common Stock
									Additional Paid-in Capital		Deferred Compensation
	Shares		Amount			Shares	Amount							Accumulated Deficit
Balance at December 31, 1998	44,051		$	440,510		18,762,596	$	131,338	$	68,632,195	$	(1,214,591	)	$	(84,942,815	)
Conversion of Series C, F and N preferred stock into common stock	(14,809	)		(148,090	)	5,180,396		36,263		111,827
Reclassification of Series F redeemable preferred stock from mezzanine due to conversion to common stock	750			7,500		—		—		7,065,435		—			—
Common stock dividend paid to holders of Series F redeemable preferred stock	—			—		165,220		1,157		350,712		—			(351,868	)
Issuance of Series N convertible preferred stock, net of issuance costs of $486,679	20,000			200,000		—		—		19,313,321		—			—
Exercise of stock options and warrants	—			—		42,617		298		4,702		—			—
Warrants issued in connection with certain notes payable	—			—		—		—		2,220,563		—			—
Warrants issued in connection with a standby letter of credit	—			—		—		—		735,720		—			—
Stock options issued for services										300,000		(300,000	)
Amortization of deferred compensation on stock options issued for services	—			—		—		—		—		1,015,214			—
Net loss	—			—		—		—		—		—			(24,659,288	)
Balance at December 31, 1999	49,992		$	499,920		24,150,829	$	169,056	$	98,734,475	$	(499,377	)	$	(109,953,971	)

F-5

	Preferred Stock					Common Stock
									Additional Paid-in Capital		Deferred Compensation			Accumulated Deficit
	Shares		Amount			Shares	Amount
Balance at December 31, 1999	49,992		$	499,920		24,150,829	$	169,056	$	98,734,475	$	(499,377	)	$	(109,953,971	)
Conversion of preferred stock into common stock	(25,805	)		(258,050	)	2,158,413		15,109		242,941		—			—
Reclassification of Series F redeemable preferred stock from mezzanine due to conversion to common stock	248			2,480		—		—		2,336,305		—			—
Common stock dividend paid to holders of Series F redeemable preferred stock	—			—		87,477		612		195,721		—			(196,333	)
Exercise of stock options, warrants and issuances under stock purchase plan	—			—		1,589,810		11,129		4,330,530		—			—
Stock options issued for services	—			—		—		—		42,605		(42,605	)		—
Common stock issued as payment of settlement and interest expense	—			—		149,977		1,051		739,537		—			—
Amortization of deferred compensation on stock options issued for services	—			—		—		—		—		541,982			—
Net loss	—			—		—		—		—		—			(25,752,178	)
Balance at December 31, 2000	24,435		$	244,350		28,136,506	$	196,957	$	106,622,114	$	—		$	(135,902,482	)

F-6

	Preferred Stock					Common Stock
									Additional Paid-in Capital			Accumulated Deficit
	Shares		Amount			Shares	Amount
Balance at December 31, 2000	24,435		$	244,350		28,136,506	$	196,957	$	106,622,114		$	(135,902,482	)
Conversion of convertible debt and accrued interest into Class M mezzanine preferred stock and common warrants	—			—		—		—		6,377,673			—
Common stock issued and accumulated deficit acquired as a result of WebToTel acquisition and conversion of notes payable	—			—		17,454,333		122,182		11,822,812			(1,246,835	)
Stock issued—employee stock purchase plan	—			—		34,518		241		15,338			—
Repurchase of Class M mezzanine preferred stock	—			—		—		—		—			—
Repurchase of Class N preferred stock	(14,404	)		(144,040	)	—		—		(14,164,060	)		—
Net contribution from repurchase/settlement with stockholders of Class M and N preferred stock	—			—		—		—		(5,000,000	)		30,292,319
Contingent beneficial conversion feature on Class N preferred stock	—			—		—		—		9,779,846			(9,779,846	)
Issuance of common shares to related party to repurchase warrants outstanding	—			—		5,000,000		35,000		(35,000	)		—
Reissuance and conversion of Class M redeemable preferred stock into common stock	—			—		50,442,857		353,100		3,696,900			—
Reissuance and conversion of Class N preferred stock into common stock	—			—		11,523,159		80,662		869,338			—
Beneficial conversion feature on the reissuance of Class M and N preferred stock	—			—		—		—		5,000,000			(5,000,000	)
Other conversions of Class N preferred stock into common stock	(13	)		(130	)	9,143		64		66			—
Warrants issued in connection with notes payable to related party	—			—		—		—		2,170,059			—
Beneficial conversion feature on certain convertible note payable to related party	—			—		—		—		1,092,143			—
Conversion of Class C preferred stock into common stock	(9,249	)		(92,490	)	3,415,015		23,905		68,585			—
Dividend on Class C preferred stock paid in the form of common stock	—			—		534,016		3,738		626,575			(630,313	)
Net loss	—			—		—		—		—			(44,496,625	)
Balance at December 31, 2001	769		$	7,690		116,549,547	$	815,849	$	128,942,389		$	(166,763,782	)

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

F-7

I-LINK INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2001, 2000 and 1999

				2001			2000			1999
Cash flows from operating activities:
	Net loss			$	(44,496,625	)	$	(25,752,178	)	$	(24,659,288	)
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		Depreciation and amortization			10,166,790			6,399,318			5,482,639
		Impairment of goodwill			8,040,054			—			—
		Provision for doubtful accounts			4,066,690			113,168			3,703,076
		Amortization of discount and debt issuance costs on notes payable and capital leases			1,518,443			—			3,360,771
		Amortization of deferred compensation on stock options issued for services			—			541,982			1,015,214
		Common stock issued as payment of settlement and interest expense			—			740,588			—
		Write-down of capitalized software costs			—			—			1,847,288
		Loss on disposal of assets			—			—			7,494
		Extraordinary gain on extinguishment of debt			(1,092,818	)		—			—
		Gain on sale of subsidiary			(588,943	)		—			—
Increase (decrease) from changes in operating assets and liabilities, net of effects of acquisitions:
		Accounts receivable			(4,527,719	)		873,382			(3,645,466	)
		Other assets			(1,126,625	)		(429,260	)		(163,089	)
		Accounts payable, accrued liabilities and interest			13,323,546			2,963,346			2,232,086
		Unearned revenue			(14,565,584	)		16,552,259			—
		Discontinued operations—noncash charges and working capital changes			—			(133,250	)		437,350
			Net cash provided by (used in) operating activities		(29,282,791	)		1,869,355			(10,381,925	)
Cash flows from investing activities:
	Purchases of furniture, fixtures, equipment and software				(1,963,115	)		(6,911,003	)		(2,047,948	)
	Acquisition of WorldxChange assets				(13,681,000	)		—			—
	Cash received from purchase of WebToTel				233,787			—			—
	Proceeds from maturity of certificates of deposit—restricted				—			—			412,649
	Investing activities of discontinued operations				—			29,537			50,000
			Net cash used in investing activities		(15,410,328	)		(6,881,466	)		(1,585,299	)

F-8

			2001			2000			1999
Cash flows from financing activities:
	Proceeds from issuance of notes payable to a related party		$	43,920,320		$	2,600,000		$	8,200,000
	Payment of notes payable to related party			(2,500,000	)		(2,600,000	)		(798,772	)
	Proceeds from revolving credit facility			12,745,632			—			—
	Payment of revolving credit facility			(5,749,028	)		—			—
	Proceeds from advance under strategic marketing agreement			—			1,751,183			—
	Payment of advance under strategic marketing agreement			—			(1,751,183	)		—
	Payment of capital lease obligations			(1,052,387	)		(141,728	)		(928,335	)
	Proceeds from issuance of preferred stock, net of offering costs			—			—			7,116,408
	Payment of long-term debt			(180,093	)		(3,992	)		—
	Proceeds from exercise of stock options and warrants and issuances under stock purchase plan			15,579			4,341,659			5,000
	Financing activities of discontinued operations			—			(24,204	)		—
		Net cash provided by financing activities		47,200,023			4,171,735			13,594,301
Increase (decrease) in cash and cash equivalents				2,506,904			(840,376	)		1,627,077
Cash and cash equivalents at beginning of year				2,155,628			2,996,004			1,368,927
Cash and cash equivalents at end of year:
	Continuing operations			4,662,532			2,155,628			2,950,730
	Discontinued operations			—			—			45,274
		Total cash and cash equivalents at end of year	$	4,662,532		$	2,155,628		$	2,996,004
Supplemental schedule of non-cash investing and financing activities:
	Reclassification of Series F redeemable preferred stock from mezzanine			—		$	2,338,785		$	7,072,935
	Warrants issued in connection with notes payable to related party		$	2,170,059			—			—
	Conversion of notes payable to a related party and associated accrued interest to Class M redeemable preferred stock			10,305,072			—			—
	Reclassification of Class M redeemable preferred stock from mezzanine			22,039,892			—			—
	Conversion of notes payable to a related party and associated accrued interest to common stock			10,326,938			—			—
	Warrants issued in connection with a standby letter of credit			—			—			735,720
	Building mortgage incurred			—			840,000			—
	Stock options issued for services			—			42,605			300,000
	Accrued interest and debt exchanged for Series N preferred stock			—			—			12,718,914
	Accrued debt issuance costs			—			—			322,000
	Equipment acquired under capital lease obligations and note payable			9,887,835			—			2,177,126
Supplemental cash flow information:
	Interest paid—continuing operations		$	1,269,605		$	244,854		$	312,937
	Interest paid—discontinued operations			—			43,087			10,011

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

F-9

I-LINK INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Description of Business, Principles of Consolidation and Liquidity

        The consolidated financial statements include the accounts of I-Link Incorporated and its subsidiaries (I-Link or the Company). The Company's principal operations are two fold. First, for the past five years the Company has developed and marketed enhanced communications products and services utilizing its own private intranet and both owned and leased network switching and transmission facilities. The communications solutions are delivered through the Company's proprietary technologies. Enhanced communications products and services are marketed through master agent and wholesale distributor arrangements with I-Link Communications Inc., a wholly owned subsidiary of the Company that is an FCC licensed long-distance carrier. The Company develops and licenses communications applications products and software that support multimedia communications (voice, fax and audio) over the public switched network, local area networks and the Internet. The second principal operation began on June 4, 2001, when I-Link Incorporated, through its wholly owned subsidiary WorldxChange Corp. (WorldxChange), purchased certain assets and assumed certain liabilities of WorldxChange Communications, Inc. from a bankruptcy proceeding. WorldxChange is a facilities-based telecommunications carrier that provides international and domestic long-distance service to retail customers. Telecommunication services provided by WorldxChange consist primarily of a dial-around product that allows a customer to make a call from any phone by dialing a 10-10-XXX prefix. The phone call is then billed directly to the customer. Billings to these customers are primarily done through the customers' local exchange carrier (LEC). Marketing of the dial around product is primarily done through independent marketing agents that receive a commission. WorldxChange's retail base is comprised of residential and commercial customers located throughout the United States.

        On March 1, 2001, I-Link became a majority owned subsidiary of Counsel Communications LLC (subsequently reorganized and renamed Counsel Springwell Communications LLC), which was a majority-owned subsidiary of Counsel Corporation, (collectively, Counsel). On April 17, 2001, I-Link merged with WebToTel, Inc. (WebToTel), a subsidiary of Counsel, and its subsidiary Nexbell Communications Inc. (Nexbell) as more fully described in Note 6. As the entities were under common control as of March 1, 2001, the financial statements for the year ended December 31, 2001 include the financial results of WebToTel and Nexbell as if I-Link's merger with these two entities had occurred on March 1, 2001. The acquisition has been accounted for similar to a pooling-of-interests using Counsel's book values of the WebToTel assets and liabilities. Nexbell was sold by the Company in December 2001 (see Note 6).

        All significant intercompany accounts and transactions have been eliminated in consolidation.

        The Company incurred a net loss from continuing operations of $45,589,443 for the year ended December 31, 2001, and as of December 31, 2001 had an accumulated deficit of $166,763,782 and negative working capital of $29,251,249. The Company anticipates that revenues generated from its continuing operations will not be sufficient during 2002 to fund ongoing operations, the continued expansion of its private telecommunications network facilities, product development and anticipated growth in subscriber base.

        In late 2001, the Company determined it was not cost justifiable to maintain a significant part of I-Link's fixed network, specifically, the leased lines for call origination and termination from the backbone network. Instead of using these leased lines for origination and termination, it was determined that, given current revenue levels, it would be more economical to originate and terminate traffic on WorldxChange's network, which I-Link began to do in late 2001. The Company anticipates

F-10

the transition will be completed in April 2002, and that this transition will result in monthly net savings. In addition to the anticipated cost savings, Counsel Corporation and its subsidiary Counsel Springwell Communications LLC have committed to fund, through long-term inter-company advances or equity contribution, all capital investment, working capital or other operational cash requirements of I-Link through April 15, 2003.

Note 2—Summary of Significant Accounting Policies

Cash and cash equivalents

        The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash and cash equivalents primarily with financial institutions in Utah, California, and Arizona. These accounts may from time to time exceed federally insured limits. The Company has not experienced any losses on such accounts.

Allowance for Doubtful Accounts

        The Company evaluates the collectability of its receivables at least quarterly, based upon various factors including the financial condition and payment history of major customers, an overall review of collections experience on other accounts and economic factors or events expected to affect the Company's future collections experience.

Furniture, fixtures, equipment and software

        Furniture, fixtures, equipment and software are stated at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives:

Interest in network cables	17 years
Telecommunications network equipment	2-6 years
Furniture, fixtures and office equipment	3-6 years
Software	1-3 years

        Betterments and renewals that extend the life of the assets are capitalized. Other repairs and maintenance charges are expensed as incurred. The cost and related accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on disposition is recognized in operations. The Company regularly evaluates whether events or circumstances have occurred that indicate the carrying value of its furniture, fixtures, equipment and software may not be recoverable. When factors indicate the asset may not be recoverable, the Company compares the related undiscounted future net cash flows to the carrying value of the asset to determine if an impairment exists. If the expected future net cash flows are less than the carrying value, impairment is recognized based on the fair value of the asset. During 1999, the Company wrote off $1,847,288 in unrecoverable capitalized software costs. There were no such write-offs in 2001 or 2000.

Intangible assets

        The Company regularly evaluates whether events or circumstances have occurred that indicate the carrying value of its intangible assets may not be recoverable. When factors indicate the asset may not be recoverable, the Company compares the related undiscounted future net cash flows to the carrying value of the asset to determine if impairment exists. If the expected future net cash flows are less than

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carrying value, impairment is recognized based on the fair value of the asset. Amortization of intangible assets is calculated using the straight-line method over the following periods:

Excess acquisition cost over fair value of net assets acquired	5-10 years
Acquired technology	5 years
Other intangible assets	3-15 years

        As discussed in Note 7, the Company recorded an $8,040,054 impairment charge, representing the remaining balance of the goodwill associated with the WebToTel acquisition.

Revenue recognition

        Long-distance and enhanced service revenue is recognized as service is provided to subscribers.

        Marketing services revenues from the network marketing channel primarily included revenues recognized from Independent Representatives (IRs) for promotional and presentation materials and national conference registration fees. Revenue from the sale of promotional and presentation materials (included in Marketing services revenue) was recognized at the time the materials were shipped. The portion of the sign-up fee, including a normal profit margin, relating to on-going administrative support was deferred and recognized over twelve months (the initial term of the IR agreement). Marketing services revenues are presented net of estimated refunds on returns of network marketing materials.

        During the second quarter of 2000, the Company entered into an agreement with Red Cube International AG (Red Cube). The agreement with Red Cube consisted of a $7,500,000 licensing fee and $2,500,000 for consulting services. This $10,000,000 aggregate amount is nonrefundable and is being recorded as revenue ratably over a two-year period. Accordingly, $5,000,000 and $3,333,333 were recorded as technology licensing revenue in 2001 and 2000, respectively. The balance of $1,666,667 has been recorded as unearned revenue as of December 31, 2001. In July 2000, the Company received an additional nonrefundable payment of $10,000,000. This payment was a service prepayment that was to be credited against services performed for and/or provided to Red Cube by June 30, 2001. As of June 30, 2001, there remained $9,543,000 which had not been used by Red Cube and as the Company had no further obligation under the prepayment arrangement, the $9,543,000 was recognized as revenue as of June 30, 2001.

        Revenue from the sale of software licenses is recognized when the product is shipped, a non-cancelable agreement is in force, the license fee is fixed or determinable, acceptance has occurred and collectability is reasonably assured. Maintenance and support revenues are recognized ratably over the term of the related agreements. When a license of I-Link technology requires continued support or involvement of I-Link, contract revenues are spread over the period of the required support or involvement. In the event that collectability is in question, revenue (deferred or recognized) is recorded only to the extent of cash receipts. Revenues on long-term development projects are recognized under the percentage of completion method of accounting and are based upon costs incurred on the project, compared to estimated total costs related to the contract.

Advertising costs

        Advertising production costs are expensed the first time the advertisement is run. Media (TV and print) placement costs are expensed in the month the advertising appears. Total advertising and

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promotion expenses in 2001 were $7,266,000, which related to promotional expenses of WorldxChange for the seven-month period that WorldxChange was a subsidiary of I-Link. Included in prepaid expenses and other assets was $516,000 as of December 31, 2001, relating to prepaid advertising and promotion expenses.

Computer software costs

        The Company capitalizes qualified costs associated with developing computer software for internal use. Such costs are amortized over the expected useful life, usually three years.

Concentrations of Credit Risk

        The Company's retail telecommunications subscribers are primarily residential subscribers and are not concentrated in any specific geographic region of the United States. The Company's wholesale customers are primarily based in Utah. The only customer that accounted for over 10% of the revenues for the year 2001 was Red Cube, which accounted for approximately 18% of revenues.

Income taxes

        The Company records deferred taxes in accordance with Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes." The statement requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

Segment reporting

        The Company reports its segment information based upon the internal organization that is used by management for making operating decisions and assessing performance.

Use of estimates

        The preparation of 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; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

        Certain balances in the December 31, 2000 financial statements have been reclassified to conform to current year presentation. These changes had no effect on previously reported net loss, total assets, liabilities or stockholders' equity.

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Recent Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company believes that the adoption of SFAS 141 will not have a significant impact on its financial statements.

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which is effective for fiscal years beginning after December 15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. The Company believes that the adoption of SFAS 142 will not have a significant impact on its financial statements.

        In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations", effective for years beginning after June 15, 2002. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset, except for certain obligations of lessees. The Company believes that the adoption of SFAS 143 will not have a significant impact on its financial statements.

        In August 2001, the FASB issued the SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and reporting for the disposal of long-lived assets. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company believes that the adoption of SFAS 144 will not have a significant impact on its financial statements.

Note 3—Net Loss per Share

        Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. Options, warrants, convertible preferred stock and convertible debt are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive. As the Company had a net loss from continuing operations for 2001, 2000 and 1999, basic and diluted loss per share are the same.

        The basic and diluted net loss per common share for the year ending December 31, 2001 includes a net increase to retained earnings of $30,292,319 attributable to the redemption on March 1, 2001 of the Class M redeemable preferred stock and all Class N preferred stock owned by Winter Harbor, including redemption of the beneficial conversion feature related to such preferred stock. In addition, there was a charge to retained earnings in 2001 of $9,779,846 representing a contingent beneficial conversion feature on the Class N preferred stock resulting from the reset of the conversion price. The basic and diluted net loss per common share in 2001 also reflects a $5,000,000 charge to retained earnings for the beneficial conversion feature related to the reissuance on March 1, 2001 of the Class M and Class N preferred stock to Counsel. The net effect of these transactions was a benefit included in the net loss per common share of $15,512,473 for the year ended December 31, 2001.

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        On September 6, 2001, all outstanding shares of the Company's Class C preferred stock automatically converted into shares of common stock according to the terms of the designation of the Class C preferred stock. Accordingly, 9,249 shares of Class C preferred stock were converted into 3,415,015 shares of common stock. In addition to the conversion of the preferred stock, the Company was obligated to pay dividends declared but unpaid and other dividends not paid on the preferred stock through the conversion date. Accordingly, dividends in the amount of $630,313 were paid through the issuance of 534,016 shares of common stock.

        During 2000 and 1999, holders of the Series F redeemable preferred stock converted 248 and 750 of those preferred shares, respectively. Accordingly, they were paid stock dividends of 87,477 and 165,220 shares, respectively, of common stock on the converted shares.

        As the conversion price of the Series N preferred stock at issuance was less than the market price of the Company's common stock, the Company recognized a deemed preferred stock dividend of $6,978,417 at issuance in 1999 which increased the loss attributable to common shareholders in the calculation of basic and diluted net loss per common share. The deemed preferred stock dividend was calculated as the difference between the conversion price per common share per the Series N agreement and the market price of the common stock on the date the proceeds from the offering were received and/or the debt was exchanged. The deemed dividends are implied only and do not represent future obligations to pay a dividend.

