-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VZUSMxafFvi9VOV/nn0NbMBMdXRVsCNb1G37lCTaN6axpO7DWWpMU5LQL0y37IND XHO4Pm8liJKxqyCw3fm/Kg== 0001005150-97-000638.txt : 19970818 0001005150-97-000638.hdr.sgml : 19970818 ACCESSION NUMBER: 0001005150-97-000638 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970815 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEL SAVE HOLDINGS INC CENTRAL INDEX KEY: 0000948545 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 232827736 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26728 FILM NUMBER: 97664266 BUSINESS ADDRESS: STREET 1: 6805 ROUTE 202 CITY: NEW HOPE STATE: PA ZIP: 18938 BUSINESS PHONE: 2158621500 MAIL ADDRESS: STREET 1: 6805 RIYTE 202 CITY: NEW HOPE STATE: PA ZIP: 18938 10-K/A 1 AMENDMENT NO. 2 TO FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A AMENDMENT NO. 2 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 0 - 26728 TEL-SAVE HOLDINGS, INC. (Exact name of registrant as specified in its charter) DELAWARE 23-2827736 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 6805 ROUTE 202 NEW HOPE, PENNSYLVANIA 18938 (215) 862-1500 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - ------------------- ----------------------------------------- None Not applicable Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE Indicate by check mark whether the Registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter 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 [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant as of August 13, 1997 was approximately $752,598,000 based on the average of the high and low prices of the Common Stock on August 13,1997 of $18.47 per share as reported on the Nasdaq National Market. As of August 13, 1997, the Registrant had outstanding 65,268,823 shares of its Common Stock, par value $.01 per share. PART I ITEM 1. BUSINESS For the definition of certain terms used in this Form 10-K, see "Glossary." OVERVIEW Tel-Save Holdings, Inc. ("Company") provides long distance services primarily to small and medium-sized businesses located throughout the United States. The Company's long distance service offerings include outbound service; inbound toll-free 800 service; and dedicated private line services for data. Prior to the fourth quarter of 1996, the Company operated solely as a switchless, nonfacilities-based reseller of AT&T long distance services. By purchasing large usage volumes from AT&T pursuant to contract tariffs, the Company has been able to procure substantial discounts and offer low cost, high quality long distance services to its customers at rates generally more favorable than those offered directly by AT&T. In order to reduce its dependence on AT&T contract tariffs and increase its growth opportunities, the Company in 1996 deployed its own nationwide telecommunications network, One Better Net ("OBN"). OBN features five Company-owned, AT&T (now Lucent Technologies, Inc. hereinafter "Lucent") manufactured 5ESS-2000 switches connected with AT&T digital transmission facilities. OBN's reduced cost structure allows the Company to offer rates competitive with those of non-AT&T resellers while continuing to provide the quality of AT&T (now Lucent) manufactured switches and AT&T-provided transmission facilities and billing services. OBN allows the Company to pursue the non-AT&T based switchless resale market, which represents the majority of the switchless resale long distance market. The Company's strategy for expanding its business is to market services directly to business and residential end users, to continue to support existing partitions and to attract additional partitions (including those now in the non-AT&T resale market). The Company intends to attract new partitions and support existing partitions by, among other things, continuing its current practice of offering advances to new partitions to enable such partitions to pay outstanding balances due to their existing long distance providers in order for such partitions to transfer their end users to the Company's service, and to existing partitions to support their marketing efforts. The Company also intends to approach residential customers through its telemarketing operations as well as new marketing and advertising media, such as the Company's recently announced arrangement with America Online, Inc. ("AOL") pursuant to - 1 - which the Company will be the exclusive provider of long distance telecommunications services to AOL subscribers. Tel-Save, Inc., the Company's predecessor ("Predecessor Corporation") and now its operating subsidiary, was incorporated in Pennsylvania in May 1989. The Company was incorporated in Delaware in June 1995. The address of the Company's principal executive offices is 6805 Route 202, New Hope, Pennsylvania 18938, and its telephone number is (215) 862-1500. Unless the context otherwise requires, "Company" includes the Predecessor Corporation and the Company's other subsidiaries. DEVELOPMENT OF THE COMPANY The Company, originally incorporated in 1989 as Tel-Save, Inc., was formed to capitalize on the FCC mandate allowing the resale of AT&T services. The Company initially marketed AT&T's multi-location calling plan ("MLCP"), which provided incremental discounts earned by inclusion of the usage volume of diverse end user locations under a single service plan. The Company was successful in marketing MLCP, but realized that there were significant barriers to growth associated with the product, primarily the lack of reporting from AT&T, product inflexibility and the lack of control over end user accounts. In late 1989, the Company successfully obtained an additional AT&T service plan developed by AT&T and marketed as Software Defined Network Service ("SDN"), an AT&T product designed for larger business customers. SDN provided the Company with higher margins, network controls, advanced features and the ability to rebill its end users through AT&T and AT&T's College and University Systems ("ACUS"), thus enabling the Company to have more control over the end user account. As a result of SDN, the Company began to offer services on a wholesale basis through partitions. The Company thereby outsourced its marketing and end user service expenses to partitions, allowing it to focus on managing the AT&T relationship and to further develop its billing and information systems. In December 1992, the Company obtained the first contract tariff created by AT&T specifically for the Company. The contract tariff provided the Company with significant additional price advantages at stabilized rates and the ability to absorb the traffic of competitors' plans into the contract tariff. The Company subsequently obtained other contract tariffs, which also provide AT&T inbound 800 services and AT&T private line services, in order to diversify its service offerings. This in turn has further enabled the Company to increase the number of its partitions and end users. To date, the Company has primarily operated as a "switchless" and nonfacilities-based provider of long distance services by reselling AT&T services. The Company offers its - 2 - partitions and end users nationwide access to AT&T long distance network services through contract tariffs, including outbound long distance, 800 service and private line service. Outbound long distance service accommodates voice, data and video transmissions. The Company's 800 service is currently provided by reselling AT&T's 800 Service (Readyline, Megacom 800, etc.), which is AT&T's inbound, toll-free (recipient of the call pays the charges) long distance service. The Company's private line service is currently provided by reselling AT&T Private Line Service, which includes dedicated transmission lines connecting pairs of sites. The Company successfully established its position as a switchless reseller of AT&T long distance services as a result of its ability to negotiate with and obtain favorable contract tariffs from AT&T, manage and distribute data, bill accurately and provide partition support. Contract tariff subscriptions do not impose restrictions on the rates the Company may charge its partitions and end users. By purchasing large usage volumes from AT&T pursuant to such contract tariffs, the Company is able to procure substantial volume discounts and offer long distance services to its partitions and end users at rates generally more favorable than those offered directly by AT&T. With its information systems, the Company is able to manage and distribute to partitions information such as data about end user usage and payment history. Prior to 1995, substantially all of the Company's services consisted of reselling AT&T outbound or SDN long distance services. In 1994, the Company began to offer 800 services, which accounted for 30.9% of 1995 sales, and private line service, which accounted for 10.2% of 1995 sales. The Company's 800 services and private line service accounted for 32.4% and 7.9%, respectively, of 1996 sales. In order to reduce its dependence on the AT&T contract tariffs and increase its growth opportunities, the Company began to develop its own network, OBN, in late 1995. In 1996, the Company deployed five 5ESS-2000 switches in Chicago, Dallas, Jacksonville, New York and San Francisco and installed new 5E11 software. The Company began testing new customer calls over its network in the third quarter of 1996. In the fourth quarter of 1996, the Company began provisioning on a test basis new customer orders on OBN. To date, the Company has provisioned approximately 50,000 end users to OBN. OBN enables the Company to offer its end users and partitions more competitive rates than in the past and to improve customer provisioning, as well as to improve reporting to existing and new partitions. Currently the Company is continuing to provision new customers on OBN while completing the final testing of OBN. The Company expects final testing of OBN to be completed in April 1997, and at that time there will be a general release of OBN. Thereafter, the Company expects to provision a large majority of its new customer orders on OBN. - 3 - STRATEGY The Company has historically expanded its business primarily through the addition of partitions and by providing new and existing partitions with operational, financing, marketing and management support. The Company's strategy for future business growth is to market its services directly to business end users, broaden the Company's target market to include residential customers, continue to support existing partitions, attract additional partitions and introduce new services. Increase Direct Marketing Efforts. By marketing its services directly to end users, the Company expects to increase its profit margins by taking advantage of the difference between the reduced costs of offering services on OBN and the rates charged directly to end users. Broaden Target Market To Include Residential Customers. The Company intends to expand its service offerings to attract the residential segment of the long distance market. New services may include new features relating to customers reporting and billing as well as improved rates. The Company will use direct marketing and new marketing and advertising media, such as online services, to attract the end users in this customer segment. Recently, the Company announced its arrangement with AOL pursuant to which the Company will be the exclusive provider of long distance telecommunications services to AOL's subscribers. See "SALES AND MARKETING -- Residential." Provide Operational, Financing, Marketing and Management Support to Partitions. The Company will continue to sell its services through partitions. To do so, the Company will continue to provide existing and new partitions with low rates and operational, marketing and management support. The operational, marketing and management support includes financing, training in customer service and use of the data base, collection services, lists of prospective end users and a business management system designed and developed by the Company exclusively for its use and its partitions' use. The Company's basic strategy for business growth is based on the deployment of OBN. OBN is expected to lower the Company's costs, to maintain its access to AT&T services and AT&T (now Lucent) equipment, to improve provisioning of new accounts, and to provide a network that can be expanded to add new products and services. Provide Low Cost, High Quality Alternative to Other Carriers. The Company's deployment of OBN will reduce its costs and allow it to offer pricing to its partitions and - 4 - end users competitive with or below that typically offered by major long distance carriers and their resellers. OBN's cost structure is expected to allow the Company to expand its target market beyond the current AT&T resale market to include the balance of the switchless long distance market (i.e., the non-AT&T long distance resale market), which currently represents the majority of the long distance resale market. The Company also intends to market to AT&T's end users, as well as other end users including residential and larger commercial accounts. Emphasize Quality and Functionality of AT&T (now Lucent) Manufactured Switches, and AT&T-Provided Transmission Facilities and Billing. The Company offers products and services on OBN similar to those that it offers as a switchless reseller of AT&T services. OBN has been built using AT&T (now Lucent) manufactured switches in conjunction with leased AT&T transmission facilities. The 5ESS-2000 switch is generally considered the most reliable switch in the telecommunications industry. In addition to offering services using AT&T as the underlying facilities-based carrier, the Company will continue to use the billing services of AT&T and ACUS. Improve Provisioning of End User Accounts. OBN allows the Company to establish service directly for or activate end user accounts. The Company will provide new end user account data directly to the local exchange carrier ("LEC"), which will then change the end user account to the service provided by the Company or its partition. This is expected to increase the timeliness and the acceptance rate of the establishment of service, or provisioning, and will allow lists of end users to be maintained confidentially. Expandable Network with Capability To Support New Products and Services. The AT&T (now Lucent) 5ESS-2000 switches can be expanded to increase capacity significantly and can at the same time accommodate local, long distance, private line and wireless services. OBN thus enables the Company to provide new products and services beyond those currently possible as a switchless reseller. The Company also intends to continue to explore strategic alliances with other channels of distribution, partitions and nonfacilities-based and other providers of long distance services. - 5 - SALES AND MARKETING Partitions ---------- To date, the Company has primarily marketed its services to small and medium-sized business end users (i.e., generally businesses with fewer than 200 employees) throughout the United States through independent long distance and marketing companies known as "partitions." Partitions resell and market the Company's products, allowing the Company to minimize its marketing and end user overhead. Partitions offer end users a variety of services and