        Potential common shares that were not included in the computation of diluted EPS because they would have been anti-dilutive are as follows as of December 31:

	2001	2000	1999
Assumed conversion of Series C preferred stock	—	374,959	808,248
Assumed conversion of Series F redeemable preferred stock	—	—	1,105,169
Assumed conversion of Series M convertible preferred stock	—	8,175,676	5,951,795
Assumed conversion of Series N preferred stock	615,200	10,260,810	7,270,463
Assumed conversion of convertible debt	22,852,506	7,539,830	4,931,226
Assumed exercise of warrants issued on conversion
of convertible debt	—	5,000,000	5,000,000
Assumed exercise of options and warrants to purchase shares of common stock	28,033,464	45,354,992	41,945,091
	51,501,170	76,706,267	67,011,992

Note 4—Discontinued Operations

        On March 23, 1998, the Company's Board of Directors approved a plan to dispose of the Company's medical services businesses in order to focus its efforts on the sale of telecommunication services and technology licensing. The Company has sold essentially all of the fixed assets, with the

F-15

proceeds being used to satisfy outstanding obligations of the medical services subsidiaries. In January 1999, the Company sold additional assets for $15,000 and a note receivable of $35,000. In March 2000, the Company sold the remaining assets and settled the outstanding liabilities of the China operations and received net proceeds of $150,000.

        The results of the medical services operations have been classified as discontinued operations for all periods presented in the Consolidated Statements of Operations. Discontinued operations have also been segregated for all periods presented in the Consolidated Statements of Cash Flows.

        Revenues of the discontinued operations were $0 in 2001 and 2000 and $337,268 in 1999.

Note 5—Furniture, Fixtures, Equipment and Software

        Furniture, fixtures, equipment and software consisted of the following at December 31:

	2001			2000
Telecommunications network equipment	$	27,040,503		$	13,209,784
Furniture, fixtures and office equipment		5,680,912			3,896,733
Building		1,200,000			1,200,000
Software and information systems		1,848,201			1,259,343
		35,769,616			19,565,860
Less accumulated depreciation and amortization		(14,745,920	)		(8,582,587	)
	$	21,023,696		$	10,983,273

        Included in telecommunications network equipment are $10,137,861 and $3,899,474 in assets acquired under capital leases at December 31, 2001 and 2000, respectively. Accumulated amortization on these leased assets was $1,674,967 and $2,931,420 at December 31, 2001 and 2000, respectively.

Note 6—Acquisition of Subsidiaries

Acquisition of WebToTel

        On April 17, 2001, I-Link completed its merger with WebToTel and its subsidiary Nexbell, for 17,454,333 shares of I-Link common stock issued to Counsel, the owner of WebToTel. WebToTel was an entity established to acquire telecommunication companies. Nexbell is a wholesale network telecommunications provider which operates a private, managed IP telephony network that delivers packet voice services to over 400 key metropolitan areas in the United States. Nexbell's first product offering, Multi-Exchange Transport Service (METS), provides customers with VoIP based local access origination and termination services through 32 (subsequently consolidated to 13) domestic points of presence. The merger of I-Link and WebToTel has been accounted for similar to a pooling-of-interests using Counsel's book values of the WebToTel assets and liabilities, effective March 1, 2001, the earliest dated that all three entities were under common control of Counsel.

        In December 2001 and subsequent to the time the Company recorded the impairment of goodwill charge (see note 7) related to Nexbell, the Company sold Nexbell to an unrelated party. The sale was a sale of Nexbell's common stock and accordingly the assets and liabilities of Nexbell were assumed by the purchaser with no further financial obligation to I-Link. At the time of the sale, the liabilities

F-16

exceeded the assets of Nexbell and accordingly a gain on sale of subsidiary in the amount of $588,943 (the amount by which the liabilities of Nexbell exceeded the assets) was recorded.

Purchase of Certain WorldxChange Communications, Inc. Assets and Liabilities

        On June 4, 2001, I-Link Incorporated, through its wholly-owned subsidiary WorldxChange, purchased certain assets and assumed certain liabilities of WorldxChange Communications, Inc. (Debtor) from a bankruptcy proceeding. The purchased assets included all of the assets employed in the Debtor's operations in the United States and consisted of the Debtor's equipment, inventory, retail long distance business, accounts receivable, licenses, permits, authorizations, software programs and related technology. On June 4, 2001, the Debtor transferred the purchased assets to WorldxChange in exchange for $13,000,000.

        To fund the acquisition of the assets and provide working capital, Counsel agreed to provide a collateralized loan to I-Link in the aggregate amount of $15,000,000 (of which $13,000,000 was used for the purchase) as more fully described in Note 8.

        The fair values of assets acquired and liabilities assumed as of June 4, 2001 are as follows:

Accounts receivable and other current assets	$	12,386,687
Furniture, fixtures, and equipment		4,580,285
Accounts payable and accrued liabilities		(2,061,753	)
Obligations under capital leases		(1,224,219	)
Net cash paid	$	13,681,000

        Also, in connection with the acquisition, WorldxChange agreed to pay $727,000 to a supplier for services rendered prior to the acquisition to continue services with that vendor. The Company also incurred $681,000 of transaction costs related to the purchase.

        Unaudited pro forma results of operations for the years ended December 31, 2001 and 2000 as if the acquisitions had been completed as of the beginning of each period presented are shown below. The pro forma results include the historical result of operations of I-Link, WebToTel and Nexbell for the twelve months ended December 31, 2001 and 2000. The pro forma results include the historical result of operations of WorldxChange for the twelve months ended September 30, 2001 and 2000. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of the operations, and are not necessarily indicative of the results which would have

F-17

occurred if the business combinations had occurred on the dates indicated, or which may result in the future.

	For the Year Ended
	December 31, 2001			December 31, 2000
Revenues	$	117,059,000		$	136,492,000
Net Loss before extraordinary gain	$	(88,665,000	)	$	(110,466,000	)
Net Loss	$	(87,572,000	)	$	(110,466,000	)
Loss Per Share	$	(.71	)	$	(2.60	)

Note 7—Intangible Assets

Amortization of Intangibles from WebToTel Acquisition

        I-Link's wholly owned subsidiary WebToTel acquired Nexbell on February 22, 2001 and accounted for that acquisition using the purchase method of accounting. As part of that acquisition, WebToTel recorded $9,136,427 of goodwill. This goodwill was being amortized over a five-year period.

        The Company continuously reviews the products it offers and their contribution to the Company and its overall strategy. These reviews resulted in a determination that it was not economically justified to continue to maintain a portion of the Company's network related to leased lines for local access origination and Nexbell's METS product. In the fourth quarter of 2001, the Company approved a plan to discontinue offering the METS product. With this determination, the Company performed an impairment analysis of the goodwill recorded in connection with the acquisition of WebToTel and its subsidiary Nexbell. The analysis was performed in response to projected losses on the METS product acquired in the WebToTel acquisition. As a result of this review, an $8,040,054 impairment charge, representing the remaining balance of the goodwill, was recorded in September 2001.

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Other Intangible Assets

        Intangible assets consisted of the following at December 31:

	2001			2000
Acquired technology	$	8,875,000		$	10,325,000
Excess acquisition cost over fair value of net assets acquired		1,405,410			2,197,138
Other intangible assets		540,000			1,228,200
		10,820,410			13,750,338
Less accumulated amortization		(9,489,571	)		(9,811,112	)
	$	1,330,839		$	3,939,226

Note 8—Debt

        Debt, the carrying value of which approximates market, consists of the following at December 31:

	2001			2000
Note payable to a service provider, interest at 7.0%, due on demand	$	746,625		$	746,625
Note payable to Winter Harbor, payable April 15, 2001, interest at prime plus four percent (13.50% at December 31, 2000) (converted to common stock in March 2001)		—			7,768,000
Building mortgage payable to a bank, interest at 9.84%, payable in monthly installments of $10,028		797,329			836,008
Note payable to a network service provider, interest at 10% payable in monthly installments of $22,500		612,454			—
Revolving Credit Facility, interest at prime plus 1.75% (6.5% at December 31, 2001) balance is paid daily based on collections on accounts receivable of WorldxChange		6,996,603			—
Note payable, Winter Harbor		1,999,215			—
Note payable, Counsel Corporation, interest at 9%, due March 1, 2004		11,527,512			—
Note payable, Counsel Corporation, interest at 10%, due June 6, 2002		17,540,140			—
Note payable, Counsel Corporation, interest at 10%, due December 2004		11,561,023			—
		51,780,901			9,350,633
Less current portion		(27,545,002	)		(8,553,971	)
Long-term debt, less current portion	$	24,235,899		$	796,662

        Maturities of long-term obligations during each of the years 2003 through 2006 are $290,000, $25,353,000, $59,000 and $65,000 respectively.

        In December 2001, WorldxChange entered into a three-year loan and security agreement with a financial institution, which consists of an accounts receivable based revolving credit facility. The facility allows WorldxChange to borrow up to a maximum of $20 million subject to certain restrictions and borrowing base limitations. The maximum available borrowing base is determined as a specific percentage of eligible accounts receivable. The balance outstanding is reduced by the application of payments received on collection of accounts receivable. The facility had an outstanding balance of $6,996,603 at December 31, 2001. Outstanding balances under the loan bear interest at the prime rate plus 1.75% (6.5% at December 31, 2001) and are collateralized by substantially all the assets of the WorldxChange. At December 31, 2001, $4,043,000 remains available under the revolving credit facility based on borrowing base limitations. Additionally, the loan contains certain financial covenants related

F-19

to WorldxChange for fiscal 2002 and 2003. In conjunction with executing the credit facility, an Intercreditor Agreement was entered into between WorldxChange and Counsel where the promissory note between WorldxChange and Counsel was made subordinate to the credit facility. Further, the cumulative principal repayments of the promissory note are not to exceed $11,500,000 during the term of the facility.

        As of September 30, 2001, I-Link was in default on an equipment lease. This lease was secured by a letter of credit issued by an affiliate of Winter Harbor LLC, a former majority shareholder of I-Link. On October 11, 2001, the leasing company drew against the letter of credit in the amount of $1,999,215. As of December 31, 2001, I-Link carries the liability related to this draw on the letter of credit in its consolidated financial statements. On October 26, 2001, I-Link received a demand for payment from Winter Harbor LLC for the amount of the draw on the letter of credit and interest (at prime plus 9%) since October 11, 2001. The Company is evaluating Winter Harbor's demand in light of the various agreements entered into between the Company, Counsel Communications LLC and Winter Harbor. While the Company believes that it will not be required to pay cash to Winter Harbor of the amount claimed, there can be no assurance as to the ultimate outcome of this matter.

        The Company borrowed $12,000,000 under a loan agreement with Counsel Communications during 2001. Interest on the note (9% per annum) is automatically added to principal at the end of each calendar quarter. The note is due March 1, 2004. The note is convertible into I-Link's common stock at a conversion rate of $.56 per share. At any time the Company made a draw on the loan agreement and the market price of the Company's common stock was higher than the conversion rate, a debt discount was recorded equal to this beneficial conversion feature. A debt discount of $1,092,143 was recorded on the borrowings of $12,000,000. This discount is being accreted to interest expense over the term (three years) of the loan agreement.

        On June 6, 2001, I-Link and Counsel entered into a Loan and Security Agreement (Loan Agreement). Any monies advanced to I-Link between June 6, 2001 and April 15, 2002, (in the amount not to exceed $10,000,000) will be governed by the Loan Agreement. In connection with the Loan Agreement, I-Link executed a note payable to Counsel, due June 6, 2002. The loan is secured by all of the assets of I-Link. Outstanding balances (including any accrued and unpaid interest) under the loan bear interest at 10% per annum which interest is payable quarterly in arrears following the last business day of each quarter. However, Counsel may (and has elected to do so through December 31, 2001) at its sole election allow interest to accrue and become payable at the end of the term. The full amount of the agreement ($10,000,000) was advanced to I-Link during 2001. During 2001 and as of December 31, 2001, Counsel had also advanced $7,070,320 to I-Link for which the conditions and terms of repayment are anticipated (as there are no written agreements) to be similar to the $10,000,000 agreement dated June 6, 2001.

        On June 4, 2001, WorldxChange entered into a $15,000,000 loan and security agreement and promissory note with Counsel (as the lender) and I-Link Incorporated (as the guarantor). The loan is collateralized by all assets of WorldxChange. The loan is also guaranteed by I-Link and collateralized by the assets of I-Link. Outstanding balances under the loan bear interest at 10% per annum. The loan will mature in December 2004. The proceeds of the loan were used to purchase and operate certain of the business assets purchased under the court-supervised sale in the bankruptcy proceeding of World Access, Inc. The proceeds were also utilized to pay fees and expenses related to such asset acquisition and operation and pay certain assumed liabilities related to the transaction. In December 2001, the WorldxChange repaid $2,500,000 of the principal amount outstanding under the promissory note and as of December 31, 2001, the outstanding balance was $12,465,000, of which $9,000,000 is permitted to be repaid under certain conditions, during the three-year term of the credit facility.

        In connection with the $15,000,000 loan, I-Link issued to Counsel a warrant to purchase 15,000,000 shares of common stock of I-Link at an exercise price of $0.60 per share. The warrants were

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exercisable in three tranches as follows: 5,000,000 on the date of the agreement, 5,000,000 on September 4, 2001 and 5,000,000 on December 4, 2001. The warrants expire on June 4, 2003. The Company has recorded $2,170,059 as a discount against the $15,000,000 loan from Counsel representing the relative fair value attributed to the warrant. The value of the warrants was calculated using the Black Scholes Model and is being amortized over the original one-year term of the loan. As of December 31, 2001, the unamortized debt discount was $904,000.

        During 1998, the Company obtained an aggregate of $7,768,000 in interim debt financing from Winter Harbor, L.L.C. As consideration for Winter Harbor's commitment to make the loan, the Company agreed to issue 6,740,000 warrants to purchase common stock of the Company at exercise prices ranging from $5.50 to $7.22 (subsequently reset to $1.25 in January 2001) based upon 110% of the closing price of the common stock on the day loan funds were advanced. The warrants had exercise periods of 7.5 years from the date of issuance. The Company also agreed to extend the exercise period on all warrants previously issued to Winter Harbor (10,800,000) to 7.5 years. Pursuant to the terms of the loan agreement with Winter Harbor, the initial borrowings of $5,768,000 were payable upon demand by Winter Harbor no earlier than May 15, 1998, and were collateralized by essentially all of the assets of the Company's subsidiaries. As the loan was not repaid by May 15, 1998, the total loan, including additional borrowings of $2,000,000 obtained in the second quarter, continued on a demand basis with interest accruing at prime plus 4%. On April 15, 1999, Winter Harbor agreed that it would not demand payment under the notes prior to April 15, 2000 and in April 2000 agreed to extend the due date of the principal and accrued interest to April 15, 2001. On March 1, 2001, Winter Harbor converted the note ($7,768,000) and accrued interest ($2,537,072 at February 28, 2001) into 4,122 shares of Series M convertible preferred stock. Accrued and unpaid interest of $2,376,498 on the $7,768,000 Winter Harbor debt was included in short-term liabilities as of December 31, 2000.

Note 9—Commitments under Long-term Leases

        Agreements classified as operating leases have terms ranging from one to six years. The Company's rental expense for operating leases was approximately $13,547,000, $6,946,000, and $3,270,000 for 2001, 2000 and 1999, respectively.

        Future minimum rental payments required under non-cancelable capital and operating leases with initial or remaining terms in excess of one year consist of the following at December 31, 2001:

	Capital Leases			Operating Leases
Year ending December 31:
2002	$	3,869,000		$	2,466,000
2003		3,036,000			1,744,000
2004		2,984,000			725,000
2005		1,470,000			444,000
2006		—			831,000
Total minimum payments		11,359,000		$	6,210,000
Less amount representing interest		(1,339,000	)
Present value of net minimum lease payments		10,020,000
Less current portion		(3,034,000	)
Long-term obligations under capital leases	$	6,986,000

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        I-Link's subsidiaries have various agreements with national carriers to lease local access spans and to purchase carrier services. The agreements include minimum usage commitments with termination penalties up to 100% of the remaining commitment. Minimum usage commitments are as follows:

	Year ending December 31
2002	$	4,800,000
2003		3,100,000
2004		800,000

Note 10—Extraordinary Gain on Extinguishment of Debt

        During the third quarter of 2001, Nexbell was in default on two leases and at the time of settlement, Nexbell was liable for $1,272,818. The debt was settled during the fourth quarter of 2001 for a one-time payment of $180,000 and accordingly the Company recorded an extraordinary gain in the amount of $1,092,818.

Note 11—Income Taxes

        The Company recognized no income tax benefit from its losses in 2001, 2000 and 1999.

        The reported benefit from income taxes varies from the amount that would be provided by applying the statutory U.S. Federal income tax rate to the loss from continuing operations before taxes for the following reasons:

		2001			2000			1999
Expected federal statutory tax benefit		$	(15,128,853	)	$	(8,755,741	)	$	(8,384,158	)
Increase (reduction) in taxes resulting from:
	State income taxes		(1,094,465	)		(774,427	)		(553,452	)
	Foreign loss not subject to domestic tax		233,999			1,584,313			353,083
	Non-deductible interest on certain notes		516,271			—			2,473,160
	Exercise of stock options issued for services		—			(1,277,402	)		(60,428	)
	Non-deductible goodwill		3,096,030			—			—
	Change in valuation allowance		14,107,017			10,090,027			5,719,844
	Other		(1,729,999	)		(866,770	)		451,951
		$	—		$	—		$	—

        At December 31, 2001, the Company had net operating loss carryforwards for both federal and state income tax purposes of approximately $117,000,000. The Company's utilization of approximately $90,000,000 of the net operating loss carryforward against future taxable income will be subject to an annual limitation of approximately $1,300,000 per year because of the change in ownership in 2001, as required by Internal Revenue Code Section 382.

F-22

        The components of the deferred tax asset and liability as of December 31, 2001 and 2000 are as follows:

			2001			2000
Deferred tax assets:
	Tax net operating loss carryforwards		$	43,469,476		$	27,319,350
	Acquired in-process research and development and intangible assets			3,503,450			2,943,381
	Amortization of deferred compensation on stock options			1,933,060			—
	Reserve for loss on disposal of discontinued operations			304,173			—
	Reserve for accounts receivable and inventory valuation			694,895			164,703
	Accrued officers wages			101,545			—
	Accrued vacation			145,511			126,820
	Unearned revenue			741,030			6,183,318
	Other			20,229			136,993
	Valuation allowance			(50,905,160	)		(36,798,144	)
		Total deferred tax asset		8,209			76,421
Deferred tax liability:
	Excess tax depreciation and amortization			(8,209	)		(76,421	)
		Total deferred tax liability		(8,209	)		(76,421	)
Net deferred tax asset			$	—		$	—

        The valuation allowance at December 31, 2001 and 2000 has been provided to reduce the total deferred tax assets to the amount which is considered more likely than not to be realized, primarily because the Company has not generated taxable income from its business communications services. The change in the valuation allowance is due primarily to the increase in net operating loss carryforwards. It is at least reasonably possible that a change in the valuation allowance may occur in the near term.

Note 12—Transactions with Significant Owners

Transactions with Winter Harbor:

        On March 1, 2001, Winter Harbor elected to convert a note payable from I-Link for $7,768,000 plus accrued interest of $2,537,072 into 4,122 shares of Class M convertible redeemable preferred stock of I-Link and 5,000,000 common stock warrants under the original terms of the loan agreement. Upon conversion of the note and accrued interest, current liabilities in the amount of $10,305,072 were satisfied without use of cash.

        On March 1, 2001 the Company entered into a Warrant Exchange Agreement with Winter Harbor. Pursuant to the terms and provisions of this Agreement, Winter Harbor agreed to assign, transfer, convey and deliver to I-Link, warrants to acquire 33,540,000 (including the 5,000,000 warrants issued upon conversion of the convertible debt discussed above) shares of common stock of I-Link beneficially owned by Winter Harbor in exchange for the issuance of 5,000,000 shares of I-Link's common stock to Winter Harbor. The repurchase of the common warrants was accounted for similar to the repurchase of treasury stock.

F-23

Transactions with Counsel:

        On March 1, 2001, I-Link entered into a Senior Convertible Loan and Security Agreement, (the Loan Agreement) with Counsel Communications, LLC, and a wholly owned subsidiary of Counsel Corporation, (collectively, Counsel). Pursuant to the terms and provisions of the Loan Agreement, Counsel agreed to make periodic loans to I-Link in the aggregate principal amount not to exceed $10,000,000. Draw downs against the $10,000,000 Loan Agreement are structured as a 3-year convertible note with interest at 9% per annum, compounded quarterly. On May 8, 2001 the aggregate principal amount under the facility was increased to $12,000,000. Counsel can convert the loan into shares of common stock of I-Link at a conversion price of $0.56 per common share. At any time after September 1, 2002, the outstanding debt including accrued interest shall automatically convert into common stock using the then current conversion rate, on the first date that is the twentieth consecutive trading day that the common stock has closed at a price per share that is equal to or greater than $1.00 per share. The conversion price is subject to adjustment in accordance with the terms and provisions of the Loan Agreement. The Loan Agreement provides for traditional anti-dilution protection and is subject to certain events of default. Total proceeds available to the Company were $12,000,000, less debt issuance costs of $600,000, which are being amortized over three years.

        By executing the above Loan Agreement, I-Link granted Counsel a first priority security interest in all of I-Link's assets owned at the time of the execution of the Loan Agreement or subsequently acquired, including but not limited to I-Link's accounts receivable, general intangibles, inventory, equipment, books and records, and negotiable instruments held by the Company (collectively, the Collateral). The Loan Agreement also included demand registration rights for common stock issuable upon conversion of the Loan Agreement.

        In addition to the foregoing agreements, I-Link and Counsel executed a Securities Support Agreement, dated March 1, 2001 (the Support Agreement) for the purpose of providing certain representations and commitments by I-Link to Counsel. In accordance with the terms and provisions of a separate agreement (the Securities Purchase Agreement) with Winter Harbor and First Media L.P., a limited partnership and the parent company of Winter Harbor (collectively the Winter Harbor Parties), Counsel agreed to purchase from the Winter Harbor Parties all of their equity securities in I-Link, including shares of Class M and Class N preferred stock of I-Link, beneficially owned by the Winter Harbor Parties for an aggregate consideration of $5,000,000 cash.

        I-Link's commitments to Counsel set forth in the Support Agreement included I-Link's agreement to appoint two designees of Counsel (which was done in May 2001) to the Company's Board of Directors. The Company also agreed that immediately following the initial funding of the Loan agreement, I-Link would solicit the proxies of I-Link's shareholders to elect three additional nominees designated by Counsel, thus, increasing the size of the Company's Board of Directors to nine members.

        Under the Support Agreement, I-Link also agreed to engage appropriate advisors and proceed to take all steps necessary to merge Nexbell Communications Inc. (a subsidiary of Counsel) into I-Link. The merger was completed on April 17, 2001 (See note 6).

        On March 7, 2001, as part of the agreements discussed above, Counsel converted all of the Class M and N convertible preferred stock it obtained from Winter Harbor for $5,000,000 into 61,966,016 shares of I-Link's common stock. The Class N shares were converted at $1.25 per common share and Class M at $.56 per common share, in accordance with their respective conversion rights.

        On June 6, 2001, I-Link and Counsel entered into a Loan and Security Agreement (Loan Agreement). Any monies advanced to I-Link between June 6, 2001 and April 15, 2002, (in the amount not to exceed $10,000,000) will be governed by the Loan Agreement. In connection with the Loan Agreement, I-Link executed a note payable to Counsel, due June 6, 2002. The loan is secured by all of

F-24

the assets of I-Link. As of December 31, 2001, advances under this loan agreement totaled $10,000,000. (See Note 8)

        During 2001 and as of December 31, 2001, Counsel had also advanced $7,070,320 to I-Link for which the conditions and terms of repayment are anticipated (as there are no written agreements) to be similar to the $10,000,000 agreement dated June 6, 2001 (discussed above).

        To fund the acquisition of the assets purchased and liabilities assumed by WorldxChange, Counsel provided a loan to WorldxChange in the aggregate amount of $15,000,000. The loan is subordinated to the revolving credit facility described above and is collateralized against all assets of WorldxChange. (See Note 8)

        As a result of Counsel's purchase of Winter Harbor's security holdings in I-Link, Counsel became the single largest shareholder of the Company. In addition to the above transactions, Counsel Corporation and its subsidiary Counsel LLC committed to fund, through long-term intercompany advances or equity contribution, all capital investment, working capital or other operational cash requirements of the Company through April 15, 2003.

Accounting treatment of Counsel and Winter Harbor transactions:

        The repurchase of Winter Harbor's 33,540,000 warrants for 5,000,000 common shares was recorded at market value of the common stock issued in the exchange amounting to $3,750,000. The repurchase was accounted for similar to the repurchase of treasury stock. Accordingly, common stock and additional paid in capital was increased by $3,750,000 which was offset by a charge to additional paid in capital of $3,715,000 to reflect the warrant repurchase. The net effect of this transaction was the recording of additional par value of $35,000 for the 5,000,000 shares issued.

        As the conversion price for Class M preferred stock had dropped to $1.25 per share (from its original conversion price of $2.78), an amount reflecting the increase in the beneficial conversion feature was recorded as an increase in additional paid in capital and a charge to accumulated deficit for $9,779,846. The purchase and sale of the Class M and Class N preferred stock between Winter Harbor and Counsel, as described above, have been imputed in I-Link's financial statements as if the transactions had been effected through I-Link as a repurchase of the preferred stock from Winter Harbor and a reissuance to Counsel. Accordingly, the transaction was considered a repurchase of Winter Harbor's Class M and N preferred stock in exchange for $5,000,000. The difference between the carrying value of the Class M and N preferred stock and the $5,000,000 paid was recorded as an adjustment to retained earnings reflected in the form of a $30,292,319 contribution from settlement of these transactions between shareholders and has been reflected as such in the statement of changes in stockholders' deficit. In addition, the transaction considered that I-Link resold the Class M and N preferred stock to Counsel for $5,000,000 (Counsel's payment to Winter Harbor). However, since the conversion price on the Class M shares was below the market price on the day the transaction closed, a beneficial conversion feature was recorded as the difference between the market price of the common shares and the conversion price per share multiplied by the number of common shares into which the Class M and Class N could convert. This amount was limited to the proceeds.

        The Company has also recorded a beneficial conversion feature (debt discount) in the amount of $1,017,857 on the convertible debt funded by Counsel that was received through March 31, 2001. The amount of the discount, if applicable, is calculated as the difference between the conversion price ($.56) and the market price of the common stock (if higher than the conversion price on the date funds are drawn on the loan), multiplied by the number of shares of common stock into which the note can be converted. The beneficial conversion feature is being amortized over the life of the note payable (three years).

F-25

Note 13—Legal Proceedings

        On January 18, 2001, I-Link filed action against Red Cube, International AG and Red Cube, Inc. (Red Cube) in federal court in Utah seeking damages against Red Cube, for an alleged default on an agreement to provide approximately $60,000,000 in equity funding to I-Link, and instituting a scheme to drive I-Link out of business and obtain control of I-Link's proprietary technology, telecommunications network, key employees and customers. I-Link obtained a temporary restraining order against Red Cube preventing Red Cube from interfering with I-Link's employees, vendors and customers. Red Cube subsequently filed a motion to dismiss the action and compel arbitration based upon a mandatory arbitration provision in the May 2000 Cooperation and Framework Agreement by and between Red Cube and I-Link. The court found that I-Link's claims were "related to" the Cooperation and Framework Agreement and granted Red Cube's motion to dismiss for lack of subject matter jurisdiction. The dismissal resulted in this issue being submitted for AAA arbitration pursuant to the Cooperation and Framework Agreement.

        On January 24, 2001, Red Cube delivered a written demand for arbitration and commenced an arbitration proceeding in New York alleging that I-Link breached the Cooperation and Framework Agreement by (i) threatening a shut-down of I-Link's IP telecommunications network, (ii) the resignation of certain employees, and (iii) I-Link's alleged failure to update the escrowed copy of its source code to the current version of the source code employed to maintain the IP telecommunications network. I-Link denied these allegations. I-Link filed a counterclaim against Red Cube and filed a third-party claim against Red Cube, seeking (compensatory and/or punitive) damages for Red Cube's default under a subsequent agreement to provide approximately $60,000,000 in equity funding to I-Link, and engaging in a scheme to drive I-Link out of business and obtain control of I-Link's proprietary technology, telecommunications network, key employees and customers. An evidentiary arbitration hearing is currently scheduled to begin in July 2002.

        On March 10, 2000, the Company and JNC Opportunity Fund, Ltd. (JNC) entered into a settlement and release agreement relating to certain litigation concerning shares of Series F Preferred stock held by JNC. The shares of Series F Preferred stock held by JNC were convertible into 1,104,972 shares of common stock under the original agreement with JNC. On March 10, 2000, the Company issued 531,968 shares of common stock to JNC pursuant to the settlement agreement in cancellation of the Series F shares held by JNC. The balance of the shares required to be issued pursuant to the settlement agreement required approval at a special meeting of the shareholders held on May 23, 2000, at which time approval of the shareholders was received. Due to the delay in issuance of the shares required to be issued pursuant to the settlement agreement until shareholder approval was received and the related common shares were registered, the Company issued 20,458 "Additional Shares" of common stock in accordance with the agreement.

        The issuance of 87,477 shares representing dividends associated with the Series F stock has been recorded in the Company's financial statements as dividends paid, and 129,519 shares have been recorded as settlement expense. The Company has recorded interest expense of $111,021 representing the market value of the common stock issued as Additional Shares, Late Shares and Additional Late Shares (20,458) on May 24, 2000. The amount of settlement and interest expense was determined by reference to the market value of the Company's common stock on the date of issuance (May 24, 2000) multiplied by the common shares issued. Accordingly, the total settlement and interest expense was $639,565 and $111,021, respectively.

        The Company is involved in litigation relating to other claims arising out of its operations in the normal course of business. The litigation and arbitration referred to above is not expected, individually or in the aggregate, to have a material adverse affect on the Company.

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Note 14—Stockholders' Equity

Series N preferred stock

        On July 23, 1999, the Company completed its offering of 20,000 shares of Series N preferred stock. The offering was fully subscribed through cash subscriptions and the Company exercised its rights to exchange notes payable to Winter Harbor of $8,000,000 and $4,000,000, plus accrued interest. In total the Company received $7,281,086 in cash (before expenses of $486,679) and exchanged $12,718,914 in debt and accrued interest. The Series N conversion price was initially set at $2.78. The conversion rate was adjusted to $1.48 as of December 31, 2000 and $1.25 in January 2001 based on 110% of the average trading price for any 20 day period following the date that Series N preferred stock is first issued subject to a floor of $1.25.

        The Series N preferred stock votes with the common stock on an as converted basis and is senior to all other preferred stock of the Company. Dividends, if any, will be paid on an as converted basis equal to common stock dividends.

        During 2001, 2000 and 1999, holders of the Series N preferred stock converted 14,417 (including the shares issued to Winter Harbor—see Note 11), 1,129 and 3,685 of those shares into 11,532,343, 467,169 and 1,413,369 shares of common stock, respectively, at conversion prices ranging between $2.78 and $1.25. As of December 31, 2001 there were 769 shares of Series N preferred stock outstanding.

        At December 31, 2001, of the 10,000,000 shares of preferred stock authorized, 9,486,500 remain undesignated and unissued.

Series C preferred stock

        The Company's Articles of Incorporation provide for up to 240,000 shares of preferred stock as Series C Convertible Cumulative preferred stock (the Series C preferred stock). The Series C preferred stock has a par value of $10 per share and holders are entitled to receive cumulative preferential dividends equal to 8% per annum of the liquidation preference per share of $60. Unless previously redeemed, the Series C preferred stock was initially convertible into 24 shares of the Company's common stock (Conversion Shares) at the option of the holder (subject to certain anti-dilution adjustments). The Series C stock exchange price did allow for downward resets based upon certain conditions subject to a floor of $1.25. On September 6, 2001, all outstanding shares of the Company's Class C preferred stock automatically converted into shares of common stock according to the terms of the designation of the Class C preferred stock. Accordingly, 9,249 shares of Class C preferred stock were converted into 3,415,015 shares of common stock. In addition to the conversion of the preferred stock, the Company was obligated to pay dividends declared but unpaid and other dividends not paid on the preferred stock through the conversion date. Accordingly, dividends in the amount of $630,313 were paid through the issuance of 534,016 shares of common stock.

        During the years ending December 31, 2000 and 1999, 24,428, and 10,374 shares, respectively, of Series C preferred stock were converted into common shares. At December 31, 2001, there were no Series C preferred shares outstanding.

Series M preferred stock

        On October 10, 1997, the Company closed an agreement with Winter Harbor pursuant to which Winter Harbor invested $12,100,000 in a new series of the Company's convertible preferred stock (the Series M convertible preferred stock). Winter Harbor purchased approximately 2,545 shares of Series M convertible preferred stock, originally convertible into approximately 2,545,000 shares of common stock, for an aggregate cash consideration of approximately $7,000,000 (equivalent to $2.75 per share of common stock). The agreement with Winter Harbor also provided for the purchase of approximately 1,855 additional shares of Series M convertible preferred stock, originally convertible

F-27

into approximately 1,855,000 shares of common stock. Such additional shares of Series M convertible preferred stock were paid for by Winter Harbor exchanging $5,000,000 in outstanding notes payable and accrued interest of approximately $100,000.

        The Series M convertible preferred stock was entitled to receive cumulative dividends in the amount of 10% per annum before any other Series of preferred (other than Series F) or common stock receives any dividends. Thereafter, the Series M convertible preferred stock was to participate with the common stock in the issuance of any dividends on a per share basis. The Series M convertible preferred stock had the right to veto the payment of dividends on any other class of stock.

        The basis for conversion shall be adjusted upon the occurrence of certain events, including without limitation, issuance of stock dividends, recapitalization of the Company or the issuance of stock by the Company at less than the fair market value thereof. Because certain redemption provisions were not entirely within the control of the Company, the Series M convertible preferred stock was presented as a separate line item above stockholders' deficit as of December 31, 2000.

        On March 1, 2001, Winter Harbor elected to convert a note payable from I-Link for $7,768,000 plus accrued interest of $2,537,072 into 4,122 shares of Class M convertible redeemable preferred stock of I-Link and 5,000,000 common stock warrants under the original terms of the loan agreement. Upon conversion of the note and accrued interest, current liabilities in the amount of $10,305,072 were satisfied without use of cash.

        During 2001, all 8,522 shares of Series M preferred stock outstanding were converted into 41,849,107 shares of common stock (at a equivalent common share price of $0.56 in accordance with its conversion features). In addition, the Company was obligated to pay a dividend in the amount of $4,812,214 on the Series M preferred stock being converted, which dividend was paid by issuance of 8,593,239 shares of common stock. At December 31, 2001, there were no Series M preferred shares outstanding.

Series F preferred stock

        On July 9, 1998 the Company obtained a $10,000,000 equity investment, net of $530,000 in closing costs, from JNC Opportunity Fund Ltd. (JNC). Under the original terms of the equity investment, JNC purchased 1,000 shares of the Company's newly created 5% Series E convertible preferred stock, which were convertible into the Company's common stock. In addition, JNC obtained a warrant to purchase 250,000 shares of the Company's common stock at an exercise price of $5.873 (equal to 120% of the market price of the Company's publicly traded common shares as of the date of closing).

        On July 28, 1998, the terms of the JNC equity investment were amended to provide a floor to the conversion price, and to effect the amendment the Company created a 5% Series F convertible preferred stock for which the Series E preferred shares originally issued to JNC were exchanged one for one. Pursuant to the amendment, the Series F preferred shares were originally convertible into common shares at a conversion price of the lesser of $4.00 per common share or 87% of the moving average market price of the Company's common shares at the time of conversion, subject to a $1.25 floor. JNC also received an additional warrant to purchase 100,000 shares of the Company's common stock at an exercise price of $4.00 per common share. In addition, the Company issued warrants to purchase 75,000 shares of the Company's common stock at a price of $4.89 per share to two individuals as a brokerage fee in connection with the JNC equity investment.

        During 2000 and 1999 JNC converted 248 and 750 shares of Series F redeemable preferred stock into 1,104,972 and 3,518,051 shares of common stock, respectively. In addition, during 2000 and 1999, JNC was paid a stock dividend of 87,477 and 165,220 shares of common stock, respectively, on the converted shares. As of December 31, 2001 and 2000, all of the Series F redeemable preferred stock had been converted.

F-28

Common Stock

        In September 2001, at the annual meeting of shareholders, the shareholders approved an amendment to the Articles of Incorporation increasing the authorized common stock from 150,000,000 shares to 300,000,000 shares.

Note 15—Stock-based Compensation Plans

        At December 31, 2001, the Company has several stock-based compensation plans, which are described below. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed option plans.

        Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under the plans and based on the incremental fair value associated with the repricing of options consistent with the method outlined by SFAS 123, "Accounting for Stock-Based Compensation", the Company's net loss and loss per share would have been increased to the pro forma amounts indicated as follows:

	2001			2000			1999
Net loss as reported	$	(44,496,625	)	$	(25,752,178	)	$	(24,659,288	)
Net loss pro-forma	$	(47,429,694	)	$	(33,262,209	)	$	(33,442,845	)
Basic and diluted loss per share as reported	$	(0.29	)	$	(1.03	)	$	(1.57	)
Basic and diluted loss per share pro-forma	$	(0.32	)	$	(1.25	)	$	(1.98	)

        The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: expected volatility of 120%, 102% and 97% in 2001, 2000 and 1999, respectively, risk free rates ranging from 3.17% to 6.62%, 4.67% to 6.83% and 4.35% to 6.08% in 2001, 2000 and 1999, respectively, expected lives of 3 years for each year, and dividend yield of zero for each year.

	2001				2000				1999
	Options and Warrants		Weighted Average Exercise Price		Options and Warrants		Weighted Average Exercise Price		Options and Warrants		Weighted Average Exercise Price
Outstanding at beginning of year	45,354,992		$	2.57	41,945,091		$	2.67	30,265,670		$	4.54
Granted	20,509,559			0.76	5,508,339			4.13	12,138,246			2.18
Exercised	—			—	(1,612,231	)		3.10	(74,280	)		2.03
Expired	(1,643,177	)		3.43	(180,144	)		3.56	(301,462	)		3.59
Forfeited	(36,187,910	)		1.42	(306,063	)		3.40	(83,083	)		4.13
Outstanding at end of year	28,033,464		$	2.27	45,354,992		$	2.57	41,945,091		$	2.67
Options and warrants exercisable at year end	27,090,203				38,662,539				37,074,871
Weighted-average fair value of options and warrants granted during the year			$	0.57			$	2.25			$	2.61

F-29

        The following table summarizes information about fixed stock options and warrants outstanding at December 31, 2001.

Exercise price	Options and Warrants Outstanding	Weighted Average Remaining Life (years)	Weighted Average Exercise Price		Number Exercisable at 12/31/01	Weighted Average Exercise Price
$0.27 to $1.00	15,381,724	1.61	$	0.60	15,177,224	$	0.60
$1.13 to $3.00	3,010,195	8.82		2.60	2,810,528		2.59
$3.06 to $4.94	6,374,308	5.37		3.84	6,226,910		3.84
$5.06 to $13.88	3,267,237	5.39		6.75	2,875,541		6.78
	28,033,464	2.13	$	2.27	27,090,203	$	2.21

2001 Stock option and appreciation rights plan

        In September 2001, the shareholders of the Company approved the 2001 Stock Option and Appreciation Rights Plan which provides for the issuance of incentive stock options, non-qualified stock options and stock appreciation rights (SARs) up to an aggregate of 14,000,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events). The price at which shares of common stock covered by the option can be purchased is determined by the Company's Board of Directors or its committee; however, in the case of incentive stock options the exercise price shall not be less than the fair market value of the Company's common stock on the date the option is granted. There were no options granted under this plan in 2001.

1997 Recruitment stock option plan

        In October 2000, the shareholders of the Company approved an amendment of the 1997 Recruitment Stock Option Plan which provides for the issuance of incentive stock options, non-qualified stock options and stock appreciation rights (SARs) up to an aggregate of 7,400,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events). The price at which shares of common stock covered by the option can be purchased is determined by the Company's Board of Directors; however, in all instances the exercise price is never less than the fair market value of the Company's common stock on the date the option is granted.

        As of December 31, 2001, there were incentive stock options to purchase 1,746,039 shares of the Company's common stock and non-qualified stock options to purchase 1,136,343 shares of the Company's common stock outstanding. The outstanding options vest over three years at exercise prices of $0.27 to $13.88 per share. Options issued under the plan must be exercised within ten years of grant and can only be exercised while the option holder is an employee of the Company. The Company has not awarded any SARs under the plan. During 2001, 2000 and 1999, options to purchase 2,600,430, and 439,542 and 126,042 shares of common stock, respectively, were forfeited or expired. There were no exercises during 2001.

Director stock option plan

        The Company's Director Stock Option Plan authorizes the grant of stock options to directors of the Company. Options granted under the Plan are non-qualified stock options exercisable at a price equal to the fair market value per share of common stock on the date of any such grant. Options granted under the Plan are exercisable not less than six months or more than ten years after the date of grant.

        As of December 31, 2001, options for the purchase of 7,002 shares of common stock at prices ranging from $0.875 to $3.875 per share were outstanding, all of which are exercisable. In connection

F-30

with the adoption of the 1995 Director Plan, the Board of Directors authorized the termination of future grants of options under the plan; however, outstanding options granted under the plan will continue to be governed by the terms thereof until exercise or expiration of such options. In 2001, no options were exercised.

1995 Director stock option and appreciation rights plan

        The 1995 Director Stock Option and Appreciation Rights Plan (the 1995 Director Plan) provides for the issuance of incentive options, non-qualified options and SARs to directors of the Company up to 250,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events).

        The 1995 Director Plan also provides for the grant of non-qualified options on a discretionary basis to each member of the Board of Directors then serving to purchase 10,000 shares of common stock at an exercise price equal to the fair market value per share of the common stock on that date. Each option is immediately exercisable for a period of ten years from the date of grant. The Company has 190,000 shares of common stock reserved for issuance under the 1995 Director Plan. As of December 31, 2001, options to purchase 170,000 shares of common stock at prices ranging from $1.00 to $1.25 per share are outstanding and exercisable. No options were granted or exercised under this plan in 2001, 2000 or 1999.

1995 Employee stock option and appreciation rights plan

        The 1995 Employee Stock Option and Appreciation Rights Plan (the 1995 Employee Plan) provides for the issuance of incentive options, non-qualified options, and SARs.