rates. As compensation for their services, partitions generally receive the difference between the amount received by the Company from end users and the amount charged by the Company to the partition for providing such services. One partition, The Furst Group, Inc., accounted for approximately 11% of the Company's sales in 1996; however, the Company does not expect that any partition will account for 10% or more of the Company's sales in 1997. A substantial number of the Company's partitions have executed partition agreements with the Company pursuant to which the Company agrees to provide services utilizing the AT&T network service and end user billing services at agreed upon prices or discounts. The Company requires that the partitions adhere to certain Company established guidelines in marketing the Company's services and comply with federal and state regulations. These requirements include certain representations by each organization that it is acting as an independent contractor with regard to the sale of the Company's services, and not as a joint venture partner, agent or employee of the Company, along with provisions for the proper completion of forms and other sales procedures. In addition, most of the payments made by end users are paid directly into a lock-box controlled by the Company. The Company's partition agreements typically run for three years or for the term of the applicable tariffs, whichever is less. The partitions generally make no minimum use or revenue commitments to the Company under these agreements with respect to the resale of AT&T services. The agreements also are generally non-exclusive. If the Company were to lose access to services on the AT&T network or AT&T billing services or experience difficulties with OBN, the Company's agreements with partitions could be adversely affected. The Company believes that the discounts it will be able to offer partitions and end users using OBN, together with the functionality and quality of OBN operating in conjunction with AT&T-provided transmission facilities and the accuracy of billing services obtained from AT&T and ACUS, will enable it to attract current and future partitions to OBN. The Company will continue its policy of advancing funds to most partitions to support their marketing efforts. Historically, partitions of the Company have continued to - 6 - do business under their partition agreements following changes in the Company's service offerings. The Company intends to continue to promote increased marketing activities of certain of its partitions through advances collateralized by assets of such partitions. In return for providing such marketing advances, the Company seeks long-term arrangements with such partitions. In 1996, the Company entered into long term arrangements with several existing and new partitions. Current marketing practices, including the methods and means to convert a customer's long distance telephone service from one carrier to another, have recently been subject to increased regulatory review at both the federal and state levels. This increased regulatory review could affect possible future acquisition of new business from new partitions or other resellers. Provisions in the Company's partition agreements mandate compliance by the partitions with applicable state and federal regulations. Because the Company's partitions are independent carriers and marketing companies, the Company is unable to control such partitions' activities. The Company is also unable to predict the extent of its partitions' compliance with applicable regulations or the effect of such increased regulatory review. Direct Marketing - ---------------- The Company began to actively market its telecommunication services directly to end users in 1996. Through its direct marketing efforts, the Company expects to increase its profit margins by taking advantage of the difference between the reduced costs of providing services over OBN and the rates charged to end users. The Company began its direct marketing in the first quarter of 1996 with a telemarketing operation based in Clearwater, Florida. In December 1996, in connection with the settlement of certain disagreements among the Company, American Business Alliance, Inc. ("ABA"), a switchless reseller of long distance telecommunications services and a partition of the Company, and ABA's shareholders, the Company acquired substantially all of ABA's assets and hired substantially all of ABA's employees. These actions significantly increased the Company's capabilities for direct marketing of telecommunication services. The Company expects that in 1997 a large majority of the Company's new orders will be generated from direct marketing. The Company currently has 260 employees involved in its direct marketing operations. Direct marketing efforts have focused initially on inbound and outbound services to small and medium-sized businesses and may expand to include residential customers. Operation of its own direct marketing will require the Company to incur additional costs above levels historically - 7 - experienced by the Company. There can be no assurance that any cost savings will be realized utilizing direct marketing. Direct marketing by the Company also may adversely affect the Company's relationships with its partitions as both the Company and the partitions will be competing to provide similar services. The Company is required to comply with additional regulatory standards for direct marketing of telecommunications services, and is subject to increased risk of customer complaints or federal or state enforcement actions with respect to its marketing and order verification practices. Actions have been brought against many carriers based on allegations of "slamming" or the unauthorized conversion of a customer's chosen long distance carrier. Residential - ----------- On February 25, 1997, the Company announced that it had entered into a Telecommunications Marketing Agreement (the "AOL Agreement"), dated as of February 22, 1997 and effective as of February 25, 1997, with AOL, under which the Company will be the exclusive provider of long-distance telecommunications services to be marketed by AOL under a distinctive brand name to be used exclusively for the Company's services. The services will include provision for online sign-up, call detail and reports and credit card payment. Under the AOL Agreement, AOL will provide millions of dollars of online advertising and promotion of the services and provide all of its subscribers with access to a dedicated service area online for the Company. AOL subscribers who sign-up for the telecommunications services will be customers of the Company, as the carrier providing such services. The Company also has certain rights under the AOL Agreement to offer, on a comparably exclusive basis, local and wireless telecommunications services when such services become available to the Company through a contract for resale or otherwise. The inclusion of such additional services (which the Company does not currently offer) in the telecommunications services to be marketed by AOL under the distinctive brand name is subject to the negotiation of an amendment to the AOL Agreement describing the specifics of the rollout, marketing and other terms applicable to such new services offering, including the specific economic arrangements between the Company and AOL with respect to such additional services. AOL and the Company have agreed to submit any dispute with respect to such an amendment for resolution by arbitration. AOL may not contract for the provision of such additional services with any other provider prior to December 31, 1997 nor may it so contract after the Company has become and is the provider of such additional service under the AOL Agreement. The Company also has certain rights of first refusal with respect to such additional services should AOL seek to contract with any other provider prior to such times. - 8 - The exclusivity provisions of the AOL Agreement generally do not prohibit AOL from selling online advertising to other telecommunications service providers. AOL may terminate its exclusivity obligations under the AOL Agreement with respect to a category of telecommunications services (long-distance, local and wireless) if the Company's overall pricing to end users for such category of services exceeds the overall prices for such services that are generally available to end users from major carriers so as to be non-competitive with those carriers' offerings. The Company expects that this termination opportunity is unlikely to occur, since the Company's business plan and policy are to provide telecommunications services at prices that are competitive with those generally available to end users from major carriers. It is anticipated that the services will be tested in the early summer and offered generally to AOL subscribers in the fall of 1997. The AOL Agreement has an initial term of three years and can be extended by AOL on an annual basis thereafter. Under the AOL Agreement, the Company made an initial advance of $100 million to AOL at signing and agreed to provide marketing payments to AOL based on a percentage of the Company's profits from the services (between 50% and 70%, depending on the revenues from the services). The AOL Agreement provides that $43 million of the initial advance will be offset and recoverable by the Company through reduction of such profit-based marketing payments during the initial term of the AOL Agreement or, subject to certain monthly reductions by offset of the amount thereof, directly by AOL upon certain earlier terminations of the AOL Agreement. The $57 million balance of the initial advance will be offset and is recoverable through a percentage of such profit-based marketing payments made after the first five years of the AOL Agreement (when extended beyond the initial term) and by offset against a percentage of AOL's share of the profits from the services after termination or expiration of the AOL Agreement. Any portion of the $43 million not previously recovered or reduced in amount would be added to the $57 million and would be recoverable similarly. Also under the AOL Agreement, the Company issued to AOL at signing two warrants to purchase shares of the Company's common stock at a premium over the market value of such stock on the issuance date. One warrant is for 5 million shares, at an exercise price of $15.50 per share, one-half of which shares will vest at the time the service is first made generally available to AOL online network subscribers in accordance with the AOL Agreement or the first anniversary of the warrant issuance, whichever is earlier, and the balance of which will vest on the first anniversary of issuance if the AOL Agreement has not terminated. The other warrant is for up to 7 million shares, at an exercise price of $14.00 per share, which will vest, commencing December 31, 1997, based on the number of subscribers to the services and would vest fully if there are at - 9 - least 3.5 million such subscribers at any one time. The Company also agreed to issue to AOL an additional warrant to purchase 1 million shares of its common stock, at market value at the time of issuance, upon each of the first two annual extensions by AOL of the term of the AOL Agreement, which warrants also will vest based on the number of subscribers to the services. In connection with the AOL Agreement, the Company and AOL will jointly develop the online marketing and advertising for the services. The Company will provide online customer service as well as inbound calling customer service to the AOL subscriber base in connection with the services. While the Company expects to utilize its Clearwater, Florida facility to provide customer service support to AOL subscribers, the Company may need to increase staffing and purchase equipment to support this activity. The Company anticipates that it will incur expenses for the start-up and development of the services contemplated in the AOL Agreement during 1997, including expenses for the expansion of the Clearwater operation, for software programming and for software and hardware additions to the Company's network, OBN, to expand its capacity for the traffic. The Company believes that the increased revenues to the Company resulting from the AOL Agreement and the services offered pursuant thereto will be limited in 1997, but could be significant in 1998, although there can be no assurance that these results can be achieved in light of a number of uncertainties, including the following: the Company's ability to timely develop the online ordering, call detail, billing and customer services for the AOL subscribers, which will require, among other things, being able to identify and employ sufficient personnel qualified to provide necessary programming; the Company's and AOL's ability to work effectively together to jointly develop the online marketing contemplated by the AOL Agreement; the response rate to online promotions of AOL's online subscribers, most of whom are expected to be residential rather than businesses, which have historically been the Company's customer base; the Company's ability to expand OBN to accommodate increased traffic levels; and AOL's ability to successfully execute its publicly stated business plan and implement its announced network changes to improve subscriber access to its online service. SERVICES Partitions - ---------- The Company offers operational, financing, marketing and management support to partitions, which provides the partitions with the ability to operate and manage their businesses and attract and maintain end users. Such support includes financial resources, low long distance rates, collection services, prospective customer lists and a management information system designed and developed by the Company exclusively for use by the Company and its partitions - 10 - ("Business Management System" or "BMS"). The Company offers start-up financing as well as financing to its existing partitions and expects to increase such financing in the future. The Company's Business Management System provides a link between the Company's operations center and each partition, including information relating to billing, collections, provisioning, network usage and other end user information. The Company also compiles, evaluates and distributes prospective customer lists. Service on a long distance network is activated by a process called provisioning. On a daily basis, through the Business Management System provided by the Company, the Company's partitions transmit required end user information to the Company. Orders for AT&T network services resold by the Company as a switchless reseller are formatted by the Company in the manner required by AT&T and transmitted to AT&T's information management system, where AT&T processes the information and sends status updates on orders to the Company which, in turn, reports such status to the partitions. Orders for OBN services are processed and controlled by the Company. By controlling the provisioning process with OBN, the Company believes it can increase acceptance rates of new end users and reduce the time required to initiate service provided through the Company. The Company promotes increased marketing activities by certain of its partitions and attracts new partitions