        Directors of the Company are not eligible to participate in the 1995 Employee Plan. The 1995 Employee Plan provides for the grant of stock options which qualify as incentive stock options under Section 422 of the Internal Revenue Code, to be issued to officers who are employees and other employees, as well as non-qualified options to be issued to officers, employees and consultants. In addition, SARs may be granted in conjunction with the grant of incentive options and non-qualified options.

        The 1995 Employee Plan provides for the grant of incentive options, non-qualified options and SARs of up to 400,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits, and other similar events). To the extent that an incentive option or non-qualified option is not exercised within the period of exercisability specified therein, it will expire as to the then unexercisable portion. If any incentive option, non-qualified option or SAR terminates prior to exercise thereof and during the duration of the 1995 Employee Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1995 Employee Plan for the grant of additional options or rights to any eligible employee. The shares of common stock subject to the 1995 Employee Plan may be made available from either authorized but unissued shares, treasury shares or both. The Company has 400,000 shares of common stock reserved for issuance under the 1995 Employee Plan. As of December 31, 2001, options to purchase 145,250 shares of common stock with an exercise price of $3.90 are outstanding under the 1995 Employee Plan. During 2001, 2000 and 1999, options to purchase 37,500, 3,333 and 45,834, respectively, of common stock were forfeited or expired. No options were exercised in 2001.

Other warrants and options

        In 1996, the Company approved the issuance of 1,750,000 options to executives of the Company, as part of their employment agreements, and 64,000 options to a consultant. The options expire in 2006 and have an option price of $3.90. In 2000, 250,000 options were exercised. As of December 31, 2001, there remained 1,564,000 options outstanding.

F-31

        On July 1, 1996, the Company approved the issuance of options to purchase 1,500,000 and 500,000 shares of common stock to two officers as part of their employment agreements. Each option has an exercise price of $7.00 per share, vesting in 25% increments in the event that the average closing bid price of a share of the Company's common stock for five consecutive trading days exceeds $10, $15, $20 and $25, respectively. Each option becomes exercisable (to the extent vested) on June 30, 1997, vested in its entirety on June 30, 2001 and lapses on June 30, 2002. As of December 31, 2001 there remained 2,000,000 options outstanding.

        During 1997, the Company issued options to purchase 1,210,000 shares of common stock (210,000 of which were issued under the 1997 recruitment stock option plan) to consultants at exercise prices ranging from $4.875 to $8.438 (repriced to $3.90 on December 13, 1998), which was based on the closing price of the stock at the grant date. The fair value of the options issued was recorded as deferred compensation of $4,757,134 to be amortized over the expected period the services were to be provided. As a result of the repricing, the Company recorded additional deferred compensation expense totaling $262,200 (of which $21,103 and $44,364 was expensed in 2000 and 1999, respectively), representing the incremental fair value of the repriced options over the original options. During 2000 and 1999, $279,150, and $852,714, respectively, of the deferred compensation was amortized to expense. All deferred compensation expense related to these options was recorded as of December 31, 2000. During 2001, 2000 and 1999, options to purchase 0, 91,000 and 16,669, respectively, shares of common stock expired. During 2000, 169,000 options were exercised. The remaining options must be exercised within ten years of the grant date. As of December 31, 2001 there remained 890,000 options outstanding.

        During 1997, the Company issued non-qualified options to purchase 2,295,000 shares of common stock to certain executive employees. The options must be exercised within ten years of the grant date and have an exercise price of $3.90. There were no options forfeited in 2001 or 2000 and 66,670 were forfeited in 1999. There were 78,000 options exercised in 2000. No options expired of exercised during 2001. As of December 31, 2001 there remained 2,118,219 options outstanding.

        In 1997, the Company issued warrants to an investment group in relation to settlement of certain litigation. As of December 31, 2001 there were outstanding, 87,500 of these warrants with an exercise price of $2.50 and expire in April 2002.

        During 1998, the Company issued non-qualified options to purchase 935,000 shares of common stock to certain executive employees at exercise prices ranging from $2.563 to $3.125, which price was based on the closing price of the stock at the grant date. The options must be exercised within ten years of the grant date. During 2001, 2000 and 1999, options to purchase 0, 43,332 and 58,333 shares of common stock, respectively, were forfeited. No options were exercised during 2001. As of December 31, 2001 there remained 809,446 options outstanding.

        In 1998 the Company issued warrants in connection with a financing arrangement. As of December 31, 2001, there were 408,000 warrants outstanding with exercise prices from $4.89 to $5.87. The warrants expire in June 2003.

        During 1999, the Company issued non-qualified options to purchase 655,000 shares of common stock to certain executive employees at exercise prices ranging from $2.50 to $3.563, which price was based on the closing price of the stock at the grant date. The options must be exercised within ten years of the grant date. No options were exercised during 2001. During 2001, 50,000 of these options were forfeited. During 2000, options to purchase 230,000 shares of common stock were exercised. As of December 31, 2001 there remained 375,000 options outstanding.

        During 1999, the Company issued non-qualified options to purchase 200,000 shares of common stock to a consultant at an exercise price of $3.00, which was based on the closing price of the stock at the grant date. The fair value of the options issued was recorded as deferred compensation of $300,000

F-32

to be amortized over the expected period the services were to be provided. During 2000 and 1999 deferred compensation of $137,500 and $162,500, respectively, was amortized to expense. As of December 31, 2001 there remained 200,000 options outstanding.

        During 2000, the Company issued non-qualified options to purchase 2,585,000 shares of common stock to certain executive employees at exercise prices ranging from $2.75 to $6.375, which price was based on the closing price of the stock at the grant date. The options must be exercised within ten years of the grant date. During 2001, 1,208,335 of these options were forfeited. As of December 31, 2001 there remained 1,376,665 options outstanding.

        In June 2001, the Company issued to Counsel Communications (the Company's largest shareholder) 15,000,000 warrants to purchase common stock at $0.60 per share. The grant of the warrants was associated with the acquisition of WorldxChange (see Notes 6 and 8).

        During 2000 the Company obtained approval from its shareholders to establish the 2000 Employee Stock Purchase Plan. This plan allows all eligible employees of the Company to have payroll withholding of 1 to 15 percent of their wages. The amounts withheld during a calendar quarter are then used to purchase common stock at a 15 percent discount off the lower of the closing sale price of the Company's stock on the first or last day of each quarter. This plan was approved by the Board of Directors, subject to shareholder approval, and was effective beginning the third quarter of this year. The Company issued 34,518 and 23,494 shares to employees based upon payroll withholdings during 2001 and 2000, respectively.

Note 16—Segment of Business Reporting

        The Company's reportable segments are as follows:

•

Telecommunications services—includes long-distance toll services and enhanced calling features such as I-Link™ One Number. The telecommunications services products are marketed primarily to residential and small business customers.



•

Dial-around telecommunication services—includes operations of WorldxChange that offers a dial around telecommunications product through independent marketing agents. This segment and business was entered into effective June 4, 2001 with the Company's purchase of certain assets and liabilities of WorldxChange Communications, Inc.



•

Marketing services—includes training and promotional materials to IRs in the network marketing sales channel and WebCentre set-up and monthly recurring fees. Additionally, revenues were generated from registration fees paid by IRs to attend regional and national sales conferences. This segment and revenue source was terminated in February 2000.



•

Technology licensing and development—provides research and development to enhance the Company's product and technology offerings. Products developed by this segment include I-Link™ One Number, Indavo™, and other proprietary technology. The Company licenses certain developed technology to third party users, such as Lucent, Brooktrout and others.

F-33

        There are no material inter-segment revenues. The Company's business is conducted principally in the U.S.; foreign operations are not material. The table below presents information about net loss and segment assets used by the Company as of and for the year ended December 31:

		For the Year Ending December 31, 2001
		Telecommunication Services			Dial-around			Technology Licensing and Development		Total Reportable Segments
Revenues from external customers		$	26,624,000		$	50,289,000		$	5,697,000	$	82,610,000
Interest revenue			—			—			—		—
Interest expense			82,000			2,499,000			—		2,581,000
Depreciation and amortization expense			3,758,000			2,286,000			126,000		6,170,000
Segment income (loss)			(19,615,000	)		(13,927,000	)		1,611,000		(31,931,000	)
Other significant non-cash items:
	Provision for doubtful accounts		1,206,000			2,861,000			—		4,067,000
Expenditures for segment assets			1,181,000			14,797,000			8,000		15,986,000
Segment assets			10,605,000			32,206,000			137,000		42,948,000

		For the Year Ending December 31, 2000
		Telecommunication Services			Marketing Services			Technology Licensing and Development		Total Reportable Segments
Revenues from external customers		$	20,567,000		$	464,000		$	9,373,000	$	30,404,000
Interest revenue			—			—			—		—
Interest expense			16,000			—			—		16,000
Depreciation and amortization expense			2,409,000			15,000			98,000		2,522,000
Segment loss			(10,599,000	)		(204,000	)		3,218,000		(7,585,000	)
Other significant non-cash items:
	Provision for doubtful accounts		113,000			—			—		113,000
Expenditures for segment assets			5,528,000			—			8,000		5,536,000
Segment assets			15,311,000			—			201,000		15,512,000

		For the Year Ending December 31, 1999
		Telecommunication Services			Marketing Services			Technology Licensing and Development		Total Reportable Segments
Revenues from external customers		$	26,440,000		$	3,673,000		2,507,000		$	32,620,000
Interest revenue			—			—		—			—
Interest expense			51,000			—		—			51,000
Depreciation and amortization expense			2,128,000			115,000		115,000			2,358,000
Segment loss			(1,818,000	)		(2,456,000	)	(1,472,000	)		(5,746,000	)
Other significant non-cash items:
	Amortization of deferred compensation on stock options		163,000			557,000		—			720,000
	Provision for doubtful accounts		3,703,000			—		—			3,703,000
Expenditures for segment assets			3,191,000			282,000		282,000			3,755,000
Segment assets			8,423,000			620,000		1,464,000			10,507,000

F-34

        The following table reconciles reportable segment information to the consolidated financial statements of the Company:

		2001			2000			1999
Total interest revenue for reportable segments		$	—		$	—		$	—
Unallocated interest revenue from corporate accounts			81,000			487,000			179,000
		$	81,000		$	487,000		$	179,000
Total interest expense for reportable segments		$	2,581,000		$	16,000		$	51,000
Unallocated amortization of discount on notes payable			—			—			3,361,000
Unallocated interest expense from related party debt			1,556,000			1,054,000			1,571,000
Other unallocated interest expense from corporate debt			637,000			433,000			103,000
		$	4,774,000		$	1,503,000		$	5,086,000
Total depreciation and amortization for reportable segments		$	6,170,000		$	2,523,000		$	2,358,000
Unallocated amortization expense from intangible assets			2,608,000			2,612,000			2,894,000
Other unallocated depreciation from corporate assets			1,389,000			1,264,000			231,000
		$	10,167,000		$	6,399,000		$	5,483,000
Total segment loss		$	(31,931,000	)	$	(7,585,000	)	$	(5,746,000	)
Unallocated non-cash amounts in consolidated net loss:
	Amortization of discount on notes payable		(253,000	)		—			(3,361,000	)
	Loss on write-off and disposal of certain assets		—			—			(1,847,000	)
	Litigation settlement expense		—			(640,000	)		—
	Gain on sale of subsidiary		589,000			—			—
	Extraordinary gain on extinguishment of debt		1,093,000			—			—
	Amortization of deferred compensation on stock options issued for services		—			(542,000	)		(296,000	)
	Amortization of intangible assets		(2,608,000	)		(2,612,000	)		(2,894,000	)
Other corporate expenses			(11,387,000	)		(14,373,000	)		(10,016,000	)
		$	(44,497,000	)	$	(25,752,000	)	$	(24,160,000	)
Total amortization of deferred compensation for reportable segments			—			—		$	720,000
Unallocated amortization of deferred compensation			—		$	542,000			296,000
			—		$	542,000		$	1,016,000
Expenditures for segment long-lived assets		$	15,986,000		$	5,536,000		$	3,755,000
Other unallocated expenditures for corporate assets			93,000			93,000			703,000
		$	16,079,000		$	5,629,000		$	4,458,000
Segment assets		$	42,948,000		$	15,512,000		$	10,507,000
Intangible assets not allocated to segments			1,331,000			3,939,000			6,551,000
Furniture, fixtures and equipment not allocated to segments			495,000			954,000			1,240,000
Software and information systems not allocated to segments			432,000			443,000			228,000
Other assets not allocated to segments			1,574,000			809,000			3,132,000
		$	46,780,000		$	21,657,000		$	21,658,000

F-35

Note 17—Summarized Quarterly Data (unaudited)

        Following is a summary of the quarterly results of operations for the years ended December 31, 2001 and 2000:

(in thousands of dollars, except per share amounts)		March 31(1)			June 30			September 30			December 31
Net sales:	2001 2000	$	6,524 10,959		$	21,347 7,338		$	27,128 5,543		$	27,611 6,564
Operating loss:(2)	2001 2000	$	(6,433 (2,069	) )	$	(2,196 (6,382	) )	$	(18,711 (6,786	) )	$	(14,145 (8,860	) )
Net loss before extraordinary item:(3)	2001 2000	$	(6,669 (3,836	) )	$	(2,839 (5,899	) )	$	(20,503 (6,875	) )	$	(15,578 (9,142	) )
Net loss:	2001 2000	$	(6,669 (3,836	) )	$	(2,839 (5,899	) )	$	(20,503 (6,875	) )	$	(14,486 (9,142	) )
Basic and diluted income (loss) before extraordinary item per common share:	2001 2000	$	0.16 (0.17	)	$	(0.03 (0.25	) )	$	(0.18 (0.26	) )	$	(0.13 (0.35	) )
Basic and diluted income (loss) per common share:	2001 2000	$	0.16 (0.17	)	$	(0.03 (0.25	) )	$	(0.18 (0.26	) )	$	(0.12 (0.35	) )

(1)

The amounts reflected for the first quarter of 2001, differ from those reported in the company's March 31, 2001 Form 10-Q. The differences are due to results of operations for WebToTel for the month of March 2001 which was not included in the reported results of operations as originally reported. As the I-Link and WebToTel were under common control of Counsel at the time of the merger (April 17, 2001), the acquisition of WebToTel has been accounted for similar to a pooling-of-interests using Counsel's book values of the WebToTel assets and liabilities. The impact of the consolidation of the WebToTel results of operations and related per share data for the period from March 1 to March 31, 2001 are included herein as adjustments to the originally reported results of operations for the quarter ended March 31, 2001 as follows:

	As Originally Reported			Adjustment			As Adjusted
Revenues	$	(6,231,338	)	$	(293,127	)	$	(6,524,465	)
Operating loss	$	(5,680,258	)	$	(752,836	)	$	(6,433,094	)
Net loss	$	(5,916,658	)	$	(752,836	)	$	(6,669,494	)
Basic and diluted weighted shares outstanding		47,079,855			6,012,048			53,091,903
Net income per common share-basic and diluted	$	0.20		$	(0.04	)	$	.16

(2)

In the third quarter of 2001, the company recorded an impairment of goodwill of $8,040,054.

(3)

In the fourth quarter of 2001, the company recorded an extraordinary gain on extinguishment of debt of $1,092,818.

F-36

I-LINK INCORPORATED AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

Description		Balance at Beginning of Period	Charged to Costs and Expenses	Deductions(a)	Balance at End of Period
Allowance for doubtful accounts:
	December 31, 1999	1,941,000	3,703,077	3,855,077	1,789,000
	December 31, 2000	1,789,000	113,168	1,801,503	100,665
	December 31, 2001	100,665	4,066,690	2,304,367	1,862,988

(a)

For the allowance for doubtful accounts represents amounts written off as uncollectible and recoveries of previously reserved amounts.

S-1

SIGNATURES

        In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned, hereunto duly authorized.

	I-LINK INCORPORATED (REGISTRANT)
DATED: APRIL 12, 2002	By:	/s/  HELEN SELTZER Helen Seltzer, President and Chief Executive Officer

        In accordance with Section 13 of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  ALLAN C. SILBER Allan C. Silber	Chairman of the Board and Director	April 12, 2002
/s/  HELEN SELTZER Helen Seltzer	Helen Seltzer President, Chief Executive Officer	April 12, 2002
/s/  JAMES A. GIAUQUE III James A. Giauque III	Chief Accounting Officer and acting chief financial officer	April 12, 2002
/s/  HENRY Y. L. TOH Henry Y.L. Toh	Director	April 12, 2002

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/s/  HAL B. HEATON Hal B. Heaton	Director	April 12, 2002
/s/  GARY J. WASSERSON Gary J. Wasserson	Director, President and Chief Executive Officer of WorldxChange	April 12, 2002
/s/  SAMUEL L. SHIMER Samuel L. Shimer	Director	April 12, 2002
/s/  NORMAN CHIRITE Norman Chirite	Director	April 12, 2002
Albert Reichmann	Director

3

QuickLinks

PART I
PART II
PART III
PART IV
INDEX OF FINANCIAL STATEMENTS & SUPPLEMENTAL SCHEDULES
I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS as of December 31, 2001 and 2000
I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 2001, 2000 and 1999
I-LINK INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 2001, 2000 and 1999
I-LINK INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I-LINK INCORPORATED AND SUBSIDIARIES SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES

EX-10.22

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EXHIBIT 10.22

LOAN AND SECURITY AGREEMENT

by and among

WORLDXCHANGE CORP.

as Borrower,

and

FOOTHILL CAPITAL CORPORATION

as Lender

Dated as of December 10, 2001

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of December 10, 2001, between FOOTHILL CAPITAL CORPORATION, a California corporation ("Lender"), and WORLDXCHANGE CORP., a Delaware corporation ("Borrower").

        The parties agree as follows:

1.    DEFINITIONS AND CONSTRUCTION.

        1.1    Definitions.    As used in this Agreement, the following terms shall have the following definitions:

        "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible. With respect to any LEC Account, "Account Debtor" refers to the LEC obligated with respect thereto rather than the end-user unless the context in which such term is used clearly requires otherwise. With respect to any Clearinghouse Account, "Account Debtor" refers to the Clearinghouse obligated with respect thereto rather than the end-user unless the context in which such term is used clearly requires otherwise.

        "Accounts" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof.

        "ACH Transactions" means any cash management or related services (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by Wells Fargo or its Affiliates for the account of Borrower or its Subsidiaries.

        "Acquisition" means the acquisition by Borrower of all or substantially all of the Stock of any other Person or all or substantially all of the assets of any other Person, including any such acquisition accomplished by means of a merger or consolidation.

        "Additional Documents" has the meaning set forth in Section 4.4.

        "Advances" has the meaning set forth in Section 2.1.

        "Affiliate" means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, for purposes of the definition of Eligible Accounts and Section 7.14 hereof: (a) any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed to control such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person.

        "Agreement" has the meaning set forth in the preamble hereto.

        "Applicable Prepayment Premium" means, as of any date of determination, an amount equal to (a) during the period of time from and after the date of the execution and delivery

1

of this Agreement up to, but not including, the date that is the first anniversary of the Closing Date, 3% times the Maximum Revolver Amount, (b) during the period of time from and including the date that is the first anniversary of the Closing Date up to, but not including, the date that is the second anniversary of the Closing Date, 2% times the Maximum Revolver Amount, and (c) during the period of time from and including the date that is the second anniversary of the Closing Date up to and including the Maturity Date, 1% times the Maximum Revolver Amount.

        "Approved Billing Services Agreement" means a Billing Services Agreement a true and complete copy of which previously has been provided to Lender and Lender's counsel for review, that is in form and substance reasonably satisfactory to Lender, with respect to which the rights of Borrower thereunder may be the subject of an attached, enforceable, and perfected security interest in favor of Lender.

        "Assignee" has the meaning set forth in Section 14.1(a).

        "Authorized Person" means any officer or other employee of Borrower.

        "Availability" means, as of any date of determination, if such date is a Business Day, and determined at the close of business on the immediately preceding Business Day, if such date of determination is not a Business Day, the amount that Borrower is entitled to borrow as Advances under Section 2.1 (after giving effect to all then outstanding Obligations (other than Bank Products Obligations) and all sublimits and reserves applicable hereunder).

        "Bank Product Agreements" means those certain cash management service agreements entered into from time to time by Borrower or its Subsidiaries in connection with any of the Bank Products.

        "Bank Product Obligations" means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by Borrower or its Subsidiaries to Wells Fargo or its Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that Borrower is obligated to reimburse to Lender as a result of Lender purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to Borrower or its Subsidiaries pursuant to the Bank Product Agreements.

        "Bank Products" means any service or facility extended to Borrower or its Subsidiaries by Wells Fargo or any Affiliate of Wells Fargo including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) Hedge Agreements.

        "Bank Product Reserves" means, as of any date of determination, the amount of reserves that Lender has established (based upon Wells Fargo's or its Affiliate's reasonable determination of the credit exposure in respect of then extant Bank Products) for Bank Products then provided or outstanding.

        "Bankruptcy Code" means the United States Bankruptcy Code, as in effect from time to time.

        "Base Rate" means, the rate of interest announced within Wells Fargo at its principal office in San Francisco as its "prime rate", with the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the

2

basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate.

        "Base Rate Loan" means each portion of an Advance that bears interest at a rate determined by reference to the Base Rate.

        "Base Rate Margin" means 1.75 percentage points.

        "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years.

        "Billing and Collection Charges Reserve" means, as of any date of determination thereof, which determination shall not be made more frequently than weekly without the consent of Borrower unless an Event of Default has occurred and is continuing, the actual aggregate outstanding accrued and unpaid obligations of Borrower to LECs or Clearinghouses, on such date of determination, with respect to billing and collection charges payable under Billing Services Agreements for those LECs or Clearinghouses which bill such charges separately to Borrower (as opposed to being offset directly on a LEC Confirmation Statement or a Clearinghouse Confirmation Statement).

        "Billing Reserve" means $500,000; provided, however, that if, as of any date of determination after June 30, 2002, Borrower maintains EBITDA of $2,500,000 for the immediately preceding 6 month period, then the Billing Reserve shall be reduced to $0.

        "Billing Services Agreement" means a billing services agreement or similar agreement that has been entered into and is in full force and effect between Borrower and a LEC or a Clearinghouse.

        "Board of Directors" means the board of directors (or comparable managers) of Borrower or any committee thereof duly authorized to act on behalf of the board.

        "Books" means Borrower's now owned or hereafter acquired books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of its Records relating to its business operations or financial condition, and all of its goods or General Intangibles related to such information).

        "Borrower" has the meaning set forth in the preamble to this Agreement.

        "Borrower's 2002 Business Plan" means the written business plan for Borrower with respect to Borrower's fiscal year 2002 that is attached hereto as Exhibit B-1.

        "Borrowing" means a borrowing hereunder of an Advance.

        "Borrowing Base" has the meaning set forth in Section 2.1.

        "Borrowing Base Certificate" means a certificate in the form of Exhibit B-2.

        "Business" means the sale of long distance telecommunications services throughout the United States.

        "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close.

3

        "Canadian Subsidiary" means WorldxChange Communications, Inc., a company organized under the laws of Canada.

        "Capital Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

        "Capitalized Lease Obligation" means any Indebtedness represented by obligations under a Capital Lease.

        "Carrier" means any provider of long distance telecommunications access or network services with whom Borrower from time to time does business.

        "Carrier Agreement" means each contract or agreement in effect between Borrower and a Carrier.

        "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's, (c) commercial paper maturing no more than 1 year from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody's, and (d) certificates of deposit or bankers' acceptances maturing within 1 year from the date of acquisition thereof either (i) issued by any bank organized under the laws of the United States or any state thereof which bank has a rating of A or A2, or better, from S&P or Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation.

        "Cash Management Bank" has the meaning set forth in Section 2.7(a).

        "Cash Management Account" has the meaning set forth in Section 2.7(a).

        "Cash Management Agreements" means those certain cash management service agreements, in form and substance satisfactory to Lender, each of which is among Borrower, Lender, and one of the Cash Management Banks.

        "Change of Control" means (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30%, or more, of the Stock of Borrower having the right to vote for the election of members of the Board of Directors, or (b) a majority of the members of the Board of Directors do not constitute Continuing Directors.

        "Clearinghouse" means any LEC billing clearinghouse that Borrower may engage from time to time.

        "Clearinghouse Account" means, as of any date of determination, any Account of Borrower transferred or sold to, or submitted for billing and collection to or through, a Clearinghouse.

        "Clearinghouse Confirmation Statement" means a written confirmation statement sent to Borrower by a Clearinghouse to confirm the receipt by the Clearinghouse from Borrower of call transaction records relating to Accounts that the Clearinghouse is to bill to the end-user.

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        "Closing Date" means the date of the making of the initial Advance (or other extension of credit) hereunder.

        "Closing Date Business Plan" means the set of Projections of Borrower for the 1 year period following the Closing Date (on a month by month basis), in form and substance (including as to scope and underlying assumptions) satisfactory to Lender.

        "Code" means the California Uniform Commercial Code, as in effect from time to time.

        "Collateral" means all of Borrower's now owned or hereafter acquired right, title, and interest in and to each of the following:

        (a)  Accounts,

        (b)  Books,

        (c)  Equipment,

        (d)  General Intangibles,

        (e)  Inventory,

        (f)    Investment Property,

        (g)  Negotiable Collateral,

        (h)  money or other assets of Borrower that now or hereafter come into the possession, custody, or control of Lender, and

        (i)    the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof.

        "Collateral Access Agreement" means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance satisfactory to Lender.

        "Collections" means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) of Borrower.

        "Compliance Certificate" means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Borrower to Lender.

        "Continuing Director" means (a) any member of the Board of Directors who was a director (or comparable manager) of Borrower on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was appointed or nominated for election to the Board of Directors by Permitted Holders.

        "Control Agreement" means a control agreement, in form and substance satisfactory to Lender, executed and delivered by Borrower, Lender, and the applicable securities intermediary with respect to a Securities Account or bank with respect to a deposit account.

        "Counsel" means Counsel Corporation, an Ontario corporation.

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        "Counsel Loan" means the $14,850,000 Indebtedness owed by Borrower to Counsel US arising pursuant to that certain Loan and Security Agreement, as amended, dated as of June 4, 2001, between Borrower and Counsel US.

        "Counsel US" means Counsel Corporation (US), a Delaware corporation.

        "CPT" means CPT-1 Holdings, Inc., a Delaware corporation.

        "Daily Balance" means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such day.

        "DDA" means any checking or other demand deposit account maintained by Borrower.

        "Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

        "Designated Account" means that certain DDA of Borrower identified on Schedule D-1.

        "Designated Account Bank" means that certain bank of Borrower identified on Schedule D-1.

        "Dilution" means, with respect to Accounts, in each case based upon the experience of the immediately prior 90 days, the result of dividing (a) the Dollar amount of bad debt write-downs, credits, unbillable transactions, and other dilutive items with respect to the Accounts for such period (excluding billing and collection charges billed separately to Borrower, and up-front rejects and up-front credits already deducted in arriving at net confirmed revenues on Confirmation Statements), by (b) Borrower's net confirmed revenues for such period with respect to Accounts.

        "Disbursement Letter" means an instructional letter executed and delivered by Borrower to Lender regarding the extensions of credit to be made on the Closing Date, the form and substance of which is satisfactory to Lender.

        "Dollars" or "$" means United States dollars.

        "Due Diligence Letter" means the due diligence letter sent by Lender's counsel to Borrower, together with Borrower's completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Lender.

        "EBITDA" means, with respect to any fiscal period, Borrower's and its Subsidiaries consolidated net earnings (or loss), minus extraordinary gains, plus interest expense, income taxes, and depreciation and amortization for such period, as determined in accordance with GAAP.

        "Eligible Accounts" means those Accounts created by Borrower in the ordinary course of its business, that arise out of Borrower's sale of goods, sale of Accounts relating to the provision of telecommunication services, or rendition of services, that comply with each of the representations and warranties respecting Eligible Accounts made by Borrower in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the criteria set forth below; provided, however, that such criteria may be fixed and revised from time to time by Lender in Lender's Permitted Discretion to address the results of any audit performed by Lender from time to time after the Closing Date. In determining the amount to be included,

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Eligible Accounts shall be calculated net of customer deposits and unapplied cash remitted to Borrower. Eligible Accounts shall not include the following:

        (a)  Accounts that the Account Debtor has failed to pay within 90 days of original invoice date or Accounts with selling terms of more than 60 days,

        (b)  Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above,

        (c)  Accounts with respect to which the Account Debtor is an employee, Affiliate, or agent of Borrower,

        (d)  Accounts arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account Debtor may be conditional,

        (e)  Accounts that are not payable in Dollars,

        (f)    Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States, or (ii) is not organized under the laws of the United States or any state thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable letter of credit satisfactory to Lender (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Lender and is directly drawable by Lender, or (z) the Account is covered by credit insurance in form, substance, and amount, and by an insurer, satisfactory to Lender,

        (g)  Accounts with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive, however, of Accounts with respect to which Borrower has complied, to the reasonable satisfaction of Lender, with the Assignment of Claims Act, 31 USC § 3727), or (ii) any state of the United States (exclusive, however, of (y) Accounts owed by any state that does not have a statutory counterpart to the Assignment of Claims Act, or (z) Accounts owed by any state that does have a statutory counterpart to the Assignment of Claims Act as to which Borrower has complied to Lender's satisfaction),

        (h)  Accounts with respect to which the Account Debtor is a creditor of Borrower, has or has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the Account, to the extent of such claim, right of setoff, or dispute,

        (i)    (i) Accounts with respect to an Account Debtor, other than a creditworthy ILEC, whose total obligations owing to Borrower exceed 20% (such percentage as applied to a particular Account Debtor being subject to reduction by Lender in its Permitted Discretion if the creditworthiness of such Account Debtor deteriorates) of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage, and (ii) Accounts with respect to an Account Debtor that is a creditworthy ILEC whose total obligation owing to Borrower exceeds 50% (such percentage as applied to a particular Account Debtor being subject to reduction by Lender in its Permitted Discretion if the creditworthiness of such Account Debtor deteriorates) of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage,

        (j)    Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which Borrower has received

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notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor,

        (k)  Accounts with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, or West Virginia (or any other state that requires a creditor to file a business activity report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless Borrower has qualified to do business in New Jersey, Minnesota, West Virginia, or such other states, or has filed a business activities report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement,

        (l)    Accounts, the collection of which, Lender, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition,

        (m)  Accounts that are not subject to a valid and perfected first priority Lender's Lien,

        (n)  LEC Accounts submitted for billing and collection to a LEC with respect to which there does not exist an Approved Billing Services Agreement,

        (o)  LEC Accounts (i) that are not covered by a LEC Confirmation Statement received by Borrower from the applicable LEC, or (ii) that are covered by a LEC Confirmation Statement received by Borrower from the applicable LEC to the extent of (without duplication) reductions of or offsets against amounts otherwise payable with respect thereto by reason of up-front LEC rejects or credits deducted in arriving at net confirmed revenues on such LEC Confirmation Statement,

        (p)  Clearinghouse Accounts submitted for billing and collection to a Clearinghouse with respect to which there does not exist an Approved Billing Services Agreement,

        (q)  Clearinghouse Accounts (i) that are not covered by a Clearinghouse Confirmation Statement received by Borrower from the applicable Clearinghouse, or (ii) that are covered by a Clearinghouse Confirmation Statement received by Borrower from the applicable Clearinghouse to the extent of (without duplication) reductions of or offsets against amounts otherwise payable with respect thereto by reason of up-front Clearinghouse rejects or credits deducted in arriving at net confirmed revenues on such Clearinghouse Confirmation Statement,

        (r)  Accounts with respect to which (i) the goods giving rise to such Account have not been shipped and billed to the Account Debtor, or (ii) the services giving rise to such Account have not been performed and billed to the Account Debtor, or

        (s)  Accounts that represent the right to receive progress payments or other advance billings that are due prior to the completion of performance by Borrower of the subject contract for goods or services.

        "Environmental Actions" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from (a) any assets, properties, or businesses of Borrower or any predecessor in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by Borrower or any predecessor in interest.

        "Environmental Law" means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and

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enforceable written policy, or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, to the extent binding on Borrower, relating to the environment, employee health and safety, or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC § 1251 et seq; the Toxic Substances Control Act, 15 USC, § 2601 et seq; the Clean Air Act, 42 USC § 7401 et seq.; the Safe Drinking Water Act, 42 USC. § 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. § 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC. § 11001 et seq.; the Hazardous Material Transportation Act, 49 USC § 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. §651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); any state and local or foreign counterparts or equivalents, in each case as amended from time to time.

        "Environmental Liabilities and Costs" means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any Environmental Action.

        "Environmental Lien" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs.

        "Equipment" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing.

        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto.

        "ERISA Affiliate" means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with Borrower and whose employees are aggregated with the employees of Borrower under IRC Section 414(o).

        "Event of Default" has the meaning set forth in Section 8.

        "Excess Availability" means the amount, as of the date any determination thereof is to be made, equal to Availability minus the aggregate amount, if any, of all trade payables of Borrower aged in excess of historical levels with respect thereto and all book overdrafts in excess of historical practices with respect thereto, in each case as determined by Lender in its Permitted Discretion.

        "Exchange Act" means the Securities Exchange Act of 1934, as in effect from time to time.

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        "Fee Letter" means that certain fee letter, dated as of even date herewith, between Borrower and Lender, in form and substance satisfactory to Lender.

        "FEIN" means Federal Employer Identification Number.

        "Funding Date" means the date on which a Borrowing occurs.

        "Funding Losses" has the meaning set forth in Section 2.13(b)(ii).

        "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied.

        "General Intangibles" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to general intangibles (including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral.

        "Governing Documents" means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person.

        "Governmental Authority" means any federal, state, local, or other governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body.

        "Guarantor" means CPT.

        "Guaranty" means a limited recourse guaranty executed and delivered by CPT in favor of Lender whereby CPT guaranties the Obligations, with recovery against CPT for the Obligations so guarantied limited to all of the issued and outstanding Stock of Borrower owned by CPT.

        "Hazardous Materials" means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million.

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        "Hedge Agreement" means any and all transactions, agreements, or documents now existing or hereafter entered into between Borrower or its Subsidiaries and Wells Fargo or its Affiliates, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging Borrower's or its Subsidiaries' exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices.

        "ILEC" means an incumbent LEC.

        "Indebtedness" means (a) all obligations of Borrower for borrowed money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of Borrower in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations of Borrower under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of Borrower, irrespective of whether such obligation or liability is assumed, (e) all obligations of Borrower for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of Borrower's business and repayable in accordance with customary trade practices), and (f) any obligation of Borrower guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to Borrower) any obligation of any other Person.

        "Indemnified Liabilities" has the meaning set forth in Section 11.3.

        "Indemnified Person" has the meaning set forth in Section 11.3.

        "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

        "Intangible Assets" means, with respect to any Person, that portion of the book value of all of such Person's assets that would be treated as intangibles under GAAP.

        "Inventory" means all Borrower's now owned or hereafter acquired right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by Borrower as lessor, goods that are furnished by Borrower under a contract of service, and raw materials, work in process, or materials used or consumed in Borrower's business.

        "Investment" means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising from the sale of goods or rendition of services in the ordinary course of business consistent with past practice), purchases or other acquisitions for consideration of Indebtedness or Stock, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.

        "Intercreditor Agreement" means an intercreditor agreement, in form and substance satisfactory to Lender, executed and delivered by Counsel US and Lender.

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        "Investment Property" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to "investment property" as that term is defined in the Code, and any and all supporting obligations in respect thereof.

        "IRC" means the Internal Revenue Code of 1986, as in effect from time to time.

        "LEC" means a local exchange carrier or telephone company that provides basic telecommunications services to its customers and from whom Borrower receives payments with respect to Accounts.

        "LEC Account" means, as of any date of determination, any Account of Borrower submitted by or on behalf of Borrower to a LEC for billing and payment pursuant to a Billing Services Agreement.

        "LEC Confirmation Statement" means a written confirmation statement sent to Borrower by a LEC to confirm the receipt by the LEC from Borrower of call transaction records relating to Accounts that the LEC is to bill to the end-user.

        "LEC Reserve" means, as of any date of determination thereof, which determinations shall not be made more frequently than weekly without the consent of Borrower unless an Event of Default has occurred and is continuing, the actual aggregate outstanding accrued and unpaid obligations of Borrower to each LEC for which Borrower is including LEC Accounts in the Borrowing Base with respect to connection or access charges.

        "Lender" has the meaning set forth in the preamble to this Agreement.

        "Lender Expenses" means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by Borrower under any of the Loan Documents that are paid or incurred by Lender, (b) reasonable fees or charges paid or incurred by Lender in connection with Lender's transactions with Borrower, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, periodic business valuations (to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement), real estate surveys, real estate title policies and endorsements, and environmental audits, (c) reasonable costs and expenses incurred by Lender in the disbursement of funds to Borrower (by wire transfer or otherwise), (d) charges paid or incurred by Lender resulting from the dishonor of checks, (e) reasonable costs and expenses paid or incurred by Lender to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) audit fees and expenses of Lender related to audit examinations of the Books to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (g) reasonable costs and expenses of third party claims or any other suit paid or incurred by Lender in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or Lender's relationship with Borrower or any guarantor of the Obligations, (h) Lender's reasonable fees and expenses (including attorneys fees) incurred in advising, structuring, drafting, reviewing, administering, or amending the Loan Documents, and (i) Lender's reasonable fees and expenses (including attorneys fees) incurred in terminating, enforcing (including attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or in exercising rights or remedies under the Loan Documents), or defending the

12

Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral.

        "Lender-Related Person" means Lender, Lender's Affiliates, and the officers, directors, employees, and agents of Lender.

        "Lender's Account" means the account identified on Schedule L-1.

        "Lender's Liens" means the Liens granted by Borrower to Lender under this Agreement or the other Loan Documents.

        "Lien" means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property.

        "Loan Account" has the meaning set forth in Section 2.10.

        "Loan Documents" means this Agreement, the Bank Product Agreements, the Cash Management Agreements, the Control Agreements, the Disbursement Letter, the Due Diligence Letter, the Fee Letter, the Guaranty, the Officers' Certificate, the Stock Pledge Agreement, any note or notes executed by Borrower in connection with this Agreement and payable to Lender, and any other agreement entered into, now or in the future, by Borrower and Lender in connection with this Agreement.

        "Material Adverse Change" means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower, (b) a material impairment of Borrower's ability to perform its obligations under the Loan Documents to which it is a party or of Lender's ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of the Lender's Liens with respect to the Collateral as a result of an action or failure to act on the part of Borrower.

        "Maturity Date" has the meaning set forth in Section 3.4.

        "Maximum Revolver Amount" means $20,000,000.

        "Negotiable Collateral" means all of Borrower's now owned and hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments, promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof.

        "Obligations" means (a) all loans, Advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations with respect to outstanding premiums, liabilities (including all amounts charged to Borrower's Loan Account pursuant hereto), obligations, fees (including the fees provided for in the Fee Letter), charges, costs, Lender Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by Borrower to

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Lender pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise, and (b) all Bank Product Obligations. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding.

        "Officers' Certificate" means the representations and warranties of officers form submitted by Lender to Borrower, together with Borrower's completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Lender.

        "Originating Lender" has the meaning set forth in Section 14.1(d).

        "Overadvance" has the meaning set forth in Section 2.5.

        "PAR" means purchase of accounts receivable.

        "PAR Statement" means a written confirmation sent to Borrower by a LEC or Clearinghouse to confirm the receipt by such LEC or Clearinghouse from Borrower of the charges that such LEC or Clearinghouse are to bill on behalf of Borrower to the end-user.

        "Participant" has the meaning set forth in Section 14.1(d).

        "Permitted Acquisition" means an Acquisition by Borrower so long as (a) no Default or Event of Default shall have occurred and be continuing or would result from the consummation of the proposed Acquisition, (b) the Person, or the assets of the Person, being acquired are useful in the business of Borrower as such business exists on the Closing Date, (c) Borrower has (i) complied with its obligations under Section 4.1 hereof or (ii) in the case of the acquisition of Stock of a Person, has caused the Person that is the subject of the Acquisition to execute and deliver a guaranty of the Obligations and a security agreement encumbering, on a first-priority basis, all of its assets to secure such guaranty, in each case in form and substance satisfactory to Lender, and (d) Borrower obtains the written consent of Lender prior to the consummation of the proposed Acquisition.

        "Permitted Discretion" means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment.

        "Permitted Dispositions" means (a) sales or other dispositions by Borrower of Equipment that is substantially worn, damaged, or obsolete in the ordinary course of Borrower's business, (b) the use or transfer of money or Cash Equivalents by Borrower in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, and (c) the licensing by Borrower, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of Borrower's business.

        "Permitted Holder" means Counsel or any of its Subsidiaries.

        "Permitted Investments" means (a) investments in Cash Equivalents, (b) investments in negotiable instruments for collection, and (c) advances made in connection with purchases of goods or services in the ordinary course of business.

        "Permitted Liens" means (a) Liens held by Lender, (b) Liens for unpaid taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of lessors

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under operating leases, (e) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as such Lien attaches only to the asset purchased or acquired and the proceeds thereof, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business of Borrower and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (h) Liens or deposits to secure performance of bids, tenders, or leases incurred in the ordinary course of business of Borrower and not in connection with the borrowing of money, (i) Liens granted as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business of Borrower, (j) Liens resulting from any judgment or award that is not an Event of Default hereunder, (k) Liens with respect to the Real Property Collateral that are exceptions to the commitments for title insurance issued in connection with the Mortgages, as accepted by Lender, and (l) with respect to any Real Property that is not part of the Real Property Collateral, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof by Borrower.

        "Permitted Protest" means the right of Borrower to protest any Lien (other than any such Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by Borrower in good faith, and (c) Lender is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Lender's Liens.

        "Permitted Purchase Money Indebtedness" means, as of any date of determination, Purchase Money Indebtedness incurred after the Closing Date in an aggregate principal amount outstanding at any one time not in excess of $7,000,000.

        "Person" means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.

        "Personal Property Collateral" means all Collateral other than Real Property.

        "Projections" means Borrower's forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.

        "Purchase Money Indebtedness" means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred at the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof.

        "Real Property" means any estates or interests in real property now owned or hereafter acquired by Borrower and the improvements thereto.

        "Record" means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

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        "Remedial Action" means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC § 9601.

        "Report" has the meaning set forth in Section 16.17.

        "Required Availability" means Excess Availability and unrestricted cash and Cash Equivalents in an amount of not less than $2,500,000.