through advances. Such advances are made in installments subject to the success of marketing efforts by the applicable partition. As a condition to such advances, the Company generally requires a partition to agree to utilize the Company's Business Management System, to accept the Company's billing services and lock-box procedures pursuant to which sales generated by a partition are paid directly to the Company's lock-box account and to grant the Company a security interest in such sales. In return for providing such marketing advances, the Company seeks long-term arrangements with such partitions. The Company believes that such long-term arrangements benefit the Company and its partitions as such arrangements foster increases in the Company's end user base resulting in increases in minutes of traffic. End Users - --------- The Company offers customer service to end users marketed by its telemarketing operations as well as to end users of certain partitions. Customer service representatives are located in the Company's facilities in Clearwater, Florida and New Hope and Kingston, Pennsylvania. The Company plans to provide online customer service as well as inbound calling customer service in connection with the services offered to AOL subscribers. - 11 - INFORMATION AND BILLING SERVICES The Company utilizes the billing services of AT&T and ACUS, a wholly owned strategic business unit of AT&T. As a result, the Company's end users benefit from the reliability and accuracy associated with AT&T billing. Detailed call information on the usage of each end user is produced by AT&T (in the case the of switchless resale business) and by the Company (in the case of OBN business). In both cases, AT&T then processes the information and provides billing information to the Company. ACUS bills the end users pursuant to a custom billing format bearing the names of either the Company or the applicable partition in the bill heading. AT&T has removed the "AT&T" name from the heading of the bills, although the text of the bills or bill inserts may still refer to the fact that an AT&T unit provides billing services. AT&T could further obscure its role in providing billing services altogether, which could have an adverse impact on the Company. The Company is developing its own information systems in order to have its own billing capacity, although the Company has not provided such direct billing services to end users in the past. BMS is provided to each partition. BMS resides at the partitions' locations and communicates with the Network Management System ("NMS") located at the Company's headquarters. NMS allows direct interface with the LECs and the Company's network to perform functions historically handled by AT&T. These computerized management systems control order processing, accounts receivable, billing and status information in a streamlined fashion between the Company and its partitions. Furthermore, when applicable, the systems interface with the AT&T Provisioning System and ACUS for order processing and billing services, respectively. Enhancements and additional features are provided as needed. Electronic processing and feature activation are designed to maintain the Company's goal of minimizing overhead. The Company has developed its own new information systems through the use of client/server technology. The Company purchased symmetrical multi-processing ("SMP") hardware in conjunction with SQL Database software from Informix Corporation. This system is now operational and has the capacity to process the Company's current volume of information services and exceeds the Company's needs for the foreseeable future, except with respect to the information and billing systems that the Company will need to develop in connection with the AOL Agreement, including online sign-up, call detail and billing reports and credit card billing. The information functions of the system are designed to provide easy access to all information about an end user, including volume and patterns of use, which will help the Company and partitions identify value-added services that might be well suited - 12 - for that end user. The Company also expects to use such information to identify emerging end user trends and respond with services to meet end users' changing needs. Such information should also allow the Company and its partitions to identify unusual or declining use by an individual end user, which frequently indicates that an end user is switching its service to a competitor. In addition, in connection with the AOL Agreement, the Company will need to develop systems for online sign-up, call detail and billing reports and credit card payments. Any delay or difficulties in developing systems or hiring personnel could adversely affect the timing of the implementation of this service offering to AOL subscribers and, in turn, the success of this service offering. ONE BETTER NET In order to reduce its dependence on AT&T contract tariffs and to increase its growth opportunities, the Company developed its own telecommunications network, OBN, which utilizes AT&T (now Lucent) manufactured switches owned by the Company in conjunction with AT&T-provided lines and digital cross-connect equipment (herein referred to as "transmission facilities") and AT&T-provided billing systems that the Company uses pursuant to agreements with AT&T and ACUS. OBN includes five AT&T (now Lucent) 5ESS-2000 switches, which are generally considered the most reliable switches in the telecommunications industry. The Company was one of the first installation site for AT&T's 5ESS-2000 switching equipment featuring the new Digital Networking Unit -- SONET technology, a switching interface designed to increase the reliability of the 5ESS-2000 and to provide much greater capacity in a significantly smaller footprint. The five switches -- in Jacksonville, New York, Chicago, Dallas and San Francisco -- were initially deployed with AT&T 5E10 software and were recently upgraded to 5E11 software, increasing the Company's trunk capacity by approximately 33%. OBN allows the Company to offer long distance services directly to its end users and partitions throughout the continental United States at rates that are competitive with or below those offered by the major long distance providers. OBN also allows the Company to control provisioning of end user accounts. The Company's current contract tariffs under which it resells AT&T services require the Company to pay one all-inclusive "bundled" charge to AT&T for the delivery of services, including switching and transmission services and the payment of LEC access fees. As a result of the deployment of OBN, the Company will pay "unbundled" charges consisting of charges paid directly to the LECs for access charges and, under AT&T contract tariffs, charges paid to AT&T for use of its network transmission facilities. The Company will pay AT&T "bundled" charges for use of its international - 13 - facilities to handle the international portion of a call on OBN. The total cost per call to the Company for the LEC access fees, the charges for use of AT&T's transmission facilities and the overhead cost for calls using OBN is expected to be less than the "bundled" charge currently paid under AT&T contract tariffs. LEC access fees represent a substantial portion of the total cost of providing long distance services. As a result of the Telecommunications Act, it is generally expected that the entry over time of competitors into LEC markets will result in lowering of access fees, but there is no assurance that this will occur. To the extent it does occur, the Company, by using OBN, will receive the benefit of any future reduction in LEC access fees, which it would not automatically receive under contract tariffs. In October 1996, the Company subscribed to a new AT&T contract tariff, which permits the Company to continue to resell through mid- 1998 AT&T long distance services, including AT&T SDN service and other services, at rates which are more favorable to the Company than prior tariffs. As a result, the Company decided only to provision new end users on OBN and to leave existing end users on AT&T service. The new AT&T contract has enabled the Company to earn higher margins on existing traffic, minimize possible attrition that might result from moving existing end users from the AT&T network to OBN. This has permitted a more gradual introduction of OBN, which has reduced the expense of providing the capacity required in a more rapid phase-in of OBN and lessened the impact of any technical difficulties during the phase-in of OBN. In 1997, the Company will continue to offer private line service through contract tariffs with AT&T. Although the Company will continue to provide such private line service through AT&T, the Company also will begin to offer private line service using OBN to new and existing customers. In order for the Company to provide service over OBN, the Company has installed and operates, and is responsible for the maintenance of, its own switching equipment. The Company also has installed lines to connect its OBN switches to LEC switches and is responsible for maintaining these lines. The Company entered into a contract with GTE with respect to the monitoring, servicing and maintenance of the switching equipment purchased from AT&T. There can be no assurance that the Company will be successful in operating as a switch-based carrier. Additional management personnel and information systems are required to support OBN, the costs of which have increased the Company's overhead. Moreover, operation as a switch-based provider subjects the Company to risk of significant interruption in the provision of services on OBN in the event of damage to the Company's facilities (switching equipment or connections to AT&T transmission facilities) such as could be caused by fire or natural disaster. Such interruption could have a material - 14 - adverse impact on the Company's financial condition and results of operations. The Company began testing new customer calls over OBN in the third quarter of 1996. In the fourth quarter of 1996, the Company began provisioning on a test basis new customer orders on OBN. To date, the Company has provisioned approximately 50,000 end users to OBN. Currently the Company is continuing to provision new customers on OBN while completing the final testing of OBN. The Company expects final testing of OBN to be completed in April 1997, and at that time there will be a general release of OBN. Thereafter, the Company expects to provision a large majority of its new customer orders on OBN. The 5ESS-2000 switches make it possible for the Company in the future to offer a number of additional or enhanced services. For example, the Company's 5ESS-2000 switches could support the offering of Centrex features, such as call waiting, conference calling, distinctive ringing and least cost routing, that traditionally were available only to end users with their own equipment or through purchase from the end users' local exchange carrier ("LEC"). The 5ESS-2000 switches could support Advanced Intelligent Network ("AIN"), which provides an open network architecture allowing for interconnections of inexpensive peripheral equipment and databases and the deployment of such services as calling cards, debit cards, voice recognition and caller identification, without the involvement of switch manufacturers. The 5ESS-2000 switches could help the Company to provide competitive telecommunications services to tenants of multi-tenant office and residential buildings and complexes. The 5ESS-2000 switch also has the capacity to direct local service as well as long distance service. AT&T CONTRACT TARIFFS The Company historically has obtained services from AT&T through contract tariffs and has been able to obtain the services it seeks and to do so at increasingly favorable contract tariff rates. The deployment of OBN decreases the Company's dependence on AT&T contract tariffs. To the extent the Company will need future contract tariffs, there is no guarantee the Company will be able to obtain favorable contract tariffs, although the Company has been successful in the past in obtaining such contract tariffs. On October 1996, the Company subscribed to a new AT&T contract tariff, which was further revised in December 1996 and permits the Company to continue to resell AT&T long distance services, including AT&T-SDN service, through mid-1998. The new AT&T contract tariff also includes other AT&T services (such as international long distance, inbound and outbound services) that will be used in the Company's new nationwide telecommunications network, OBN. The rates that the Company will pay under the new AT&T contract - 15 - tariff are more favorable to the Company than under previous tariffs. During its term, the new AT&T contract tariff will enable the Company to minimize possible attrition that might result from moving exiting end users from the AT&T network to OBN. The new AT&T contract tariff also permits a more gradual introduction of OBN, which should reduce the expense of providing the capacity required in a more rapid phase-in of OBN and lessen the impact of any technical difficulties during the phase-in of OBN. The more gradual introduction of OBN, however, will postpone the Company's realization of the anticipated benefit of the more favorable margins for OBN service, and the new AT&T contract tariff requires the Company to commit to purchase $300 million of service from AT&T over the next 4 years, including at least $1 million per month of international service. If minimum usage requirements are not met, the Company is obligated to pay shortfall fees to AT&T based on a percentage of the difference between the minimum requirement and the actual billed usage. In addition, if the contract tariffs with AT&T are terminated prior to the end of the contract tariff term, either by the Company or by AT&T for non-payment, the Company may be liable for "termination with liability" or "termination charges" and subject to material monetary penalties. This commitment is larger than any previous commitment that the Company has made, but the Company believes that it can be met based on its current purchases of long distance service from AT&T which are in excess of $10 million per month. Further the Company can terminate the new contract tariff without liability to AT&T at the end of 18 months if the Company has generated at least $120 million in usage charges, including at least $15 million in international usage charges. The Company also may discontinue the new contract tariff without liability prior to the 18th month if the Company and AT&T enter into a new contract tariff or another contract with a revenue commitment of at least $7.5 million per month and a term of at least the difference between 18 months and the number of months that the Company subscribed to the contract tariff, provided that the Company must purchase or pay for AT&T services under the contract tariff of at least $6.7 million per month for the months prior to such termination, including $1 million per month of international usage. COMPETITION The long distance telecommunications industry is highly competitive and affected by the introduction of new services by, and the market activities of, major industry participants. Competition in the long distance business is based upon pricing, customer service, billing services and perceived quality. The Company competes against various national and regional long distance carriers composed of both facilities-based providers and switchless resellers offering essentially the same services as the Company. Several of the Company's competitors are substantially larger and have greater financial, technical and marketing resources. Although the Company believes it has the human and technical resources to pursue its - 16 - strategy and compete effectively in this competitive environment, its success will depend upon its continued ability to provide profitably high quality, high value services at prices generally competitive with, or lower than, those charged by its competitors. End users are not obligated to purchase any minimum usage amount and can discontinue service, without penalty, at any time. There can be no assurance that end users will continue to buy their long distance telephone service through the Company or through partitions that purchase service from the Company. In the event that a significant portion of the Company's end users decides to purchase long distance service from another long distance service provider, there can be no assurance that the Company will be able to replace its end user base from other sources. A high level of attrition is inherent in the long distance industry, and the Company's revenues are affected by such attrition. Attrition is attributable to a variety of factors, including termination of customers by the Company for non-payment and the initiatives of existing and new competitors as they engage in, among other things, national advertising campaigns, telemarketing programs and cash payments and other incentives. Although the basic rates of the three largest long distance carriers -- AT&T, MCI Communications Corp. and Sprint Corporation -- have consistently increased over the past three years and remained generally unchanged through the third quarter of 1996, AT&T and other carriers have announced new price plans aimed at residential customers (the Company's primary target audience under he AOL Contract) with significantly simplified rate structures, which may have the impact of lowering overall long distance prices. There can be no assurance that AT&T or other carriers will not make similar offerings available to the small to medium-sized businesses that the Company serves. Although OBN makes the Company more price competitive, a reduction in long distance prices still may have a material adverse impact on the Company's profitability. AT&T has split itself into three separate and independently-owned and operated companies ("AT&T breakup"). One services, long distance, wireless and other telecommunications services. Another, Lucent, manufactures and sells communications equipment. A third, NCR, includes AT&T's computer operations and will focus on the financial, retail and communications industries. AT&T has stated that the breakup will allow it to compete more effectively with providers of telecommunications services. The Company will link its switching equipment with transmission facilities and services purchased or leased from AT&T and will continue to resell services obtained from AT&T, which will remain a competitor of the Company for the provision of telecommunications services. The Company also utilizes AT&T and ACUS - 17 - to provide billing services. There can be no assurance that either AT&T or ACUS will continue to offer billing services to the Company at competitive rates or attractive terms. In October 1995, the FCC reclassified AT&T as a nondominant interexchange carrier. The FCC stated that AT&T would have greater incentives to cut its prices and offer innovative new services. Nondominant carriers are not subject to price cap regulation and could file tariffs (and tariff changes) under streamlined procedures that will be presumed lawful on one day's notice. The Company will therefore no longer be able to file Petitions to Reject or to Suspend and Investigate AT&T tariff proposals with the FCC before those offerings take effect. The FCC's reclassification of AT&T as a nondominant carrier eliminated certain pricing restrictions and regulatory oversight and may allow AT&T to compete more aggressively with the Company. As a nondominant carrier, AT&T will be subject to the same regulations as other long distance service providers. AT&T remains subject to Title II of the Communications Act (47 U.S.C. Section 151, et seq.) and is required to offer service under rates, terms and conditions that are just, reasonable and not unreasonably discriminatory. AT&T is also subject to the FCC's complaint process and was required to file tariffs, though under streamlined procedures. In addition, AT&T is also required to give notice to the FCC and to affected customers prior to discontinuing, reducing, or impairing any services. In seeking FCC approval of its motion, AT&T made a series of "voluntary commitments" to the FCC as a transitional mechanism to govern its conduct. With respect to business term plans and long-term contracts with customers, including resellers, AT&T agreed for a 12 month period to provide advance notice to the customer of proposed changes that might affect a customer's reliance on its contract with AT&T and to file any such changes with advance notice and time for action by the FCC. AT&T also stated that it was willing to enter into mutually agreeable private party arbitration agreements with its reseller customers and was willing to develop a model agreement in negotiations with the Telecommunications Resellers Association Executive Board. The FCC accepted all of the "voluntary commitments" offered by AT&T and ordered AT&T's compliance with those commitments. The Telecommunications Act of 1996 was intended to introduce more competition to U.S. telecommunications markets. The legislation opens the local services market by requiring LECs to permit interconnection to their networks and establishing, among other things, LEC obligations with respect to access, resale, number portability, dialing parity, access to rights-of-way, and mutual compensation. The legislation also codifies the LECs' equal access and nondiscrimination obligations and preempts most inconsistent state regulation. The legislation also contains special provisions - 18 - that eliminate restrictions on the RBOCs providing long distance services, which means that the Company will face competition for providing long distance services from well-capitalized, well-known companies that prior to this time could not compete in long distance service. The RBOCs have been prohibited from providing interLATA interexchange telecommunications services under the terms of the AT&T decree. The Telecommunications Act authorizes the RBOCs to provide certain interLATA interexchange telecommunications services immediately and others upon the satisfaction of certain conditions. Such legislation includes certain safeguards against anticompetitive conduct by the RBOCs in the provision of interLATA service. Anticompetitive conduct could result, among other things, from a RBOC's access to all subscribers on its existing network as well as its potentially lower costs related to the termination and origination of calls within its territory. It is impossible to predict whether such safeguards will be adequate to protect against anticompetitive conduct by the RBOCs and the impact that any anticompetitive conduct would have on the Company's business and prospects. Because of the name recognition that the RBOCs have in their existing markets and the established relationships that they have with their existing local service customers, and their ability to take advantage of those relationships, as well as the possibility of favorable interpretations of the Telecommunications Act by the RBOCs, it may be more difficult for other providers of long distance services, such as the Company, to compete to provide long distance services to RBOC customers. At the same time, as a result of the Telecommunications Act, RBOCs have become potential customers for the Company's long distance services. Consolidation and alliances across geographic regions (e.g., Bell Atlantic/Nynex and SBC Communications Inc./Pacific Telesis Group domestically and BT/MCI and France Telecom/Deutsche Telekom/Sprint internationally) and across industry segments (e.g., WorldCom/MFS/UUNet) may also intensify competition in the telecommunications market from significantly larger, well-capitalized carriers and materially adversely affect the position of the Company. INDUSTRY BACKGROUND The $72.5 billion U.S. long distance industry is dominated by the nation's three largest long distance providers, AT&T, MCI and Sprint, which together generated approximately 80.9% of the aggregate revenues of all U.S. long distance interexchange carriers in 1995. Other long distance companies, some with national capabilities, accounted for the remainder of the market. Based on published Federal Communications Commission ("FCC") estimates, toll service revenues of U.S. long distance interexchange carriers have grown from $38.8 billion in 1984 to $72.5 billion in 1995. The aggregate market - 19 - share of all interexchange carriers other than AT&T, MCI and Sprint has grown from 2.6% in 1984 to 17.13% in 1995. During the same period, the market share of AT&T declined from 90.1% to 53%. Prior to the Telecommunications Act, the long distance telecommunications industry had been principally shaped by a court decree between AT&T and the United States Department of Justice, known as the Modification of Final Judgment (the "Consent Decree") that in 1984 required the divestiture by AT&T of its 22 Bell operating companies and divided the country into some 200 Local Access and Transport Areas ("LATAs"). The 22 operating companies, which were combined into the RBOCs, were given the right to provide local telephone service, local access service to long distance carriers and intraLATA toll service (service within LATAs), but were prohibited from providing interLATA service (service between LATAs). The right to provide interLATA service was maintained by AT&T and other carriers. To encourage the development of competition in the long distance market, the Consent Decree and the FCC require most LECs to provide all carriers with access to local exchange services that is "equal in type, quality and price" to that provided to AT&T and with the opportunity to be selected by customers as their preferred long distance carrier. These so-called "equal access" and related provisions are intended to prevent preferential treatment of AT&T. Regulatory, judicial and technological factors have helped to create the foundation for smaller companies to emerge as competitive alternatives to AT&T, MCI, and Sprint for long distance telecommunication services. The FCC requires that AT&T not restrict the resale of its services, and the Consent Decree and regulatory proceedings have ensured that access to LEC networks is, in most cases, available to all long distance carriers. Long distance companies that have their own transmission facilities and switches, such as AT&T, are referred to as facilities-based carriers. Facilities-based carriers are switch-based carriers, meaning that they have at least one switch to direct their long distance traffic. Nonfacilities-based carriers either (i) depend upon facilities-based carriers for switching and transmission facilities ("switchless resellers") or (ii) install and operate their own switches but depend on facilities-based carriers for transmission facilities ("switch-based resellers"). The relationship between resellers and the major long distance carriers is predicated primarily upon the fact that the pricing strategies and cost structures of the major long distance carriers have resulted historically in their charging higher rates to the small to medium business customer. Small to medium business customers typically are not able to make the volume commitments necessary to negotiate reduced rates under individualized contracts. - 20 - By committing to large volumes of traffic, the reseller is guaranteeing traffic to the major long distance carrier but the major long distance carrier is relieved of the administrative burden of qualifying and servicing large numbers of medium to small accounts. The successful reseller has lower overhead costs and is able to market efficiently the long distance product, process orders, verify credit and provide customer service to large numbers of accounts. With its own switches, the Company will be significantly less dependent on AT&T for switching services, although it will continue to be dependent on AT&T for transmission services. In recent years, national and regional network providers have substantially upgraded the quality and capacity of their domestic long distance networks, resulting in significant excess transmission capacity for voice and data communications. Due to anticipated advances in the technology involved in digital fiber optic transmission, excess capacity is expected to persist and may result in decreasing prices for use of transmission facilities. By deploying its own switches, the Company expects to be able to continue to provide long distance services using the quality of AT&T transmission facilities but at lower rates than it has historically charged, with the Company in control of establishing service or activating new end user accounts ("provisioning") and maintaining confidential end user lists REGULATION The Company's provision of communications services is subject to government regulation. Federal law regulates interstate and international telecommunications, while states have jurisdiction over telecommunications that originate and terminate within the same state. Changes in existing policies or regulations in any state or by the FCC could materially adversely affect the Company's financial condition or results of operations, particularly if those policies make it more difficult for the Company to obtain service from AT&T or other long distance companies at competitive rates, or otherwise increase the cost and regulatory burdens of marketing and providing service. There can be no assurance that the regulatory authorities in one or more states or the FCC will not take action having an adverse effect on the business or financial condition or results of operations of the Company. Regulatory action by the FCC or the states also could adversely affect the partitions, or otherwise increase the partitions' cost and regulatory burdens of marketing and providing long distance services. The Company is classified by the FCC as a nondominant carrier. After the recent reclassification of AT&T as nondominant, only the LECs are classified as dominant carriers among domestic carriers. As a consequence, the FCC regulates many of the rates, charges, and services of the LECs to a greater degree than the - 21 - Company's. Because AT&T is no longer classified as a dominant carrier, certain pricing restrictions that formerly applied to AT&T have been eliminated, which could make it easier for AT&T to compete with the Company for low volume long distance subscribers. The FCC generally does not exercise direct oversight over charges for service of nondominant carriers, although