        "Revolver Usage" means, as of any date of determination, the then extant amount of outstanding Advances.

        "SEC" means the United States Securities and Exchange Commission and any successor thereto.

        "Securities Account" means a "securities account" as that term is defined in the Code.

        "Solvent" means, with respect to any Person on a particular date, that such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act).

        "Stock" means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).

        "Stock Pledge Agreement" means a stock pledge agreement, in form and substance satisfactory to Lender, executed and delivered by CPT to Lender with respect to the pledge of the Stock of Borrower owned by CPT.

        "Subsidiary" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity.

        "Subsidiary Stock Pledge Agreement" means a stock pledge agreement, in form and substance satisfactory to Lender, executed and delivered by Borrower to Lender with respect to the pledge of the Stock of Canadian Subsidiary owned by Borrower.

        "Taxes" has the meaning set forth in Section 16.5.

        "Telecommunication Taxes" means all excise or other special taxes that in any way relate to the Borrower's provision of telecommunications services.

        "Telecommunication Tax Reserve" means, as of any date of determination by Lender, which determinations shall not be made more frequently than monthly without the consent of Borrower unless an Event of Default has occurred and is continuing, an amount (without duplication) equal to the aggregate amount of all unpaid Telecommunications Taxes and any related tax liens arising, or that may in the future arise, with respect to such unpaid

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Telecommunication Taxes, that Lender reasonably determines to have priority over Lender's liens or security interests in the Collateral.

        "Voidable Transfer" has the meaning set forth in Section 16.8.

        "Wells Fargo" means Wells Fargo Bank, National Association, a national banking association.

        1.2    Accounting Terms.    All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrower" is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrower and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise.

        1.3    Code.    Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein.

        1.4    Construction.    Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to include such Person's successors and permitted assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.

        1.5    Schedules and Exhibits.    All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.

2.    LOAN AND TERMS OF PAYMENT.

        2.1    Revolver Advances.

        (a)  Subject to the terms and conditions of this Agreement, and during the term of this Agreement, Lender agrees to make advances ("Advances") to Borrower in an amount at any one time outstanding not to exceed an amount equal to the lesser of (i) the Maximum Revolver Amount, or (ii) the Borrowing Base. For purposes of this Agreement, "Borrowing Base," as of any date of determination, shall mean the result of:

        (y)  the lesser of

        (i)    85% of the amount of Eligible Accounts, less the amounts, if any, of each of (A) the Dilution Reserve, (B) the LEC Reserve, and (C) the Billing and Collection Charges Reserve, and

        (ii)  an amount equal to Borrower's Collections with respect to Accounts for the immediately preceding 90 day period, minus

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        (z)  the sum of (i) the Bank Products Reserve, (ii) the Telecommunication Tax Reserve, (iii) the Billing Reserve, and (iv) the aggregate amount of reserves, if any, established by Lender under Section 2.1(b).

        (b)  Anything to the contrary in this Section 2.1 notwithstanding, Lender shall have the right to establish reserves in such amounts, and with respect to such matters, as Lender in its Permitted Discretion shall deem necessary or appropriate, against the Borrowing Base, including reserves with respect to (i) sums that Borrower is required to pay (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay under any Section of this Agreement or any other Loan Document, and (ii) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other than any existing Permitted Lien set forth on Schedule P-1 which is specifically identified thereon as entitled to have priority over the Lender's Liens), which Lien or trust, in the Permitted Discretion of Lender likely would have a priority superior to the Lender's Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such item of the Collateral.

        (c)  Lender shall have no obligation to make additional Advances hereunder to the extent such additional Advances would cause the Revolver Usage to exceed the Maximum Revolver Amount.

        (d)  Amounts borrowed pursuant to this Section may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement.

        2.2    Intentionally omitted

        2.3    Borrowing Procedures and Settlements.

        (a)  Procedure for Borrowing. Each Borrowing shall be made by a request by an Authorized Person delivered to Lender (which notice must be received by Lender no later than 10:00 a.m. (California time) on the Business Day that is the requested Funding Date specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Lender's election, in lieu of delivering the above-described request in writing, any Authorized Person may give Lender telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of the giving of such notice.

        (b)  Making of Advances. If Lender has received a timely request for a Borrowing in accordance with the provisions hereof, and subject to the satisfaction of the applicable terms and conditions set forth herein, Lender shall make the proceeds of such Advance available to Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds to Borrower's Designated Account.

        2.4    Payments.

        (a)  Payments by Borrower.

        (i)    Except as otherwise expressly provided herein, all payments by Borrower shall be made to Lender's Account and shall be made in immediately available funds, no later than 11:00 a.m. (California time) on the date specified herein. Any payment received by Lender later than 11:00 a.m. (California time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

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        (ii)  Borrower shall make payments to ensure that no Advance or portion of any Advance shall be outstanding for more than 364 days.

        (b)  Application and Reversal of Payments.

        (i)    All payments shall be remitted to Lender and all such payments (other than payments received while no Default or Event of Default has occurred and is continuing and which relate to the payment of principal or interest of specific Obligations or which relate to the payment of specific fees), and all proceeds of Accounts or other Collateral received by Lender, shall be applied as follows:

        (A)  first, to pay any Lender Expenses then due to Lender under the Loan Documents, until paid in full,

        (B)  second, to pay any fees then due to Lender under the Loan Documents until paid in full,

        (C)  third, ratably to pay interest due in respect of the Advances until paid in full,

        (D)  fourth, so long as no Event of Default has occurred and is continuing, and at Lender's election, to pay amounts then due and owing by Borrower or its Subsidiaries in respect of Bank Products, until paid in full,

        (E)  fifth, so long as no Event of Default has occurred and is continuing, to pay the principal of all Advances until paid in full; it being understood and agreed that, so long as no Event of Default has occurred and is continuing, such amounts shall be deemed applied to the payment of the Advances in the order in which they were made,

        (F)  sixth, if an Event of Default has occurred and is continuing, ratably (i) to pay the principal of all Advances until paid in full, and (ii) to Lender, to be held by Lender, for the benefit of Wells Fargo or its Affiliates, as applicable, as cash collateral in an amount up to the amount of the Bank Products Reserve established prior to the occurrence of, and not in contemplation of, the subject Event of Default until Borrower's and its Subsidiaries' obligations in respect of the then extant Bank Products have been paid in full or the cash collateral amount has been exhausted,

        (G)  seventh, to pay any other Obligations until paid in full, and

        (H)  eighth, to Borrower (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.

        (ii)  In each instance, so long as no Default or Event of Default has occurred and is continuing, Section 2.4(b)(i) shall not be deemed to apply to any payment by Borrower specified by Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement.

        (iii)  For purposes of the foregoing, "paid in full" means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not the same would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.

        (iv)  In the event of a direct conflict between the priority provisions of this Section 2.4 and other provisions contained in any other Loan Document, it is the

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intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and govern.

        2.5    Overadvances.    If, at any time or for any reason, the amount of Obligations (other than Bank Product Obligations) owed by Borrower to Lender pursuant to Sections 2.1 is greater than either the Dollar or percentage limitations set forth in Sections 2.1, (an "Overadvance"), Borrower immediately shall pay to Lender, in cash, the amount of such excess, which amount shall be used by Lender to reduce the Obligations in accordance with the priorities set forth in Section 2.4(b)(i). In addition, Borrower hereby promises to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full to Lender as and when due and payable under the terms of this Agreement and the other Loan Documents.

        2.6    Interest Rates: Rates, Payments, and Calculations.

        (a)  Interest Rates. Except as provided in clause (c) below, all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to the Base Rate plus the Base Rate Margin.

        The foregoing notwithstanding, at no time shall any portion of the Obligations bear interest on the Daily Balance thereof at a per annum rate less than 6%. To the extent that interest accrued hereunder at the rate set forth herein would be less than the foregoing minimum daily rate, the interest rate chargeable hereunder for such day automatically shall be deemed increased to the minimum rate.

        (b)  [Intentionally omitted].

        (c)  Default Rate. Upon the occurrence and during the continuation of an Event of Default, all Obligations that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 4 percentage points above the per annum rate otherwise applicable hereunder.

        (d)  Payment. Interest and all other fees payable hereunder shall be due and payable, in arrears, on the first day of each month at any time that Obligations or obligation to extend credit hereunder are outstanding. Borrower hereby authorizes Lender, from time to time without prior notice to Borrower, to charge such interest and fees, all Lender Expenses (as and when incurred), the fees and costs provided for in Section 2.11 (as and when accrued or incurred), and all other payments as and when due and payable under any Loan Document (including any amounts due and payable to Wells Fargo or its Affiliates in respect of Bank Products up to the amount of the then extant Bank Products Reserve) to Borrower's Loan Account, which amounts thereafter shall constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be compounded by being charged to Borrower's Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances that are Base Rate Loans hereunder.

        (e)  Computation. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. In the event the Base Rate is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate.

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        (f)    Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower and Lender, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess.

        2.7    Cash Management.

        (a)  Borrower shall (i) establish and maintain cash management services of a type and on terms satisfactory to Lender at one or more of the banks set forth on Schedule 2.7(a) (each, a "Cash Management Bank"), and shall request in writing and otherwise take such reasonable steps to ensure that all of its Account Debtors forward payment of the amounts owed by them directly to such Cash Management Bank, and (ii) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all Collections (including those sent directly by Account Debtors to a Cash Management Bank) into a bank account in Lender's name (a "Cash Management Account") at one of the Cash Management Banks.

        (b)  Each Cash Management Bank shall establish and maintain Cash Management Agreements with Lender and Borrower, in form and substance acceptable to Lender. Each such Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such Cash Management Account and proceeds thereof are held by such Cash Management Bank as agent or bailee-in-possession for Lender, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Cash Management Account other than for payment of its service fees and other charges directly related to the administration of such Cash Management Account and for returned checks or other items of payment, and (iii) it immediately will forward by daily sweep all amounts in the applicable Cash Management Account to the Lender's Account.

        (c)  So long as no Default or Event of Default has occurred and is continuing, Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Bank or Cash Management Account; provided, however, that (i) such prospective Cash Management Bank shall be satisfactory to Lender and Lender shall have consented in writing in advance to the opening of such Cash Management Account with the prospective Cash Management Bank, and (ii) prior to the time of the opening of such Cash Management Account, Borrower and such prospective Cash Management Bank shall have executed and delivered to Lender a Cash Management Agreement. Borrower shall close any of its Cash Management Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 30 days of notice from Lender that the creditworthiness of any Cash Management Bank is no longer acceptable in Lender's reasonable judgment, or as promptly as practicable and in any event within 60 days of notice from Lender that the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Cash Management Accounts or Lender's liability under any Cash Management Agreement with such Cash Management Bank is no longer acceptable in Lender's reasonable judgment.

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        (d)  The Cash Management Accounts shall be cash collateral accounts, with all cash, checks and similar items of payment in such accounts securing payment of the Obligations, and in which Borrower is hereby deemed to have granted a Lien to Lender.

        2.8    Crediting Payments; Float Charge.    The receipt of any payment item by Lender (whether from transfers to Lender by the Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Lender's Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrower shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Lender only if it is received into the Lender's Account on a Business Day on or before 11:00 a.m. (California time). If any payment item is received into the Lender's Account on a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have been received by Lender as of the opening of business on the immediately following Business Day. From and after the Closing Date, Lender shall be entitled to charge Borrower for 1 Business Day of "clearance" or "float" at the rate applicable to Base Rate Loans under Section 2.6 on all Collections that are received by Borrower (regardless of whether forwarded by the Cash Management Banks to Lender). This across-the-board 1 Business Day clearance or float charge on all Collections is acknowledged by the parties to constitute an integral aspect of the pricing of the financing of Borrower and shall apply irrespective of whether or not there are any outstanding monetary Obligations; the effect of such clearance or float charge being the equivalent of charging 1 Business Day of interest on such Collections.

        2.9    Designated Account.    Lender is authorized to make the Advances under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.6(d). Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrower and made by Lender hereunder. Unless otherwise agreed by Lender and Borrower, any Advance requested by Borrower and made by Lender hereunder shall be made to the Designated Account.

        2.10    Maintenance of Loan Account; Statements of Obligations.    Lender shall maintain an account on its books in the name of Borrower (the "Loan Account") on which Borrower will be charged with all Advances made by Lender to Borrower or for Borrower's account and with all other payment Obligations hereunder or under the other Loan Documents (except for Bank Product Obligations), including, accrued interest, fees and expenses, and Lender Expenses. In accordance with Section 2.8, the Loan Account will be credited with all payments received by Lender from Borrower or for Borrower's account, including all amounts received in the Lender's Account from any Cash Management Bank. Lender shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and Lender unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver to Lender written objection thereto describing the error or errors contained in any such statements.

        2.11    Fees.    Borrower shall pay to Lender the following fees and charges, which fees and charges shall be non-refundable when paid (irrespective of whether this Agreement is terminated thereafter):

        (a)  Unused Line Fee. On the first day of each month during the term of this Agreement, an unused line fee in an amount equal to 0.5% per annum times the result of (a) the Maximum Revolver Amount minus the then extant Billing Reserve, less (b) the average Daily Balance of Advances that were outstanding during the immediately preceding month,

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        (b)  Fee Letter Fees. As and when due and payable under the terms of the Fee Letter, Borrower shall pay to Lender the fees set forth in the Fee Letter, and

        (c)  Audit and Valuation Charges. Audit and valuation fees and charges as follows (i) a fee of $850 per day, per auditor, plus out-of-pocket expenses for each financial audit of Borrower performed by personnel employed by Lender, (ii) if implemented, a one time charge of $5,000 plus out-of-pocket expenses for expenses for the establishment of electronic collateral reporting systems, and (iii) after the occurrence and during the continuance of an Event of Default, the actual charges paid or incurred by Lender if it elects to employ the services of one or more third Persons to perform financial audits of Borrower or to assess Borrower's business valuation.

        2.12    [Intentionally omitted].

        2.13    [Intentionally omitted].

        2.14    [Intentionally omitted].

3.    CONDITIONS; TERM OF AGREEMENT.

        3.1    Conditions Precedent to the Initial Extension of Credit.    The obligation of Lender to make the initial Advance (or otherwise to extend any credit provided for hereunder), is subject to the fulfillment, to the satisfaction of Lender, of each of the conditions precedent set forth below:

        (a)  the Closing Date shall occur on or before December 31, 2001;

        (b)  Lender shall have received all financing statements required by Lender, duly executed by Borrower, and Lender shall have received searches reflecting the filing of all such financing statements;

        (c)  Lender shall have received each of the following documents, in form and substance satisfactory to Lender, duly executed, and each such document shall be in full force and effect:

        (i)    the Control Agreements,

        (ii)  the Disbursement Letter,

        (iii)  the Due Diligence Letter,

        (iv)  the Fee Letter,

        (v)  the Guaranty,

        (vi)  the Cash Management Agreements,

        (vii) the Officers' Certificate,

        (viii)  the Stock Pledge Agreement, together with all certificates representing the shares of Stock pledged thereunder, as well as Stock powers with respect thereto endorsed in blank,

        (ix)  the Subsidiary Stock Pledge Agreement, together with all certificates representing the shares of Stock pledged thereunder, as well as Stock powers with respect thereto endorsed in blank, and

        (x)  the Intercreditor Agreement;

        (d)  Lender shall have received a certificate from the Secretary of Borrower attesting to the resolutions of Borrower's Board of Directors authorizing its execution, delivery, and

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performance of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute the same;

        (e)  Lender shall have received copies of Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower;

        (f)    Lender shall have received a certificate of status with respect to Borrower, dated within 10 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower, which certificate shall indicate that Borrower is in good standing in such jurisdiction;

        (g)  Lender shall have received certificates of status with respect to Borrower, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that Borrower is in good standing in such jurisdictions;

        (h)  Lender shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Lender;

        (i)    Lender shall have received Collateral Access Agreements with respect to the following location: 9775 Business Park Avenue, San Diego, California;

        (j)    Lender shall have received an opinion of Borrower's counsel in form and substance satisfactory to Lender;

        (k)  Lender shall have received satisfactory evidence (including a certificate of the chief financial officer of Borrower) that all tax returns required to be filed by Borrower have been timely filed and all taxes upon Borrower or its properties, assets, income, and franchises (including Real Property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest;

        (l)    Lender and Lender's counsel shall have been provided with a true and complete copy of each Billing Services Agreement listed on Schedule 3.1(l) and shall have had a reasonable opportunity to review each such Billing Services Agreement, and Lender either (i) shall have advised Borrower that each such Billing Services Agreement is an Approved Billing Services Agreement, or, (ii) as to any Billing Services Agreements that are not Approved Billing Services Agreements, Lender shall have advised Borrower that Lender nevertheless is prepared to close (with the LEC Accounts relating to such non-approved Billing Services Agreements, if any, not constituting Eligible LEC Accounts) and Borrower shall have agreed in writing to such arrangement with respect to non-approved Billing Services Agreements;

        (m)  Borrower shall have the Required Availability after giving effect to the initial extensions of credit hereunder and Lender shall have received satisfactory evidence that Borrower's current liabilities are reasonably current and consistent with Borrower's historical practices;

        (n)  Lender shall have completed its business, legal, and collateral due diligence, including a collateral audit and review of Borrower's books and records and verification of Borrower's representations and warranties to Lender, the results of which shall be satisfactory to Lender;

        (o)  Lender shall have received completed reference checks with respect to Borrower's senior management, the results of which are satisfactory to Lender in its sole discretion;

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        (p)  Lender shall have received Borrower's 2002 Business Plan and Closing Date Business Plan;

        (q)  Borrower shall pay all Lender Expenses incurred in connection with the transactions evidenced by this Agreement;

        (r)  Lender shall have received copies of each of the Carrier Agreements listed on Schedule 3.1(r), together with a certificate of the Secretary of Borrower certifying each such document as being a true, correct, and complete copy thereof;

        (s)  Borrower shall have received all licenses, approvals or evidence of other actions required by any Governmental Authority in connection with the execution and delivery by Borrower of this Agreement or any other Loan Document or with the consummation of the transactions contemplated hereby and thereby; and

        (t)    all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Lender.

        3.2    Conditions Subsequent to the Initial Extension of Credit.    The obligation of Lender to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of each of the conditions subsequent set forth below (the failure by Borrower to so perform or cause to be performed constituting an Event of Default):

        (a)  within 30 days of the Closing Date, deliver to Lender certified copies of the policies of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Lender and its counsel.

        3.3    Conditions Precedent to all Extensions of Credit.    The obligation of Lender to make all Advances (or to extend any other credit hereunder) shall be subject to the following conditions precedent:

        (a)  the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date),

        (b)  no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof,

        (c)  no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against Borrower, Lender, or any of their Affiliates.

        (d)  no Material Adverse Change shall have occurred.

        3.4    Term.    This Agreement shall become effective upon the execution and delivery hereof by Borrower and Lender and shall continue in full force and effect for a term ending on December 10, 2004 (the "Maturity Date"). The foregoing notwithstanding, Lender shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default.

        3.5    Effect of Termination.    On the date of termination of this Agreement, all Obligations (including all Bank Products Obligations) immediately shall become due and payable without notice or demand (including providing cash collateral to be held by Lender for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations). No termination of this Agreement, however, shall relieve or discharge Borrower of its duties, Obligations, or covenants

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hereunder and the Lender's Liens in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and Lender's obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations have been fully and finally discharged and Lender's obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Lender will, at Borrower's sole expense, execute and deliver any UCC termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Lender's Liens and all notices of security interests and liens previously filed by Lender with respect to the Obligations.

        3.6    Early Termination by Borrower.    Borrower has the option, at any time upon 60 days prior written notice to Lender, to terminate this Agreement by paying to Lender, in cash, the Obligations (including providing cash collateral to be held by Lender for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations), in full, together with the Applicable Prepayment Premium. If Borrower has sent a notice of termination pursuant to the provisions of this Section, then Lender's obligations to extend credit hereunder shall terminate on the date set forth as the date of termination of this Agreement in such notice and Borrower shall be obligated to repay the Obligations (including providing cash collateral to be held by Lender for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations), in full, together with the Applicable Prepayment Premium, on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity Date, for any other reason, including (a) termination upon the election of Lender to terminate after the occurrence of an Event of Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral in any Insolvency Proceeding, or (iv) restructure, or compromise of the Obligations by the confirmation of a plan of reorganization or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to Lender or profits lost by Lender as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of Lender, Borrower shall pay the Applicable Prepayment Premium to Lender, measured as of the date of such termination. The foregoing notwithstanding, (w) if, between the Closing Date and the Maturity Date, Borrower consummates an initial public offering, private placement of equity with a third party that is not an Affiliate of Borrower or private placement of subordinated debt with a third party that is not an Affiliate of Borrower and the Obligations are prepaid concurrent with and as a result of such initial public offering, private placement of equity or private placement of subordinated debt, the Applicable Prepayment Premium shall be reduced by 50%, (x) if, at any time after the one year anniversary of the Closing Date, Borrower refinances with a Wells Fargo commercial banking unit, then Borrower shall not be required to pay the Applicable Prepayment Premium, (y) if, at any time between the Closing Date and the Maturity Date, Borrower sells all or substantially all of its assets, or enters into a merger or consolidation pursuant to which it is not the surviving entity, or CPT sells all of the Stock of Borrower, in each case, to an unaffiliated third Person, then Borrower shall not be required to pay the Applicable Prepayment Premium, and (z) if, at any time between the Closing Date and the Maturity Date, Lender refuses to consent to an Acquisition proposed by Borrower, and as of the date of such refusal such Acquisition, if it were consummated, would constitute a Permitted Acquisition (except for the refusal of Lender to consent thereto and/or the good faith failure of Borrower to be able to comply with clause (c)(ii) of the definition of Permitted Acquisitions) then the Applicable Prepayment Premium shall be reduced by 50% if the prepayment occurs in connection with the consummation of the proposed Acquisition and within 180 days of the declination by Lender. In respect of any proposed Acquisition, if Lender has not responded affirmatively or negatively within 10 days of the date on which it first receives a request therefor from Borrower, it shall be deemed to have declined such request as of the 10^th day after the date of receipt.