it has the statutory power to do so. Nondominant carriers are required by statute to offer interstate services under rates, terms, and conditions that are just, reasonable and not unreasonably discriminatory. The FCC has the jurisdiction to act upon complaints filed by third parties, or brought on the FCC's own motion, against any common carrier, including nondominant carriers, for failure to comply with its statutory obligations. Nondominant carriers have been required to file tariffs listing the rates, terms and conditions of service, which were filed pursuant to streamlined tariffing procedures. The FCC also has the authority to impose more stringent regulatory requirements on the Company and change its regulatory classification from nondominant to dominant. In the current regulatory atmosphere, the Company believes, however, that the FCC is unlikely to do so. The FCC imposes only minimal reporting, accounting and record-keeping obligations. International nondominant carriers, including the Company, must maintain international tariffs on file with the FCC. The FCC has issued an order requiring non-dominant carriers to withdraw their domestic tariffs, but as of the date hereof, a court has stayed the FCC's order. The Company currently has two tariffs on file with the FCC. Although the tariffs of nondominant carriers, and the rates and charges they specify, are subject to FCC review, they are presumed to be lawful and are seldom contested. The Company is permitted to make tariff filings on a single day's notice and without cost support to justify specific rates. IXCs are also subject to a variety of miscellaneous regulations that, for instance, govern the documentation and verifications necessary to change a subscriber's long distance carrier, limit the use of 800 numbers for pay-per-call services, require disclosure of certain information if operator assisted services are provided and govern interlocking directors and management. The Telecommunications Act grants explicit authority to the FCC to "forbear" from regulating any telecommunications services provider in response to a petition and if the agency determines that enforcement is unnecessary and the public interest will be served. At present, the FCC exercises its regulatory authority to set rates primarily with respect to the rates of dominant carriers, and it has increasingly relaxed its control in this area. Even when AT&T was classified as a dominant carrier, the FCC most recently employed a "price cap" system, which essentially exempted most of AT&T's services, including virtually all of its commercial and 800 services, from traditional rate of return regulation because the FCC - 22 - believes that these services were subject to adequate competition. Similarly, the FCC is in the process of changing the regulation and pricing of the local transport component of access charges (i.e., the fee for use of the LEC transmission facilities connecting the LEC's central offices and the IXC's access points). In addition, the LECs have been afforded a degree of pricing flexibility in setting interstate access charges where adequate competition exists. The impact of such repricing and pricing flexibility on IXCs, such as the Company, cannot be determined at this time. The Company is subject to varying levels of regulation in the states in which it is currently authorized to provide intrastate telecommunications services. The vast majority of the states require the Company to apply for certification to provide intrastate telecommunications services, or at least to register or to be found exempt from regulation, before commencing intrastate service. The vast majority of states also require the Company to file and maintain detailed tariffs listing its rates for intrastate service. Many states also impose various reporting requirements and/or require prior approval for transfers of control of certified carriers, corporate reorganizations, acquisitions of telecommunications operations, assignments of carrier assets, including subscriber bases, carrier stock offerings and incurrence by carriers of significant debt obligations. Certificates of authority can generally be conditioned, modified, canceled, terminated or revoked by state regulatory authorities for failure to comply with state law and the rules, regulations and policies of the state regulatory authorities. Fines and other penalties, including the return of all monies received for intrastate traffic from residents of a state, may be imposed for such violations. In certain states, prior regulatory approval may be required for acquisitions of telecommunications operations. Currently, the Company is certificated and tariffed to provide intrastate interLATA service in substantially all states where such authorization can be obtained. The Company's expansion of its direct marketing efforts, makes the Company subject to and requires compliance with relevant federal and state regulations that govern direct sales of telecommunications services. FCC rules prohibit switching a customer from one long distance carrier to another without the customer's consent and specify how that consent can be obtained. Most states have consumer protection laws that further define the framework within which the Company's marketing activities must be conducted. The constraints of federal and state restrictions could impact the success of the Company's direct marketing efforts. To the extent that the Company makes additional telecommunications service offerings, the Company may encounter additional regulatory constraints. - 23 - EMPLOYEES As of December 31, 1996, the Company employed 313 persons, of whom 260 were engaged in marketing and sales, 26 were engaged in partition and end user support, and 27 were engaged in systems development, finance, administration and management. None of the Company's employees is covered by collective bargaining agreements. The Company considers relations with its employees to be good. PRINCIPAL STOCKHOLDER Daniel Borislow, the Company's Chairman and Chief Executive Officer, owns beneficially approximately 38.4% of the Company's outstanding Common Stock, as of the date hereof. Accordingly, Mr. Borislow effectively has the ability to control the election of all of the members of the Company's Board of Directors and the outcome of corporate actions requiring majority stockholder approval. Even as to corporate actions for which super-majority approval may be required, such as certain fundamental corporate transactions, Mr. Borislow effectively will control the outcome. Future sales of substantial amounts of the Company's Common Stock by Mr. Borislow or others could adversely affect the market price of the Common Stock. Of the Company's 62,887,998 shares of Common Stock, 35,737,998 shares are freely tradeable by persons other than "affiliates" of the Company. Of the remaining 27,150,000 shares of Common Stock, none are eligible for public resale until after the expiration of the holding period pursuant to Rule 144 under the Securities Act. On March 10, 1997, Mr. Borislow sold 3,911,000 shares of Common Stock in a private sale (the "Private Sale"), and placed an additional 1,546,400 shares in escrow to be held for the benefit of the purchasers in the Private Sale and for distribution thereto (in part or in full), if the average current market price of the Common Stock in the 20 days prior to the fifth business day after the date on which the Company announces its financial results for the third quarter of 1997 shall be lower than $16.50 per share. In connection with the Private Sale. Mr. Borislow agreed that, except for a contribution of up to 2,000,000 shares of Common Stock to a charitable foundation, he will not sell, assign, transfer or otherwise dispose of any shares of Common Stock for a period of 12 months from March 10, 1997 (the "Lock-up Period"); provided, however, that if the current market price of the Common Stock shall increase by an amount greater than 20% from $16.50 per share for a period of 20 consecutive trading days, the Lock-up Period shall be reduced to 90 days. Also on March 10, 1997, Mr. Borislow donated 1,200,000 shares of Common Stock to the Daniel Borislow Charitable Foundation. - 24 - GLOSSARY ACUS: AT&T College and University Systems, a wholly owned strategic business unit of AT&T. AIN: Advanced Intelligent Network. AOL: America Online, Inc. AT&T: AT&T Corp. BMS: The Company's database, which it provides to each of its partitions. Consent Decree: A 1984 U.S. Department of Justice decree that, among other things, ordered AT&T to divest its wholly-owned local Bell operating subsidiaries. End Users: Customers that utilize long distance telephone services. Equal Access: Connection provided by a LEC permitting a customer to be automatically connected to the IXC of the customer's choice when the customer dials "1." Facilities-based provider: Long distance service providers who own transmission facilities. 5ESS-2000: The switching equipment manufactured by AT&T, which the Company acquired from AT&T. 5E10 Software: AT&T software that enables switches to combine simultaneously wireline and wireless, local, long distance, voice, video and data services. FCC: Federal Communications Commission. Inbound "800" Service: A service that bills long distance telephone charges to the called party. IXC: Interexchange carrier, a long distance carrier providing services between local exchanges. LATA: Local Access and Transport Areas, the approximately 200 geographic areas defined pursuant to the AT&T Consent Decree between which the RBOCs are generally prohibited from providing long distance service. LEC: Local Exchange Carrier, a company providing local telephone services. - 25 - MEGACOM: An outbound long distance service offering by AT&T that requires dedicated access. MEGACOM 800: An inbound 800 service offering provided by AT&T that requires dedicated access. MCI: MCI Communications Corporation. MLCP: AT&T's multi-location calling plan (a discounted long distance program). Network: An integrated system composed of switching equipment and transmission facilities designed to provide for the direction, transport and recording of telecommunications traffic. NMS: The Company's computerized internal management information system. Nonfacilities-based provider: Long distance service providers that do not own transmission facilities. OBN: One Better Net, the Company's nationwide long distance network. Partition: An independent long distance and marketing company that contracts with the Company to purchase or otherwise provide to end users the long distance services provided by the Company. Private Line: A full-time leased line directly connecting two points. Provisioning: The process of initiating a carrier's service to an end user. PUC: A state regulatory body empowered to establish and enforce rules and regulations governing public utility companies and others, such as the Company in many of its state jurisdictions. RBOC: Regional Bell Operating Company -- Any of seven regional Bell holding companies that the Consent Decree established to serve as parent companies for the Bell operating companies. Readyline: An Inbound 800 service offering provided by AT&T. SDN: The AT&T Software Defined Network. Sprint: Sprint Corporation. Switching Equipment: A computer that directs telecommunication traffic in accordance with programmed instructions. - 26 - Tariff: The schedule of rates and regulations set by communications common carriers and filed with the appropriate Federal and state regulatory agencies; the published official list of charges, terms and conditions governing provision of a specific communication service or facility, which functions in lieu of a contract between the user and the supplier or carrier. - 27 - ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Annual Report on Form 10-K. 1. Consolidated Financial Statements: The Consolidated Financial Statements filed as part of this Form 10-K are listed in the "Index to Consolidated Financial Statements" in Item 8. 2. Consolidated Financial Statement Schedule: The Consolidated Financial Statement Schedule filed as part of this report is listed in the "Index to S-X Schedule." Schedules other than those listed in the accompanying Index to S-X Schedule are omitted for the reason that they are either not required, not applicable, or the required information is included in the Consolidated Financial Statements or notes thereto. - 28 - TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES INDEX TO S-X SCHEDULE PAGE ---- Report of Independent Certified Public Accountants 30 Schedule II -- Valuation & Qualifying Accounts 31 - 29 - REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Tel-Save Holdings, Inc. The audits referred to in our report dated January 29, 1997 relating to the consolidated financial statements of Tel-Save Holdings, Inc. and subsidiaries, which is contained in Item 8 of this Form 10-K, included the audits of the financial statement schedule listed in the accompanying index for each of the three years in the period ended December 31, 1996. This financial statement schedule is the responsibility of management. Our responsibility is to express an opinion on this schedule based on our audits. In our opinion, the financial statement Schedule II -- Valuation and Qualifying Accounts, presents fairly, in all material respects, the information set forth therein. /s/ BDO Seidman, LLP BDO Seidman, LLP New York, New York January 29, 1997 - 30 - TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Charged Balance at to Costs Beginning of and Other Balance at Description Period Expenses Changes Deductions End of Period - ----------- ------ -------- ------- ---------- ------------- Year ended December 31, 1996: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts $804 $38 $145(a) $ -- $987 ==== === ======= ==== ==== Year ended December 31, 1995: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts $987 $(13) $(170)(a) $ -- $804 ==== ===== ========= ====== ==== Year ended December 31, 1994: Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts $287 $53 $647(a) $ -- $987 ==== === ======= ======= ==== (a) Amount represents portion of change in allowance for uncollectible accounts applied against Accounts Payable - Partitions.
-31- (3) Exhibits: EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------- 2.1 Plan of Reorganization between and among Tel-Save Holdings, Inc., a Delaware corporation,Tel-Save, Inc., a Pennsylvania corporation, Daniel Borislow and Paul Rosenberg, and Exhibits Thereto (incorporated by reference to Exhibit 2.1 to the Company's registration statement on Form S-1 (File No. 33-94940)). 3.1 Amended and Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's registration statement on Form S-1 (File No. 33-94940)). 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's registration statement on Form S-1 (File No. 33-94940)). 9.1 Voting Trust Agreement between Daniel Borislow and Paul Rosenberg (included as part of Exhibit 2.1). 10.1* Employment Agreement between the Company and Daniel Borislow and related Agreement (incorporated by reference to Exhibit 10.1 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.2* Employment Agreement between the Company and Emanuel J. DeMaio (incorporated by reference to Exhibit 10.2 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.3* Employment Agreement between the Company and Gary W. McCulla (incorporated by reference to Exhibit 10.3 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.4* Employment Agreement between the Company and Joseph A. Schenk (incorporated by reference to Exhibit 10.4 to the Company's registration statement on Form S-1 (File No. 333-2738)). 10.5* Employment Agreement between the Company and Aloysius T. Lawn, IV (incorporated by reference to Exhibit 10.5 to the Company's registration statement on Form S-1 (File No. 333-2738)). - 32 - 10.6* Employment Agreement between the Company and Edward B. Meyercord, III (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.7 Indemnification Agreement between the Company and Daniel Borislow (incorporated by reference to Exhibit 10.4 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.8 Indemnification Agreement between the Company and Emanuel J. DeMaio (incorporated by reference to Exhibit 10.5 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.9 Indemnification Agreement between the Company and Gary W. McCulla (incorporated by reference to Exhibit 10.6 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.10 Indemnification Agreement between the Company and Joseph M. Morena (incorporated by reference to Exhibit 10.7 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.11 Indemnification Agreement between the Company and Peter K. Morrison (incorporated by reference to Exhibit 10.8 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.12 Indemnification Agreement between the Company and Kevin R. Kelly (incorporated by reference to Exhibit 10.9 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.13 Indemnification Agreement between the Company and Aloysius T. Lawn, IV (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.14 Indemnification Agreement between the Company and Edward B. Meyercord, III (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). 10.15 Agreement dated as of March 15, 1994 between the Company and Global Network Communications (incorporated by reference to Exhibit 10.10 to the Company's registration statement on Form S-1 (File No. 33-94940)). - 33 - 10.16 AT&T Contract Tariff No. 516 (incorporated by reference to Exhibit 10.11 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.17 AT&T Contract Tariff No. 1715 (incorporated by reference to Exhibit 10.15 to the Company's registration statement on Form S-1 (File No. 333-2738)). 10.18 AT&T Contract Tariff No. 2039 (incorporated by reference to Exhibit 10.16 to the Company's registration statement on Form S-1 (File No. 333-2738)). 10.19 AT&T Contract Tariff No. 2432 (incorporated by reference to Exhibit 10.17 to the Company's registration statement on Form S-1 (File No. 333-2738)). 10.20 AT&T Contract Tariff No. 3628 (incorporated by reference to Exhibit 10.18 to the Company's registration statement on Form S-1 (File No. 333-2738)). 10.21 AT&T Contract Tariff No. 5776 (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.22 $50,000,000 line of credit from PNC Bank, N.A., dated March 22, 1996 (incorporated by reference to Exhibit 10.19 to the Company's registration statement on Form S-1 (File No. 333-2738)). 10.23 Modification Agreement between the Company and PNC Bank, N.A. dated February 24, 1997 (incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 10.24+ General Agreement between Tel-Save, Inc. and AT&T Corp. dated June 26, 1995 (incorporated by reference to Exhibit 10.14 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.25* Tel-Save Holdings, Inc. 1995 Employee Stock Option Plan (incorporated by reference to Exhibit 10.15 to the Company's registration statement on Form S-1 (File No. 33-94940)). - 34 - 10.26* Tel-Save Holdings, Inc. Employee Bonus Plan (incorporated by reference to page 13 of the Company's Proxy Statement for the Company's 1996 Annual Meeting of Stockholders dated April 3, 1996). 10.27* Non-Qualified Stock Option Agreement between the Company and Daniel Borislow (incorporated by reference to Exhibit 10.17 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.28* Non-Qualified Stock Option Agreement between the Company and Emanuel J. DeMaio (incorporated by reference to Exhibit 10.18 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.29* Non-Qualified Stock Option Agreement between the Company and Mary Kennon (incorporated by reference to Exhibit 10.19 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.30* Non-Qualified Stock Option Agreement between the Company and Gary W. McCulla (incorporated by reference to Exhibit 10.20 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.31* Non-Qualified Stock Option Agreement between the Company and Peter K. Morrison (incorporated by reference to Exhibit 10.22 to the Company's registration statement on Form S-1 (File No. 33-94940)). 10.32++ Telecommunications Marketing Agreement by and among the Company, Tel-Save, Inc. and America Online, Inc., dated February 22, 1997. 11.1 Net Income Per Share Calculation (incorporated by reference to Exhibit 11.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). 23.1 Consent of BDO Seidman, LLP (incorporated by reference to Exhibit 23.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). -35 - 27 Financial Data Schedule (incorporated by reference to Exhibit 27 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996). - ---------- * Management contract or compensatory plan or arrangement. + Confidential treatment previously has been granted for a portion of this exhibit. ++ Confidential treatment has been requested for a portion of this exhibit. (b) Reports on Form 8-K. The following Current Reports on Form 8-K were filed by the Company during the three months ended December 31, 1996: 1. Current Report on Form 8-K dated December 30, 1996. 2. Current Report on Form 8-K dated November 18, 1996. - 36 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEL-SAVE HOLDINGS, INC. By: /s/ Daniel Borislow ------------------------- Daniel Borislow Chairman of the Board of Directors, Chief Executive Officer and Director Date: August 14, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Daniel Borislow Chairman of the Board August 14, 1997 - ------------------- of Directors, Chief Daniel Borislow Executive Officer and Director (Principal Executive Officer) /s/ Gary W. McCulla President, Director August 14, 1997 - ------------------- of Sales and Marketing Gary W. McCulla and Director /s/ Emanuel J. DeMaio Chief Operations August 14, 1997 - --------------------- Officer and Director Emanuel J. DeMaio /s/ Joseph A. Schenk Chief Financial Officer August 14, 1997 - -------------------- and Director (Principal Joseph A. Schenk Financial Officer) /s/ Kevin R. Kelly Controller (Principal August 14, 1997 - ------------------ Accounting Officer) Kevin R. Kelly - 37 - /s/ George P. Farley Director August 14, 1997 - -------------------- George P. Farley /s/ Harold First Director August 14, 1997 - ---------------- Harold First /s/ Ronald R. Thoma Director August 14, 1997 - ------------------- Ronald R. Thoma - 38 - EX-10.32 2 EXHIBIT 10.32 [" * * * " indicates that material has been deleted pursuant to a confidential treatment request and filed separately with the Commission] CONFIDENTIAL TELECOMMUNICATIONS MARKETING AGREEMENT by and among TEL-SAVE, INC. TEL-SAVE HOLDINGS, INC. and AMERICA ONLINE, INC. February 22, 1997 CONFIDENTIAL TELECOMMUNICATIONS MARKETING AGREEMENT This TELECOMMUNICATIONS MARKETING AGREEMENT, dated as of February 22, 1997, is made by and among: (i) America Online, Inc., a Delaware corporation ("AOL"), on the one hand, and (ii) Tel-Save, Inc., a Pennsylvania corporation ("TS"), and Tel-Save Holdings, Inc., a Delaware corporation ("Holdings"), on the other hand (each, a "party" and, collectively, the "parties"), with respect to the following: WHEREAS, AOL is in the business of providing online services to consumers in the United States; WHEREAS, TS is in the business of providing telecommunications services and is a wholly owned subsidiary of Holdings; WHEREAS, AOL and TS wish to enter into this Agreement whereby AOL will market telecommunications services to customers of AOL's online service under one or more brand names to be owned by it and TS will provide such services on the terms and subject to the conditions herein set forth; and WHEREAS, Holdings has agreed to guarantee all of the obligations of TS hereunder. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS A. Definitions. For purposes of this Agreement and in addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings set forth below: 1. "Actual Services Costs" for any calendar quarter means the aggregate of the respective costs set forth in, and calculated in accordance with, Schedule A hereto in respect of the provision of Services during such calendar quarter. 2. "Additional Warrant" shall have the meaning set forth in Section X.B.2 hereof. 3. "Ad Values" at any time shall mean * * * . 4. "affiliate" means, with respect to a specified person, any other person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person, provided that, for purposes of this Agreement, "affiliate" shall not include natural persons. 5. "Agreement" means this Telecommunications Marketing Agreement. 6. "AOL" has the meaning set forth in the preamble to this Agreement. 7. "AOL Marks" means the service marks to be owned by AOL under which the Services will be marketed, which are presently contemplated by the parties to include a reference to AOL's name and shall be as mutually agreed to in writing by the parties hereto. 8. "AOL Performance List" has the meaning set forth in Section II.B.1. 9. "AOL Service" means AOL's online service provided to subscribers (including, without limitation, individuals and businesses) in the United States under the America Online(R) brand name, including, without limitation, electronic mail, conferencing, news, sports, weather and stock quotes, accessed by consumers through computers using AOL's proprietary software, as it exists on the date hereof and any online service provided by AOL or any of its affiliates that is a successor thereto or substitute therefor. 10. "Applicable Profit Percentage" for any calendar quarter means the percentage of Pre-Tax Profit for such calendar quarter equal to: (a) for each quarter in which the average monthly Marginable Revenues (Marginable Revenues for such quarter, divided by 3) are less than * * * , 50%; and (b) for each quarter in which the average monthly Marginable Revenues (Marginable Revenues for each quarter, divided by 3) are * * * , 50% plus an additional 2% for each * * * by which such average monthly Marginable Revenues exceed * * * (without proration for any portion thereof); provided that in no event will the Applicable Profit Percentage exceed 70%. 11. "AT&T" means AT&T Corporation. 12. "Checklist Items" are the items set forth in the list attached as Schedule B hereto. 13. "Commercial Launch Date" means the date upon which AOL makes the Services generally available to subscribers of the AOL Service (i.e., to at least * * * % of the subscribers to the AOL Service). 14. "Commercial Mobile Radio Services" means the services defined as such, from time to time, by the Federal Communications Commission, including related features, functions and services. 15. "Dedicated CIC" means the carrier identification code (CIC) to be made available by TS for use in respect of the Services as provided herein. 16. "Effective Date" has the meaning set forth in Section IX.A.1. hereof. 17. "End User" means, during the Term, any customer of the Services or any part thereof and, after the Term, any such customer as of the last day of the Term so long as such customer continues as a customer of such Services. 18. "Extension Period" shall have the meaning set forth in Section X.B.1 hereof. 19. "Gross Revenues" for any calendar quarter shall mean the total billings by TS to End Users for the provision of Services during such quarter, less * * * . 20. "Holdings" has the meaning set forth in the first paragraph of this Agreement. 21. "Initial Launch Period" means the period beginning at the end of the Test Launch Period and ending on the Commercial Launch Date. 22. "Initial Payment" has the meaning set forth in Section V.A.1. 23. "Internet Telephony" means voice service provided or initiated over one or more data networks where the end user initiates a voice call to, or receives a voice call from, another party over one or more data networks using a modem or CODEC or over a data network interfacing with the public switched telephone network using a modem or CODEC. 24. "Introductory Period" means the * * * period starting a mutually agreed number of days prior to the anticipated Commercial Launch Date. The parties currently anticipate that the Commercial Launch Date will be no later than * * * , subject to adjustment from time to time upon the mutual consent of the parties or as otherwise provided herein. 25. "Local Telecommunications Services" means the provision of telephone exchange service or exchange access, including related features, functions and services. 26. "Long Distance Telecommunications Services" means intrastate telephone toll service, interstate telephone service and international telephone service, including private line service, and including related features, functions and services, as well as: Calling Card calls, meaning those calls billed to the customer account which has been established to allow for the use of an authorization code for direct dialed calls using any toll free number, 0+ access, or operator assisted calls using a service provider's calling card authorization platform for billing to the customer account at a later date. Operator Handled calls, meaning all calls where an operator or automated mechanized system provides the end user with the ability to place collect calls, calls billed to a third party, person to person, conference calling and operator assisted directory assistance, but not including party lines and off-line chat. Toll Free services, meaning inbound residential or business telephone services where the subscriber/recipient pays for all calls placed by callers dialing their subscribed number, and such calls are billed to the subscribing customer. Directory Assistance calls, meaning calls made by the customer to obtain names, addresses or phone numbers from a long distance directory assistance service. 27. "Marginable Revenues" means Gross Revenues, less * * * . 28. "Multiplier Adjustment Date" has the meaning set forth in Section IV.E.1. 29. "OBN" means One Better Net or OBN, TS's long distance telecommunications network based on telecommunications switches owned or leased by TS or its affiliates. 30. "Performance Lists" has the meaning set forth in Section II.B.I. 31. "Pop-Up Ads" means online advertisements or promotions that (a) appear onscreen at log-on to users of the AOL Service, (b) are made available onscreen for at least * * * , and (c) contain buttons allowing users either to place an order for or obtain further information about the product(s) advertised or to decline such product(s) and proceed with use of the AOL Service. 32. "Pre-Launch Period" means the period beginning on the Effective Date and ending on the date AOL and TS begin testing the Services with approximately * * * testers. 33. "Pre-Tax Profit" for any calendar quarter means * * * . 