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4.    CREATION OF SECURITY INTEREST.

        4.1    Grant of Security Interest.    Borrower hereby grants to Lender a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. The Lender's Liens in and to the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of Lender or Borrower. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Borrower has no authority, express or implied, to dispose of any item or portion of the Collateral. At such time as all of the Obligations (other than contingent indemnification obligations to the extent no claims giving rise thereto have been asserted) have been paid in cash in full and any and all obligations of Lender to extend credit hereunder have been terminated, Lender agrees to provide to Borrower, at Borrower's expense, any and all termination statements, reconveyances, or releases necessary to release the Collateral from the Liens granted in favor of Lender.

        4.2    Negotiable Collateral.    In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection of priority of Lender's security interest is dependent on or enhanced by possession, Borrower, immediately upon the request of Lender, shall endorse and deliver physical possession of such Negotiable Collateral to Lender.

        4.3    Collection of Accounts, General Intangibles, and Negotiable Collateral.    At any time after the occurrence and during the continuation of an Event of Default, Lender or Lender's designee may (a) notify Account Debtors of Borrower that the Accounts, chattel paper, or General Intangibles have been assigned to Lender or that Lender has a security interest therein, or (b) collect the Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that it will hold in trust for Lender, as Lender's trustee, any Collections that it receives and immediately will deliver said Collections to Lender or a Cash Management Bank in their original form as received by Borrower.

        4.4    Delivery of Additional Documentation Required.    At any time upon the request of Lender, Borrower shall execute and deliver to Lender, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the "Additional Documents") that Lender may request in its Permitted Discretion, in form and substance satisfactory to Lender, to perfect and continue perfected or better perfect the Lender's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Lender in any Real Property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Borrower authorizes Lender to execute any such Additional Documents in Borrower's name and authorizes Lender to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Lender shall require, Borrower shall (a) provide Lender with a report of all new patentable, copyrightable, or trademarkable materials acquired or generated by Borrower during the prior period, (b) cause all patents, copyrights, and trademarks acquired or generated by Borrower that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Borrower's ownership thereof, and (c) cause to be prepared, executed, and delivered to Lender supplemental schedules to the applicable Loan Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder.

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        4.5    Power of Attorney.    Borrower hereby irrevocably makes, constitutes, and appoints Lender (and any of Lender's officers, employees, or agents designated by Lender) as Borrower's true and lawful attorney, with power to (a) if Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of Borrower on any of the documents described in Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign Borrower's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of Accounts, (d) endorse Borrower's name on any Collection item that may come into Lender's possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Lender determines to be reasonable, and Lender may cause to be executed and delivered any documents and releases that Lender determines to be necessary. The appointment of Lender as Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and Lender's obligations to extend credit hereunder are terminated.

        4.6    Right to Inspect.    Lender and its officers, employees, or agents shall have the right, from time to time hereafter to inspect the Books and to check or test the Collateral in order to verify Borrower's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral.

        4.7    Control Agreements.    Borrower agrees that it will not transfer assets out of any Securities Accounts other than as permitted under Section 7.19 and, if to another securities intermediary, unless each of Borrower, Lender, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other Investment Property shall be modified by Borrower without the prior written consent of Lender. Upon the occurrence and during the continuance of a Default or Event of Default, Lender may notify any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Lender's Account.

5.    REPRESENTATIONS AND WARRANTIES.

        In order to induce Lender to enter into this Agreement, Borrower makes the following representations and warranties to Lender which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete, in all material respects, as of the Closing Date, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:

        5.1    No Encumbrances.    Borrower has good and indefeasible title to the Collateral and the Real Property, free and clear of Liens except for Permitted Liens.

        5.2    Eligible Accounts.    The Eligible Accounts are bona fide existing payment obligations of Account Debtors created by the rendition of services to such Account Debtors in the ordinary course of Borrower's business, owed to Borrower without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. As to each Eligible Account, such Account is not:

        (a)  owed by an employee, Affiliate, or agent of Borrower,

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        (b)  on account of a transaction wherein goods were placed on consignment or were sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or on any other terms by reason of which the payment by the Account Debtor may be conditional,

        (c)  payable in a currency other than Dollars,

        (d)  owed by an Account Debtor that has or has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the Account,

        (e)  owed by an Account Debtor that is subject to any Insolvency Proceeding or is not Solvent or as to which Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor,

        (f)    on account of a transaction as to which the goods giving rise to such Account have not been shipped and billed to the Account Debtor or the services giving rise to such Account have not been performed and accepted by the Account Debtor,

        (g)  a right to receive progress payments or other advance billings that are due prior to the completion of performance by Borrower of the subject contract for goods or services, and

        (h)  an Account that has not been billed to the customer.

        5.3    [Intentionally omitted].

        5.4    Equipment.    All of the Equipment is used or held for use in Borrower's business and is fit for such purposes.

        5.5    Location of Inventory and Equipment.    The Inventory and Equipment are not stored with a bailee, warehouseman, or similar party and are located only at the locations identified on Schedule 5.5.

        5.6    [intentionally omitted].

        5.7    Location of Chief Executive Office; FEIN.    The chief executive office of Borrower is located at the address indicated in Schedule 5.7 and Borrower's FEIN is identified in Schedule 5.7.

        5.8    Due Organization and Qualification; Subsidiaries.

        (a)  Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to have a Material Adverse Change.

        (b)  Set forth on Schedule 5.8(b), is a complete and accurate description of the authorized capital Stock of Borrower, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule 5.8(b), there are no subscriptions, options, warrants, or calls relating to any shares of Borrower's capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Borrower is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock.

        (c)  Set forth on Schedule 5.8(c), is a complete and accurate list of Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization, (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries, and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Borrower. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable.

        (d)  Except as set forth on Schedule 5.8(c), there are no subscriptions, options, warrants, or calls relating to any shares of Borrower's Subsidiaries' capital Stock, including any right of

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conversion or exchange under any outstanding security or other instrument. Neither Borrower nor any of its Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of Borrowers' Subsidiaries' capital Stock or any security convertible into or exchangeable for any such capital Stock.

        5.9    Due Authorization; No Conflict.

        (a)  The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of Borrower.

        (b)  The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower's interestholders or any approval or consent of any Person under any material contractual obligation of Borrower.

        (c)  Other than the filing of financing statements, fixture filings, and Mortgages, the execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person.

        (d)  This Agreement and the other Loan Documents to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally.

        (e)  The Lender's Liens are validly created, perfected, and first priority Liens, subject only to Permitted Liens.

        5.10    Litigation.    Other than those matters disclosed on Schedule 5.10, there are no actions, suits, or proceedings pending or, to the best knowledge of Borrower, threatened against Borrower, or any of its Subsidiaries, as applicable, except for (a) matters that are fully covered by insurance (subject to customary deductibles), and (b) matters arising after the Closing Date that, if decided adversely to Borrower, or any of its Subsidiaries, as applicable, reasonably could not be expected to result in a Material Adverse Change.

        5.11    No Material Adverse Change.    All financial statements relating to Borrower that have been delivered by Borrower to Lender have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Borrower's financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change with respect to Borrower since the date of the latest financial statements submitted to Lender on or before the Closing Date.

        5.12    Fraudulent Transfer.

        (a)  Borrower is Solvent.

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        (b)  No transfer of property is being made by Borrower and no obligation is being incurred by Borrower in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrower.

        5.13    Employee Benefits.    None of Borrower, any of its Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Benefit Plan.

        5.14    Environmental Condition.    Except as set forth on Schedule 5.14, (a) to Borrower's knowledge, none of Borrower's assets has ever been used by Borrower or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such production, storage, handling, treatment, release or transport was in violation, in any material respect, of applicable Environmental Law, (b) to Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) Borrower has not received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by Borrower, and (d) Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by Borrower resulting in the releasing or disposing of Hazardous Materials into the environment.

        5.15    Brokerage Fees.    Borrower has not utilized the services of any broker or finder in connection with Borrower's obtaining financing from Lender under this Agreement and no brokerage commission or finders fee is payable by Borrower in connection herewith.

        5.16    Intellectual Property.    Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted. Attached hereto as Schedule 5.16 is a true, correct, and complete listing of all material patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which Borrower is the owner or is an exclusive licensee.

        5.17    Leases.    Borrower enjoys peaceful and undisturbed possession under all leases material to the business of Borrower and to which it is a party or under which it is operating. All of such leases are valid and subsisting and no material default by Borrower exists under any of them.

        5.18    DDAs.    Set forth on Schedule 5.18 are all of Borrower's DDAs, including, with respect to each depository (i) the name and address of such depository, and (ii) the account numbers of the accounts maintained with such depository.

        5.19    Complete Disclosure.    All factual information (taken as a whole) furnished by or on behalf of Borrower in writing to Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents, or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrower in writing to Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. On the Closing Date, the Closing Date Projections represent, and as of the date on which any other Projections are delivered to Lender, such additional Projections represent Borrower's good faith best estimate of its future performance for the periods covered thereby.

        5.20    Indebtedness.    Set forth on Schedule 5.20 is a true and complete list of all Indebtedness of Borrower outstanding immediately prior to the Closing Date that is to remain outstanding after the Closing Date and such Schedule accurately reflects the aggregate principal amount of such Indebtedness and the principal terms thereof.

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6.    AFFIRMATIVE COVENANTS.

        Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrower shall and shall cause each of its Subsidiaries to do all of the following:

        6.1    Accounting System.    Maintain a system of accounting that enables Borrower to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Lender.

        6.2    Collateral Reporting.    Provide Lender with the following documents at the following times in form satisfactory to Lender:

Weekly	(a) a sales journal, collection journal, and credit register since the last such schedule and a calculation of the Borrowing Base as of such date,
	(b) notice of all returns, disputes, or claims, and
	(c) a report calculating the aggregate outstanding accrued and unpaid obligations of Borrower to LECs and Clearinghouses as of the last day of the week most recently ended, with respect to billing and collection charges payable under Billing Services Agreements and detailing any accruals or payments with respect thereto that occurred during such week.
Monthly (not later than the 10th day of each month)	(d) a detailed calculation of the Borrowing Base (including detail regarding those Accounts that are not Eligible LEC Accounts),
	(e) a detailed aging, by total, of the Accounts, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Lender, and
	(f) a summary aging, by vendor, of Borrower's accounts payable and any book overdraft.
Quarterly	(g) a detailed list of Borrower's LECs and Clearinghouses, and
	(h) a report regarding Borrower's accrued, but unpaid, ad valorem taxes.
Upon request by Lender	(i) copies of invoices in connection with the Accounts, credit memos, remittance advices, deposit slips, shipping and delivery documents in connection with the Accounts and, for Equipment acquired by Borrower, purchase orders and invoices,
	(j) PAR Statements, and
	(k) such other reports as to the Collateral, or the financial condition of Borrower, as Lender may request.

        In addition, Borrower agrees to cooperate fully with Lender to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above.

        6.3    Financial Statements, Reports, Certificates.    Deliver to Lender:

        (a)  as soon as available, but in any event within 30 days (45 days in the case of a month that is the end of one of the first 3 fiscal quarters in a fiscal year) after the end of each month during each of Borrower's fiscal years,

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        (i)    a company prepared consolidated balance sheet, income statement, and statement of cash flow covering Borrower's and its Subsidiaries' operations during such period,

        (ii)  a certificate signed by the chief financial officer of Borrower to the effect that:

        (A)  the financial statements delivered hereunder have been prepared in accordance with GAAP (except for the lack of footnotes and being subject to year-end audit adjustments) and fairly present in all material respects the financial condition of Borrower and its Subsidiaries,

        (B)  the representations and warranties of Borrower contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date),

        (C)  there does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Borrower has taken, is taking, or proposes to take with respect thereto), and

        (iii)  for each month that is the date on which a financial covenant in Section 7.20 is to be tested, a Compliance Certificate demonstrating, in reasonable detail, compliance at the end of such period with the applicable financial covenants contained in Section 7.20, and

        (b)  as soon as available, but in any event within 90 days after the end of each of Borrower's fiscal years,

        (i)    financial statements of Borrower and its Subsidiaries for each such fiscal year, audited by one of the so-called "Big Five" firms of independent certified public accountants and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants' letter to management),

        (ii)  a certificate of such accountants addressed to Lender stating that such accountants do not have knowledge of the existence of any Default or Event of Default under Section 7.20,

        (c)  as soon as available, but in any event within 30 days prior to the start of each of Borrower's fiscal quarters,

        (i)    copies of Borrower's Projections, in form (including as to scope and underlying assumptions) satisfactory to Lender, in its sole discretion, for the forthcoming year, quarter by quarter, certified by the chief financial officer of Borrower as being such officer's good faith best estimate of the financial performance of Borrower during the period covered thereby,

        (d)  if and when filed by Borrower,

        (i)    Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports,

        (ii)  any other filings made by Borrower with the SEC,

        (iii)  copies of Borrower's federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service, and

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        (iv)  any other information that is provided by Borrower to its shareholders generally,

        (e)  if and when filed by Borrower and as requested by Lender, satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which (i) Borrower conducts business or is required to pay any such excise tax, (ii) where Borrower's failure to pay any such applicable excise tax would result in a Lien on the properties or assets of Borrower, or (iii) where Borrower's failure to pay any such applicable excise tax reasonably could be expected to result in a Material Adverse Change,

        (f)    as soon as Borrower has knowledge of any event or condition that constitutes a Default or an Event of Default, notice thereof and a statement of the curative action that Borrower proposes to take with respect thereto, and

        (g)  upon the request of Lender, any other report reasonably requested relating to the financial condition of Borrower.

        In addition to the financial statements referred to above, Borrower agrees to deliver financial statements prepared on both a consolidated and consolidating basis and agrees that no Subsidiary of Borrower will have a fiscal year different from that of Borrower. Borrower agrees that its independent certified public accountants are authorized to communicate with Lender and to release to Lender whatever financial information concerning Borrower Lender reasonably may request. If an Event of Default has occurred and is continuing, Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Lender pursuant to or in accordance with this Agreement, and agrees that Lender may contact directly any such accounting firm or service bureau in order to obtain such information. Unless an Event of Default has occurred and is continuing, Lender agrees to provide Borrower with notice before contacting such accounting firm and agrees that Borrower may participate in any meeting or discussions with such accounting firm and Lender (so long as the presence of Borrower would not delay the meeting or discussion and so long as the presence of Borrower would not inhibit the ability of the accounting firm to provide Lender with a candid assessment of Borrower's financial condition); it being understood that Lender shall not be liable to Borrower for failing to provide such notice so long as such failure is not wilful.

        6.4    [Intentionally omitted].

        6.5    Chargebacks.    Cause chargebacks and allowances, as between Borrower and its Account Debtors, to be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement.

        6.6    Maintenance of Properties.    Maintain and preserve all of its properties which are necessary or useful in the proper conduct to its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which it is a party as lessee so as to prevent any loss or forfeiture thereof or thereunder.

        6.7    Taxes.    Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower or any of its assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Lender with proof satisfactory to Lender indicating that Borrower has made such payments or deposits. Borrower shall deliver satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which Borrower is required to pay any such excise tax.

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        6.8    Insurance.

        (a)  At Borrower's expense, maintain insurance respecting its assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Borrower also shall maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Lender. Borrower shall deliver copies of all such policies to Lender with a satisfactory lender's loss payable endorsement naming Lender as sole loss payee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever.

        (b)  Borrower shall give Lender prompt notice of any loss covered by such insurance. Any monies received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to Lender to be applied at the option of Borrower either to the prepayment of the Obligations or shall be disbursed to Borrower under staged payment terms reasonably satisfactory to Lender for application to the cost of repairs, replacements, or restorations.

        (c)  Borrower will not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.8, unless Lender is included thereon as named insured with the loss payable to Lender under a lender's loss payable endorsement or its equivalent. Borrower immediately shall notify Lender whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and copies of such policies promptly shall be provided to Lender.

        6.9    Location of Inventory and Equipment.    Keep the Inventory and Equipment only at the locations identified on Schedule 5.5; provided, however, that Borrower may amend Schedule 5.5 so long as such amendment occurs by written notice to Lender not less than 30 days prior to the date on which Inventory or Equipment is moved to such new location, so long as such new location is within the continental United States, and so long as, at the time of such written notification, Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Lender's Liens on such assets and also provides to Lender a Collateral Access Agreement.

        6.10    Compliance with Laws.    Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Change.

        6.11    Leases.    Pay when due all rents and other amounts payable under any leases to which Borrower is a party or by which Borrower's properties and assets are bound, unless such payments are the subject of a Permitted Protest.

        6.12    Brokerage Commissions.    Pay any and all brokerage commission or finders fees incurred in connection with or as a result of Borrower's obtaining financing from Lender under this Agreement. Borrower agrees and acknowledges that payment of all such brokerage commissions or finders fees shall be the sole responsibility of Borrower, and Borrower agrees to indemnify, defend, and hold Lender harmless from and against any claim of any broker or finder arising out of Borrower's obtaining financing from Lender under this Agreement.

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        6.13    Existence.    At all times preserve and keep in full force and effect Borrower's valid existence and good standing and any rights and franchises material to Borrower's businesses.

        6.14    Environmental.

        (a)  Keep any property either owned or operated by Borrower free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply, in all material respects, with Environmental Laws and provide to Lender documentation of such compliance which Lender reasonably requests, (c) promptly notify Lender of any release of a Hazardous Material in any reportable quantity from or onto property owned or operated by Borrower and take any Remedial Actions required to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly provide Lender with written notice within 10 days of the receipt of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of Borrower, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against Borrower, and (iii) notice of a violation, citation, or other administrative order which reasonably could be expected to result in a Material Adverse Change.

        6.15    Disclosure Updates.    Promptly and in no event later than 5 Business Days after obtaining knowledge thereof, (a) notify Lender if any written information, exhibit, or report furnished to Lender contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and (b) correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement, filing, or recordation thereof.

        6.16    Performance of Obligations to Carriers.    Except as otherwise specifically excepted by Schedule 6.16, from and after the date hereof, make all payments due from it to Carriers within 60 days of their due date, and otherwise comply in all material respects with Borrower's non-monetary contractual obligations to Carriers; provided that Borrower shall not be in breach of this Section 6.16 by virtue of claiming permitted credits and deductions, or by virtue of immaterial breaches that would not permit Carriers to enforce default remedies. Should Borrower acquire knowledge that Borrower is in breach of this Section 6.16 or should Borrower receive a written default notice from any Carrier, in each such instance Borrower promptly shall notify Lender of same and all relevant details pertaining thereto. If Lender reasonably determines that Borrower is in breach of the requirements of this Section 6.16, and that such breach may have an adverse effect upon the value or collectibility of the Accounts (such as, by way of illustration but not by way of limitation, where a Carrier threatens to contact customers of Borrower and give notices or assert demands that could confuse such customers or interfere with collection of the affected Accounts by Borrower or Lender), then Lender in the reasonable exercise of its discretion may elect to pay to such Carrier amounts claimed by such Carrier to be due from Borrower, whereupon such amounts so paid by lender shall become Lender Expenses immediately due and payable from Borrower to Lender.

        6.17    LEC, Clearinghouse, and Carrier Agreements.    From time to time, if and as requested by Lender, Borrower shall deliver to Lender copies of all Billing Services Agreement, Carrier Agreements, and/or other material agreements in effect between Borrower and LECs, Clearinghouses or Carriers; provided that if any such agreement contains confidentiality restrictions, Lender will agree to reasonable restrictions upon the use or dissemination of such agreement by Lender.

        6.18    Change of Management

        If at any time after the Closing Date, the individual who serves as Borrower's Chief Financial Officer resigns, is terminated or otherwise fails to continue to serve as Chief Financial Officer,

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Borrower shall fill such office within 90 days of such resignation, termination, or failure to serve with an individual reasonably acceptable to the Lender.

        6.19    Trademarks

        Borrower shall (a) cause all of its trademarks that are not already the subject of a registration with the United States Patent and Trademark Office (or an application therefor diligently prosecuted) to be registered with the United States Patent and Trademark Office in a manner sufficient to impart constructive notice of Borrower's ownership thereof, and (b) cause to be prepared, executed, and delivered to Lender, with sufficient time to permit Lender to record no later than the last Business Day within 10 days following the date that such trademarks have been registered or an application for registration has been filed, a Trademark Security Agreement reflecting the security interest of Lender in such trademarks, which shall be in form and content suitable for registration with the United States Patent and Trademark Office so as to give constructive notice, when so registered, of the transfer by Borrower to Lender of a security interest in such trademarks.