34. "Quarterly Payment Amount" as to any calendar quarter means the Applicable Profit Percentage of the Pre-Tax Profit for such quarter. 35. "Quarterly Shortfall Amount" has the meaning set forth in Section V.B.1(b). 36. "Restricted Services" means, collectively, (a) Long Distance Telecommunications Services, (b) Local Telecommunications Services and (c) Commercial Mobile Radio Services, and, each, a "Restricted Service". 37. "RMG" means the remote managed gateway between TS and AOL and related systems (or any similar system agreed to by the parties), including a high speed dedicated telecommunications line, developed by the parties pursuant to Section II.B hereof, for the purpose of providing End Users the ability, through screens and/or other functionality on the AOL Service, to access monthly and historical billing information and to transmit order information to TS. 38. * * * . 39. "Services" means the telecommunications services, including the Restricted Services, provided, from time to time, pursuant to this Agreement by TS, as the carrier, and marketed by AOL as herein provided under the AOL Marks; provided, however, that "Services" shall not include (a) Internet Telephony (except for the communications components of such telephony which are other Services; e.g., a private line) or (b) paging services not offered in conjunction with another Commercial Mobile Radio Service. 40. "Supplemental Warrant" has the meaning set forth in Section VI.A. hereof. 41. "Term" means the period commencing on the date hereof and ending on June 30, 2000, unless such period is extended or sooner terminated pursuant to Article X, in which event such period shall end at the termination date or the last day of the final extension, as the case may be. 42. "Test Launch Period" means the period beginning at the end of the Pre-Launch Period and ending on the date AOL begins marketing the Services to approximately * * * of its subscribers. 43. "TS" has the meaning set forth in the preamble of this Agreement. 44. "TS Performance List" has the meaning set forth in Section II.B.1. 45. "Unamortized Amount" as of any date means (a) * * * through January 31, 1998, and (b) after January 31, 1998, the result of (x) * * * minus (y) the amount equal to (i) the product of * * * times the number of the calendar months subsequent to December 31, 1997 that have passed as of such date, divided by (ii) * * * , but not less than $0. 46. "Warrants" has the meaning set forth in Section VI.A. hereof. ARTICLE II ROLLOUT SCHEDULE; PERFORMANCE LISTS A. Description of Rollout. This Article II sets out the process by which the parties will roll out the Long Distance Telecommunications Services described on Schedule C. With respect to such Long Distance Telecommunications Services, the parties will proceed through the following sequence of periods, leading to an anticipated Commercial Launch Date of * * * : 1. Pre-Launch Period -- completion of initial Checklist Item tasks and initial development of the Performance Lists (as further described below). 2. Test Launch Period -- testing of the Long Distance Telecommunications Services with approximately * * * testers. 3. Initial Launch Period -- marketing of the Long Distance Telecommunications Services to approximately * * * of AOL Service subscribers (with incremental ramp-up to * * * of AOL Service subscribers). 4. Commercial Launch Date -- general availability of the Long Distance Telecommunications Services to AOL Service subscribers (i.e., to at least * * * of the subscribers to the AOL Service). In addition, prior to the Commercial Launch Date, the parties will mutually establish the date for commencement of AOL's marketing obligations, (i.e., the beginning of the Introductory Period), which are further described in Article III. B. Pre-Launch Period. 1. During the Pre-Launch Period, each of the parties shall perform all of the Checklist Item tasks designated on Schedule B as being its responsibility during the Pre-Launch Period with respect to the Long Distance Telecommunications Services described in Schedule C. With respect to each task involving the development of a definition, procedure or standard, the responsible party shall generate a detailed written guideline that will be applicable to the appropriate party and will be set forth in a list of standards, procedures and/or obligations to be observed by such party (the "AOL Performance List" and the "TS Performance List", respectively, and together, the "Performance Lists"). Each such guideline set forth in the Performance Lists shall be subject to the mutual agreement of the parties, not to be unreasonably withheld. With respect to Checklist Item tasks that are designated on Schedule B as the joint responsibility of TS and AOL during the Pre-Launch Period, TS and AOL shall work jointly in good faith to develop the appropriate guidelines and to allocate responsibilities thereunder to the appropriate Performance List. 2. The Pre-Launch Period shall commence promptly following the Effective Date and shall not end until completion of all of the Checklist Item tasks designated for completion during the Pre-Launch Period on Schedule B. If any such Checklist Item task remains uncompleted or if any guideline has not been agreed to as of * * * , the anticipated date therefor, the period for such completion may be extended by up to * * * at the request of either party. C. Test Launch Period. 1. During the Test Launch Period, each of the parties shall perform all of the Checklist Item tasks designated on Schedule B as being its responsibility during the Test Launch Period with respect to the Long Distance Telecommunications Services described in Schedule C. With respect to each task involving the development of a definition, procedure or standard, the responsible party shall generate a detailed written guideline that will be applicable to the appropriate party and will be added to its respective Performance List. Each such guideline shall be subject to the mutual agreement of the parties, not to be unreasonably withheld. With respect to Checklist Item tasks that are designated on Schedule B as the joint responsibility of TS and AOL during the Test Launch Period, TS and AOL shall work jointly in good faith to develop the appropriate guidelines and to allocate responsibilities thereunder to the appropriate Performance List. 2. The Test Launch Period shall commence upon completion of the Pre-Launch Period and shall not end until completion of all of the Checklist Item tasks designated for completion during the Test Launch Period on Schedule B. If any such Checklist Item tasks remain uncompleted as of the date that is * * * after the commencement of the Test Launch Period, the period for such completion may be extended by up to * * * at the request of either party. D. Initial Launch Period. 1. During the Initial Launch Period, the parties will commence marketing and make the Services available to approximately * * * of the AOL Service subscribers (or such higher number as AOL may determine, subject to TS's reasonable capacity limitations) during * * * of the Initial Launch Period; approximately * * * of the AOL Service subscribers (or such higher number as AOL may determine subject to TS's reasonable capacity limitations) during * * * of the Initial Launch Period; and approximately * * * of the AOL Service subscribers (or such higher number as AOL may determine subject to TS's reasonable capacity limitations) during the remainder of the Initial Launch Period. AOL shall determine the specific roll-out plan for the Initial Launch Period in consultation with TS in order to efficiently and effectively perform the Initial Launch Period Checklist Item tasks listed on Schedule B. Notwithstanding the anticipated * * * periods above, AOL may, in each such case, delay marketing to a larger portion of the AOL Service subscriber base until AOL is satisfied, in its reasonable discretion, that the guidelines included in the parties' respective Performance Lists are met or are likely to be met during any such period. 2. During the Initial Launch Period, each of the parties shall perform all of the Checklist Item tasks designated on Schedule B as being its responsibility during the Initial Launch Period with respect to the Long Distance Telecommunications Services described in Schedule C. With respect to tasks involving the development of a definition, procedure or standard, the responsible party shall generate a detailed written guideline that will be applicable to the appropriate party and will be added to its respective Performance List. Each such guideline shall be subject to the mutual agreement of the parties, not to be unreasonably withheld. With respect to Checklist Item tasks that are designated on Schedule B as the joint responsibility of TS and AOL, TS and AOL shall work jointly in good faith to develop the appropriate guidelines and to allocate responsibilities thereunder to the appropriate Performance List. 3. The Initial Launch Period shall commence upon completion of the Test Launch Period. The Initial Launch Period shall not end until completion of all of the Checklist Item tasks designated for completion during the Initial Launch Period on Schedule B. If any such Checklist Item task remains uncompleted or if any guideline has not been agreed to as of the date that is * * * after the commencement of the Initial Launch Period, the period for such completion may be extended by up to * * * at the request of either party. E. Performance Lists. 1. The Performance Lists may be modified at any time during the Term as mutually agreed by the parties. 2. The parties shall reasonably cooperate with one another in facilitating the preparation of the Performance Lists and the guidelines included therein and the completion of the Checklist Item tasks. 3. Each party shall be responsible for performing substantially in accordance with the guidelines contained in its respective Performance List from time to time. F. New Services. As new Services are added under this Agreement, the procedures set forth in this Article II, as may be reasonably applicable to such new Services, shall be followed with respect to such Services. G. Failure to Agree on Guidelines. If the parties are unable to reach agreement with respect to any guideline to be included in a party's Performance List, the matter shall be submitted for resolution pursuant to XI.D. ARTICLE III AOL MARKETING A. Services Marketing. On and after the first day of the Introductory Period, AOL shall have the sole right to, and shall, market the Services generally across the AOL Service in the United States, through online advertising and marketing on the AOL Service and otherwise as the parties may agree, through mass media and direct marketing media, as follows: 1. During each of the months during the Introductory Period, AOL shall include for subscribers to the AOL Service on-screen promotions and advertisements for the Long Distance Telecommunications Services, including Pop-Up Ads, (a) in substance (the specific Long Distance Telecommunications Services to be offered and the terms thereof and the terms on which they are offered) developed and prepared by TS in consultation with AOL, and (b) in form (how the offered Services are packaged and presented) developed and prepared by AOL in consultation with TS and subject to the mutual agreement of the parties, with an Ad Value of at least $ * * * . Such promotions and advertisements shall include (a) at least * * * Pop-Up Ads per month during at least * * * of the months in the Introductory Period, such months to be chosen at AOL's discretion, and (b) either * * * or * * * Pop-Up Ads per month during the other * * * of the Introductory Period, * * * . Any Pop-Up Ads included by AOL during the Introductory Period in excess of * * * per month shall not be counted toward such $ * * * requirement. Such promotions and advertisements shall be spaced as evenly as practicable over each such month, provided that TS and AOL shall consult as to the manner in which such online advertising will be included in such advertising opportunities. The parties recognize that in some months, a $ * * * promotion and advertising campaign may not represent the best allocation of promotion and advertising resources. Accordingly, the foregoing notwithstanding, subject to the mutual agreement of the parties, some of the promotional and advertising resources, and Pop-Up Ads, allocated to the Introductory Period may be reallocated among the months occurring during the Introductory Period and among the * * * months following the Introductory Period and shall be in addition to the resources required otherwise to be provided in such months. 2. During each of the months subsequent to the Introductory Period and during the Term, AOL shall include for subscribers to the AOL Service on-screen promotions and advertisements for the Long Distance Telecommunications Services, including, at AOL's option (subject to the requirements of Section III.A.4 hereof), Pop-Up Ads, (a) in substance (the specific Long Distance Telecommunications Services to be offered and the terms thereof and the terms on which they are offered) developed and prepared by TS in consultation with AOL, and (b) in form (how the offered Services are packaged and presented) developed and prepared by AOL in consultation with TS and subject to the mutual agreement of the parties, with an Ad Value of at least $ * * * . Any Pop-Up Ads included by AOL subsequent to the Introductory Period and during the Term in excess of * * * per month shall not be counted toward meeting this $ * * * requirement. AOL will work cooperatively with TS during this period to develop strategies for targeting the Services to new subscribers to the AOL Service most effectively. Such promotions and advertisements shall be spaced as evenly as practicable over each such month, provided that TS and AOL shall consult as to the manner in which such online advertising will be included in such advertising opportunities. 3. During the Term, AOL may also include advertisements and promotions for the Long Distance Telecommunications Services, in substance (the specific Long Distance Telecommunications Services to be offered and the terms thereof and the terms on which they are offered) developed and prepared by TS in consultation with AOL, and form (how the offered Services are packaged and presented) developed and prepared by AOL in consultation with TS and subject to the mutual agreement of the parties, in or with any of AOL's mass media advertising of any of its services or with any of AOL's direct marketing efforts, including, without limitation, mail solicitations of customers for any of its services and any joint advertising or marketing programs with other companies and any other advertisements and solicitations done in conjunction with other companies; provided that, unless TS shall have specifically agreed with AOL to share responsibility for any such advertising and promotions, TS shall have no responsibility for any part of the costs thereof. 4. With respect to Pop-Up Ads: (a) Any Pop-Up Ad required, by the terms of Section III.A.1 or III.A.2. hereof, to be included or provided by AOL shall contain * * * . (b) If, at any time during the Term, AOL, as a matter of general practice, * * * , AOL shall * * * to subscribers to the AOL Service. (c) If, at any time during the Term, AOL, as a matter of general practice, * * * , AOL shall * * * ; provided, however, in the event * * * , then AOL shall * * * . 