7.    NEGATIVE COVENANTS.

        Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrower will not and will not permit any of its Subsidiaries to do any of the following:

        7.1    Indebtedness.    Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except:

        (a)  Indebtedness evidenced by this Agreement and the other Loan Documents,

        (b)  Indebtedness set forth on Schedule 5.20,

        (c)  Permitted Purchase Money Indebtedness, and

        (d)  refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in Lender's judgment, materially impair the prospects of repayment of the Obligations by Borrower or materially impair Borrower's creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are materially more burdensome or restrictive to Borrower, and (iv) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable to Lender as those that were applicable to the refinanced, renewed, or extended Indebtedness.

        7.2    Liens.    Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(d) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness).

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        7.3    Restrictions on Fundamental Changes.

        (a)  Enter into any merger or consolidation (other than a Permitted Acquisition), reorganization, or recapitalization, or reclassify its Stock.

        (b)  Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution).

        (c)  Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets (other than pursuant to a Permitted Acquisition).

        7.4    Disposal of Assets.    Other than Permitted Dispositions, convey, sell, lease, license, assign, transfer, or otherwise dispose of any of Borrower's assets.

        7.5    Change Name.    Change Borrower's name, FEIN, corporate structure, or identity, or add any new fictitious name; provided, however, that Borrower may change its name upon at least 30 days prior written notice to Lender of such change and so long as, at the time of such written notification, Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Lender's Liens.

        7.6    Guarantee.    Guarantee or otherwise become in any way liable with respect to the obligations of any third Person except by endorsement of instruments or items of payment for deposit to the account of Borrower or which are transmitted or turned over to Lender.

        7.7    Nature of Business.    Make any change in Borrower's Business.

        7.8    Prepayments and Amendments.

        (a)  Except in connection with a refinancing permitted by Section 7.1(d), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Borrower, other than the Obligations in accordance with this Agreement, and

        (b)  Except in connection with a refinancing permitted by Section 7.1(d), directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b) or (c).

        7.9    Change of Control.    Cause, permit, or suffer, directly or indirectly, any Change of Control.

        7.10    Consignments.    Consign any Inventory or sell any Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale.

        7.11    Distributions.    Make any distribution or declare or pay any dividends (in cash or other property, other than common Stock) on, or purchase, acquire, redeem, or retire any of Borrower's Stock, of any class, whether now or hereafter outstanding.

        7.12    Accounting Methods.    Modify or change its method of accounting (other than as may be required to conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Borrower's accounting records without said accounting firm or service bureau agreeing to provide Lender information regarding the Collateral or Borrower's financial condition.

        7.13    Investments.    Except for Permitted Investments and Permitted Acquisitions, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that Borrower shall not have Permitted Investments (other than in the Cash Management Accounts) in excess of $25,000 outstanding at any one time unless Borrower and the applicable securities intermediary or bank have entered into Control

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Agreements governing such Permitted Investments, as Lender shall determine in its Permitted Discretion, to perfect (and further establish) the Lender's Liens in such Permitted Investments.

        7.14    Transactions with Affiliates.    Except as set forth on Schedule 7.14, directly or indirectly enter into or permit to exist any transaction with any Affiliate of Borrower except for transactions that are upon fair and reasonable terms, that are fully disclosed to Lender, and that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-Affiliate.

        7.15    Suspension.    Suspend or go out of a substantial portion of its business.

        7.16    [Intentionally omitted].

        7.17    Use of Proceeds.    Use the proceeds of the Advances for any purpose other than (a) on the Closing Date, (i) to repay $2,500,000 of principal under the Counsel Note, and (ii) to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted purposes including, without limitation, the financing of working capital, capital expenditures, payment of indebtedness and general corporate expenses.

        7.18    Change in Location of Chief Executive Office; Inventory and Equipment with Bailees.    Relocate its chief executive office to a new location without providing 30 days prior written notification thereof to Lender and so long as, at the time of such written notification, Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Lender's Liens and also provides to Lender a Collateral Access Agreement with respect to such new location. The Inventory and Equipment shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Lender's prior written consent.

        7.19    Securities Accounts.    Establish or maintain any Securities Account unless Lender shall have received a Control Agreement in respect of such Securities Account. Borrower shall not transfer assets out of any Securities Account; provided, however, that, so long as no Event of Default has occurred and is continuing or would result therefrom, Borrower may use such assets (and the proceeds thereof) to the extent not prohibited by this Agreement.

        7.20    Financial Covenants.

        (a)  Minimum EBITDA. If the sum of Excess Availability and unrestricted cash and Cash Equivalents at any time during any of the periods set forth in the following table is less than $2,500,000, then Borrower shall not fail to maintain EBITDA for the applicable period, measured on a fiscal quarter-end basis, of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto;

Applicable Amount		Applicable Period
$	1,250,000	For the 3 month period ending March 31, 2002
$	2,500,000	For the 6 month period ending June 30, 2002
$	3,750,000	For the 9 month period ending September 30, 2002
$	5,000,000	For the 12 month period ending each fiscal quarter thereafter

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        For the period ending March 31, 2002, Lender shall adjust Borrower's EBITDA to reflect the amount of discretionary promotional expenses expensed during such period. The foregoing notwithstanding, if Borrower fails to maintain the required EBITDA for any period, Borrower shall have 10 calendar days following the applicable period to provide Lender with evidence (in form and substance reasonably satisfactory to Lender) that it (i) has received one or more equity capital contributions in cash or (ii) has consummated a private placement of subordinated debt (which subordinated debt shall be subject to a subordination agreement in form and substance reasonably satisfactory to Lender) in an aggregate amount such that the sum of Excess Availability and unrestricted cash and Cash Equivalents after the receipt of such equity capital contributions is at least $2,500,000.

        (b)  Capital Expenditures. Make capital expenditures (i) in Fiscal Year 2002 in excess of $5,000,000 (ii) in Fiscal Year 2003 in excess of $3,000,000 and (iii) in Fiscal Year 2004 in excess of 120% of the actual amount of aggregate capital expenditures in Fiscal Year 2003 (which amounts shall include all expenditures made in connection with any Permitted Acquisition); provided, however, that the maximum capital expenditures amount for any fiscal year shall be increased by an amount equal to the lesser of the portion, if any, of the maximum capital expenditures amount set forth above for the previous fiscal year that was not actually utilized for capital expenditures during such fiscal year.

        7.21    Contracts with Carriers, Clearinghouses, and LECs.    Enter into any new contractual arrangements with Carriers, Clearinghouses, or LECs, or materially amend, modify, or extend existing contractual arrangements with Carriers, Clearinghouses, or LECs, if the effect in either case would be to prohibit Lender from having a security interest in the rights of Borrower thereunder, to prohibit disclosure of the terms thereof to Lender (although disclosure may be conditioned on Lender's agreement to reasonable confidentiality provisions), to grant a security interest to the Carrier, Clearinghouse, or LEC in any of the Collateral, to authorize any Carrier to withhold delivery of call transaction record tapes other than after the occurrence of a default, or to authorize any Carrier to contact or directly bill customers of Borrower with respect to services provided by such Carrier to Borrower for resale to Borrower's customers.

8.    EVENTS OF DEFAULT.

        Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement:

8.1  If Borrower fails to pay when due and payable, or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due Lender, reimbursement of Lender Expenses, or other amounts constituting Obligations);

8.2  (a) If Borrower fails or neglects to perform, keep, or observe, in any material respect, any term, provision, condition, covenant, or agreement contained in Sections 6.2 (Collateral Reporting), 6.9 (Location of Inventory and Equipment), 6.10 (Compliance with Laws), or 6.11 (Leases) of this Agreement and such failure continues for a period of 5 days; (b) If Borrower fails or neglects to perform, keep, or observe, in any material respect, any term, provision, condition, covenant, or agreement contained in Sections 6.1 (Accounting System), 6.3 (Financial Statements, Reports, Certificates), 6.6 (Chargebacks), or 6.8 (Maintenance of Properties) of this Agreement, or any term, provision, condition, covenant, or agreement contained in any of the other Loan Documents and such failure continues for a period of 15 days; or (c) If Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement, or in any other present or future agreement between Borrower and Lender (giving effect to any grace periods, if any, expressly provided for in such other agreements); in each case, other than any such

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term, provision, condition, covenant, or agreement that is the subject of another provision of this Section 8, in which event such other provision of this Section 8 shall govern); provided that, during any period of time that any such failure or neglect of Borrower referred to in this paragraph exists, even if such failure or neglect is not yet an Event of Default by virtue of the existence of a grace period, Lender shall not required during such period to make Advances to Borrower;

8.3  If any material portion of Borrower's or any of its Subsidiaries' assets is attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the possession of any third Person;

8.4  If an Insolvency Proceeding is commenced by Borrower, any of its Subsidiaries, Counsel, or Guarantor;

8.5  If an Insolvency Proceeding is commenced against Borrower, any of its Subsidiaries, Counsel, or Guarantor, and any of the following events occur: (a) Borrower, the Subsidiary, Counsel, or Guarantor consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 45 calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Lender shall be relieved of its obligations to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, Borrower, any of its Subsidiaries, Counsel, or Guarantor or (e) an order for relief shall have been entered therein;

8.6  If Borrower, any of its Subsidiaries, Counsel, or Guarantor is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs;

8.7  If a notice of Lien, levy, or assessment is filed of record with respect to any of Borrower's or any of its Subsidiaries' assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any of Borrower's or any of its Subsidiaries' assets and the same is not paid before such payment is delinquent;

8.8  If a judgment or other claim becomes a Lien or encumbrance upon any material portion of Borrower's or any of its Subsidiaries' assets;

8.9  If Borrower receives a written notice of default under any material Carrier Agreement;

8.10 If there is a default in any material agreement to which Borrower or any of its Subsidiaries is a party and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of Borrower's or its Subsidiaries' obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein;

8.11 If Borrower or any of its Subsidiaries makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness;

8.12 If any material misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or Record made to Lender by Borrower, its Subsidiaries, or any officer, employee, agent, or director of Borrower or any of its Subsidiaries;

8.13 If the obligation of Guarantor under the Guaranty is limited or terminated by operation of law or by Guarantor thereunder; or

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8.14 If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby; or

8.15 Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by Borrower, or a proceeding shall be commenced by Borrower, or by any Governmental Authority having jurisdiction over Borrower, seeking to establish the invalidity or unenforceability thereof, or Borrower shall deny that Borrower has any liability or obligation purported to be created under any Loan Document.

9.    LENDER'S RIGHTS AND REMEDIES.

        9.1    Rights and Remedies.    Upon the occurrence, and during the continuation, of an Event of Default, Lender (at its election but without notice of its election and without demand) may do any one or more of the following, all of which are authorized by Borrower:

        (a)  Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable;

        (b)  Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and Lender;

        (c)  Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Lender, but without affecting any of the Lender's Liens in the Collateral and without affecting the Obligations;

        (d)  Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Lender considers advisable, and in such cases, Lender will credit Borrower's Loan Account with only the net amounts received by Lender in payment of such disputed Accounts after deducting all Lender Expenses incurred or expended in connection therewith;

        (e)  Cause Borrower to hold all returned Inventory in trust for Lender, segregate all returned Inventory from all other assets of Borrower or in Borrower's possession and conspicuously label said returned Inventory as the property of Lender;

        (f)    Without notice to or demand upon Borrower, make such payments and do such acts as Lender considers necessary or reasonable to protect its security interests in the Collateral. Borrower agrees to assemble the Personal Property Collateral if Lender so requires, and to make the Personal Property Collateral available to Lender at a place that Lender may designate which is reasonably convenient to both parties. Borrower authorizes Lender to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Lender's determination appears to conflict with the Lender's Liens and to pay all expenses incurred in connection therewith and to charge Borrower's Loan Account therefor. With respect to any of Borrower's owned or leased premises, Borrower hereby grants Lender a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Lender's rights or remedies provided herein, at law, in equity, or otherwise;

        (g)  Without notice to Borrower (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Lender (including any amounts received in the Cash Management

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Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of Borrower held by Lender;

        (h)  Hold, as cash collateral, any and all balances and deposits of Borrower held by Lender, and any amounts received in the Cash Management Accounts, to secure the full and final repayment of all of the Obligations;

        (i)    Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Borrower hereby grants to Lender a license or other right to use, without charge, Borrower's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit;

        (j)    Sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Lender determines is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale;

        (k)  Lender shall give notice of the disposition of the Personal Property Collateral as follows:

        (i)    Lender shall give Borrower a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, then the time on or after which the private sale or other disposition is to be made; and

        (ii)  The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12, at least 10 days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market;

        (l)    Lender may credit bid and purchase at any public sale; and

        (m)  Lender may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing;

        (n)  Lender shall have all other rights and remedies available at law or in equity or pursuant to any other Loan Document; and

        (o)  Any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by Lender to Borrower.

        9.2    Remedies Cumulative.    The rights and remedies of Lender under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it.

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10.  TAXES AND EXPENSES.

        If Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Lender, in its sole discretion and without prior notice to Borrower, may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves in Borrower's Loan Account as Lender deems necessary to protect Lender from the exposure created by such failure, or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and maintain insurance policies of the type described in Section 6.8 and take any action with respect to such policies as Lender deems prudent. Any such amounts paid by Lender shall constitute Lender Expenses and any such payments shall not constitute an agreement by Lender to make similar payments in the future or a waiver by Lender of any Event of Default under this Agreement. Lender need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing.

11.  WAIVERS; INDEMNIFICATION.

        11.1    Demand; Protest.    Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by Lender on which Borrower may in any way be liable.

        11.2    Lender's Liability for Collateral.    Borrower hereby agrees that: (a) so long as Lender complies with its obligations, if any, under the Code, Lender shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrower.

        11.3    Indemnification.    Borrower shall pay, indemnify, defend, and hold the Lender-Related Persons, each Participant, and each of their respective officers, directors, employees, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding, Borrower shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT

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TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

12.  NOTICES.

        Unless otherwise provided in this Agreement, all notices or demands by Borrower or Lender to the other relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as Borrower or Lender, as applicable, may designate to each other in accordance herewith), or telefacsimile to Borrower or Lender, as the case may be, at its address set forth below:

If to Borrower:	WORLDXCHANGE CORP. 9775 Business Park Avenue San Diego, California 92131 Attn: Chief Financial Officer Fax No. 858.547.5626
with copies to:	COUNSEL SPRINGWELL COMMUNICATIONS LLC One Landmark Street Stanford, Connecticut 06901 Attn: Managing Director Fax No. 203.961.9001
If to Lender:	FOOTHILL CAPITAL CORPORATION 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404 Attn: Business Finance Division Manager Fax No. 310.453.7443
with copies to:	BROBECK, PHLEGER & HARRISON LLP 550 South Hope Street, Suite 2100 Los Angeles, California 90071 Attn: John Francis Hilson, Esq. Fax No. 213.745.3345

        Lender and Borrower may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 12, other than notices by Lender in connection with enforcement rights against the Collateral under the provisions of the Code, shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by Lender in connection with the exercise of enforcement rights against Collateral under the provisions of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or any other method set forth above.

13.  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

        (a)  THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE

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CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

        (b)  THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b).

        (c)  BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

14.  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

        14.1    Assignments and Participations.

        (a)  Lender may assign and delegate to one or more assignees (each an "Assignee") all, or any ratable part of all, of the Obligations and the other rights and obligations of Lender hereunder and under the other Loan Documents; provided, however, that Borrower may continue to deal solely and directly with Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Borrower by Lender and the Assignee, and (ii) Lender and its Assignee have delivered to Borrower an appropriate assignment and acceptance agreement. In the event that Lender assigns more than 50% of the Obligations and other rights and obligations of Lender hereunder and under the other Loan Documents (other than in connection with the sale of all or a material portion of Lender's loan portfolio), and if Borrower has not consented to such assignment (which consent shall not be unreasonably withheld, delayed, or conditioned, Borrower shall have the right, so long as no Event of Default has occurred and is continuing, for a period of 60 days from and after the date of such assignment, to prepay the Obligations and terminate this Agreement without being obligated to pay the Applicable Prepayment Premium.

        (b)  From and after the date that Lender provides Borrower with such written notice and executed assignment and acceptance agreement, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it

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pursuant to such assignment and acceptance agreement, shall have the assigned and delegated rights and obligations of Lender under the Loan Documents, and (ii) Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned and delegated by it pursuant to such assignment and acceptance agreement, relinquish its rights (except with respect to Section 11.3 hereof) and be released from its obligations under this Agreement (and in the case of an assignment and acceptance covering all or the remaining portion of Lender's rights and obligations under this Agreement and the other Loan Documents, Lender shall cease to be a party hereto and thereto), and such assignment shall affect a novation between Borrower and the Assignee.

        (c)  Immediately upon Borrower's receipt of such fully executed assignment and acceptance agreement, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the rights and duties of Lender arising therefrom.

        (d)  Lender may at any time sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such Lender (a "Participant") participating interests in the Obligations and the other rights and interests of Lender hereunder and under the other Loan Documents; provided, however, that (i) Lender shall remain the "Lender" for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations and the other rights and interests of Lender shall not constitute a "Lender" hereunder or under the other Loan Documents and Lender's obligations under this Agreement shall remain unchanged, (ii) Lender shall remain solely responsible for the performance of such obligations, (iii) Borrower and Lender shall continue to deal solely and directly with each other in connection with Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) Lender shall not transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or a material portion of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through Lender, or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums, and (v) all amounts payable by Borrower hereunder shall be determined as if Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as Lender under this Agreement. The rights of any Participant only shall be derivative through Lender and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to Borrower, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by Lender.

        (e)  In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose all documents and information which it now or hereafter may have relating to Borrower or Borrower's business.

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        (f)    Any other provision in this Agreement notwithstanding, Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR §203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.

        14.2    Successors.    This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without Lender's prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by Lender shall release Borrower from its Obligations. Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to Section 14.1 hereof, no consent or approval by Borrower is required in connection with any such assignment.

15.  AMENDMENTS; WAIVERS.

        15.1    Amendments and Waivers.    No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by Lender and Borrower and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        15.2    No Waivers; Cumulative Remedies.    No failure by Lender to exercise any right, remedy, or option under this Agreement or any other Loan Document, or delay by Lender in exercising the same, will operate as a waiver thereof. No waiver by Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Lender on any occasion shall affect or diminish Lender's rights thereafter to require strict performance by Borrower of any provision of this Agreement. Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Lender may have.

16.  GENERAL PROVISIONS.

        16.1    Effectiveness.    This Agreement shall be binding and deemed effective when executed by Borrower and Lender.

        16.2    Section Headings.    Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.

        16.3    Interpretation.    Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against Lender or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.

        16.4    Severability of Provisions.    Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

        16.5    Withholding Taxes.    All payments made by Borrower hereunder or under any note will be made without setoff, counterclaim, or other defense, except as required by applicable law other than for Taxes (as defined below). All such payments will be made free and clear of, and without deduction

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or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (other than the United States) or by any political subdivision or taxing authority thereof or therein (other than of the United States) with respect to such payments (but excluding, any tax imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein (i) measured by or based on the net income or net profits of Lender, or (ii) to the extent that such tax results from a change in the circumstances of Lender, including a change in the residence, place of organization, or principal place of business of Lender, or a change in the branch or lending office of Lender participating in the transactions set forth herein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any note, including any amount paid pursuant to this Section 16.5 after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrower shall not be required to increase any such amounts payable to Lender if the increase in such amount payable results from Lender's own willful misconduct or gross negligence. Borrower will furnish to Lender as promptly as possible after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrower.

        16.6    Amendments in Writing.    This Agreement only can be amended by a writing signed by Lender and Borrower.

        16.7    Counterparts; Telefacsimile Execution.    This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis.

        16.8    Revival and Reinstatement of Obligations.    If the incurrence or payment of the Obligations by Borrower or the transfer to Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Lender related thereto, the liability of Borrower automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made.

        16.9    Integration.    This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.

[Signature page to follow.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.

WORLDXCHANGE CORP.
a Delaware corporation

By:

Title:

FOOTHILL CAPITAL CORPORATION,
a California corporation

By:

Title:

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LOAN AND SECURITY AGREEMENT by and among WORLDXCHANGE CORP. as Borrower, and FOOTHILL CAPITAL CORPORATION as Lender Dated as of December 10, 2001

EX-23.1

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EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

        We hereby consent to the incorporation by reference in the Registration Statements on: Form S-8/S-3 No. 333-86761 pertaining to the 1997 Recruitment Stock Option Plan of I-Link Incorporated; Form S-8/S-3 No. 333-88881 pertaining to Various Written Compensation Contracts of I-Link Incorporated; Form S-8/S-3 No. 333-08483 pertaining to the 1995 MedCross, Inc. Employee Stock Option and Appreciation Rights Plan of MedCross, Inc.; Form S-8/S-3 No. 333-08477 pertaining to the 1995 MedCross, Inc. Director Stock Option and Appreciation Rights Plan of MedCross, Inc.; and Form S-8 No. 33-81646 pertaining to the 1994 Director Stock Option Plan of MedCross, Inc. of our report dated April 3, 2002 relating to the consolidated financial statements, which appears in this Form 10-K.
    

PricewaterhouseCoopers LLP

Salt Lake City, Utah
April 11, 2002

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CONSENT OF INDEPENDENT ACCOUNTANTS