5. During the Term, the parties shall also, in consultation with each other, explore additional marketing and promotional opportunities related to the Services, including utilizing new advertising techniques and mechanisms, as they are developed by AOL and utilizing TS's existing marketing channels. The parties also will, in good faith, explore the following additional marketing opportunities (the more specific terms and conditions of which to be as set forth in writing between the parties): (a) Online marketing of bundled offerings of the Services and the AOL Service by AOL, with mutually agreed revenue sharing; (b) Telemarketing and direct marketing by TS of the AOL Service to TS's business customers, with a mutually agreed bounty paid to TS; and (c) Telemarketing and direct marketing by TS of bundled offerings of the Services and the AOL Service, with generally mutually agreed revenue sharing. 6. AOL shall make available to End Users who obtain services from TS other than the Services in accordance with this Agreement, a hyper-text internet link in the Dedicated Area (as defined below) solely to a billing area on a TS-hosted web site for billing of such services other than Services, which such site shall not include any links or other traffic out to other areas other than a return link to the AOL Service. 7. AOL commits to provide, in connection with its activities described in Sections III.A.1, 2, 4, 5 and 6, III.C and III.D hereof, in addition to AOL key words on the AOL Service and E-mail (including a monthly reminder sent to End-Users concerning their statement and a hyperlink to the Dedicated Area described below), links throughout the AOL Service, including the possibility of a small telephone icon that pervasively appears on the tool bar, welcome screen, channel page or similarly-viewed pages, to a dedicated area on the AOL Service (the "Dedicated Area") in order to facilitate ease of location and access to this area for End Users and prospective customers. B. AOL Reports. 1. During the Term, AOL shall provide summary monthly reports to TS evidencing compliance with the foregoing advertising and marketing requirements, including information concerning the type and volume of advertising and marketing on the AOL Service, and concerning AOL's mass media and direct marketing activities, if any, during such month. 2. AOL shall keep for two (2) years from the date of each advertising and marketing expenditure made pursuant to Sections III.A.1 and 2 above complete and accurate records in sufficient detail to allow TS to determine if AOL has made the expenditures required thereunder. TS shall have the right for a period of two (2) years after receiving any report provided pursuant to Section III.B.1 above to inspect such records. AOL shall make such records available for inspection during regular business hours at its principal place of business, upon reasonable notice from TS. Such inspection right shall not be exercised more than once in any calendar year and shall not be exercised more than once with respect to any particular records furnished by AOL to TS. TS agrees to hold in strict confidence all information learned in the course of any such inspection, except to the extent necessary for TS to reveal such information in order to enforce its rights under this Agreement or if disclosure is required by law. TS shall pay for such inspections, except that in the event any such inspection reveals that AOL expended less than 98% of what it was required to expend in any quarter, AOL shall pay the reasonable costs of such inspection. If AOL and TS are unable to agree on the amount AOL expended, then the dispute shall be resolved by arbitration pursuant to Section XI.D hereof. This Section shall survive expiration or termination of this Agreement. 3. Within one quarter after it has been determined as a result of an inspection pursuant to Section III.B.2 above or otherwise that AOL failed to expend the minimum commitment for advertising and marketing in a given month, and such failure is not attributable to TS's unreasonable failure to agree to the marketing program proposed by AOL, AOL shall, in addition to any other advertising and marketing expenditure commitments it has under this Agreement, expend an additional amount for advertising and marketing equal to 125% of the shortfall from such commitment. 4. AOL shall advise TS in writing or by electronic means of any End User that ceases to be a subscriber of the AOL Service as promptly as reasonably practicable after receiving notice thereof. TS shall continue servicing each such End User according to a service plan that TS deems appropriate, subject to such End User's continued credit-worthiness, in TS's sole discretion. To the extent that TS incurs incremental costs associated with the billing of such End Users, TS shall, at its sole discretion, either (i) pass such costs through to such End Users or (ii) adjust payments to AOL under Section V.B or X.D.2, as the case may be, to put AOL in the same economic position as if such incremental costs had not been incurred. C. Offering of Services. 1. AOL shall include on the AOL Service such materials and opportunities as TS shall reasonably request to permit users of the AOL Service who wish to become End Users to elect so to become End Users, including, without limitation, any agreements by any such user to (i) switch from their existing telecommunications carrier, (ii) charge their payments for the Services to credit, charge or debit cards and/or (iii) verify such arrangements. D. Services Billings; Credit Card Agreements. 1. For so long as any End User is a customer of the AOL Service (and notwithstanding the termination of this Agreement, it being understood that this obligation shall survive such termination if AOL is receiving payments pursuant to Section X.D.2), AOL shall provide for the inclusion online in the AOL Service to such End User of such End User's billing information provided by TS and any necessary opportunity for such End User to authorize any payment and to dispute any charges for Services with TS (all as mutually agreed to with respect to the RMG developed by TS and AOL hereunder); provided that AOL shall not be required to incur material costs after termination to alter its inclusion of such information due to material changes made to the RMG by TS. 2. AOL shall use all reasonable efforts to cause the credit, charge and debit card companies through which AOL bills its customers for the AOL Service to charge the same rates for Services billings as they charge for billings for the AOL Service. 3. AOL shall use all reasonable efforts to cause the credit, charge and debit card companies through which AOL bills its customers for the AOL Service to enter into direct arrangements with TS with respect to the billing for the Services, including provision for continuation thereof with respect to any End Users that cease to be subscribers of the AOL Service or any other services billed to such End User by AOL. 4. With respect to any End Users who do not pay their bills for the AOL Service through a credit, charge or debit card, AOL shall, subject to applicable law and AOL's terms of service with its subscribers, provide to TS all information available to AOL with respect to such End Users as TS may reasonably request to permit TS to bill such End Users for the Services. E. Use of AOL Marks. 1. AOL hereby grants to TS an exclusive license (subject to the right of AOL and its affiliates to use the AOL Marks in connection with the Services) for TS to use the AOL Marks solely in connection with its operation of the Services for which TS is then the exclusive provider under this Agreement; and AOL hereby grants to TS an exclusive license (subject to the right of AOL and its affiliates to use the AOL Marks in connection with the Services) for TS to use the AOL Marks solely in connection with its operation of the Services for which TS is then the provider under this Agreement on a non-exclusive basis, unless the parties mutually agree (such agreement not to be unreasonably withheld) that the license with respect to those non-exclusive Services should itself be non-exclusive; provided that in both cases TS (i) does not create a unitary composite mark involving the AOL Marks without the prior written approval of AOL and (ii) displays symbols and notices clearly and sufficiently indicating the trademark status and ownership of the AOL Marks in accordance with applicable trademark law and practice; and provided further that AOL retains the right to use the AOL Marks in connection with the services provided as part of the core business of ANS CO+RE Systems, Inc. as of the date hereof. The foregoing license is personal to TS and may not be sublicensed, assigned or otherwise transferred except as provided by Section XII.F. TS acknowledges that: (i) the AOL Marks are and shall remain the sole property of AOL; (ii) nothing in this Agreement shall confer in TS, and TS shall not represent that it has, any right of ownership in the AOL Marks; and (iii) TS shall not now or in the future contest the validity of the AOL Marks. 2. TS further acknowledges and agrees that no use of the AOL Marks by TS shall impair the rights of AOL in the AOL Marks. TS agrees to reasonably assist AOL, at AOL's expense, to the extent necessary in the enforcement and protection of AOL's rights in the AOL Marks. If a senior executive officer of TS learns of any infringements or uses of marks similar to the AOL Marks, such officer shall inform AOL as soon as reasonably practicable and TS shall cooperate with AOL as AOL reasonably requests, at AOL's expense, to protect AOL's rights in the AOL Marks. 3. AOL agrees to take all reasonable steps necessary to register and protect the AOL Marks. 4. Use by TS of the AOL Marks with respect to form and appearance shall be subject to the prior written approval of AOL, not to be unreasonably withheld. 5. TS acknowledges that, except as provided herein, it is not authorized hereunder to use the AOL name or logo. Any such use shall require the prior written consent of AOL and shall be subject to such conditions and restrictions as AOL deems appropriate. F. TS Trademarks and Service Marks. This Agreement shall not convey a license to AOL to use any trademarks, service marks, trade names or logos owned or otherwise used by TS. Nothing herein shall give AOL any right, title and interest in and to any such trademarks, service marks, trade names or logos owned or otherwise used by TS, other than the right to display such trademarks, service marks, trade names or logos in connection with the marketing of the Services. G. Expenses. Except as otherwise provided herein or agreed by the parties in writing, all costs and expenses of providing the marketing and advertising services referred to in Section III.A. shall be borne exclusively by AOL. H. Representatives. AOL shall appoint a technical representative, a marketing representative, a billing and customer service representative and a project manager to interface with their respective TS counterparts. If TS is dissatisfied with any of the foregoing representatives or manager, it shall so inform AOL and AOL shall replace him/her as soon as reasonably practicable, consistent with a smooth transition and AOL's staffing commitments. TS shall not be entitled to have more than one representative or manager replaced in any six-month period. Except as may be the case pursuant to Section XII.H, no AOL manager or representative appointed hereunder shall have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, AOL. I. Limitation on AOL Authority. AOL shall have no right, authority or power, and shall not hold itself out as having the right, power or authority, to create any contract or obligation, express or implied, binding upon TS, including, but not limited to, accepting orders for Services or agreeing to or offering prices, terms or conditions of sale that are not in compliance with the prices and terms and conditions that TS, or TS and AOL, as the case may be, have developed and prepared as provided elsewhere herein. J. Insurance. So long as AOL shall have executory obligations under this Agreement, AOL shall maintain insurance in amounts and types customary within its industry for companies of comparable size. ARTICLE IV TS SERVICES A. Services. 1. The telecommunications services to be provided by TS hereunder initially shall be the Long Distance Telecommunications Services. Such Long Distance Telecommunications Services initially will include the services described in Schedule C. Subject to Article VII, the Services to be provided by TS hereunder will be expanded to include Local Telecommunications Services and Commercial Mobile Radio Services as and to the extent offered by TS. B. Provision of Services. 1. TS shall provide the Services to all subscribers to the AOL Service that elect to become End Users, provided that the initial and continued provisioning of any such customer will be subject to such credit approvals as TS may, in its sole discretion, apply. C. Terms of Services. 1. The Services will be offered by TS, as the carrier, under the AOL Marks. 2. Notwithstanding anything to the contrary set forth in this Agreement, the quality, timeliness and efficiency of Services provided hereunder and the performance by TS of its other obligations hereunder shall, at a minimum, be consistent with telecommunications common carrier industry standards, government regulations and sound business practices and generally of no lesser quality than the best comparable services provided by TS to other customers. 3. The specific types of Services other than Long Distance Telecommunications Services, Local Telecommunications Services and Commercial Mobile Radio Services shall be determined from time to time by mutual agreement of the parties. 4. The rates to be charged by TS for Services subject to telecommunications regulation shall be determined from time to time by TS, in its sole discretion. TS shall give AOL reasonable prior notice of prospective rate changes and a reasonable opportunity to consult with respect to such prospective rate changes. TS's current intention is that its initial rates for Long Distance Telecommunications Services will be as set forth in Schedule D hereto. To the extent the parties reasonably agree that it is legally permissible to do so with respect to any specific Services, the rates for those Services shall be determined from time to time by mutual agreement of the parties. 5. Customer Service. a. TS shall provide customer service 24 hours per day, 7 days per week. b. TS shall comply with the applicable customer service provisions of the TS Performance List developed pursuant to Article II. c. If TS fails to conform to the customer service standards set forth in this Section IV.C.5. above within thirty (30) days following notice of such non-conformance from AOL, AOL shall have the right, at its discretion and as one of its available remedies, either to assume the customer service function itself or to outsource it to a third party provider. In that event, (a) TS shall, at TS's expense, assist AOL in the transition of the customer service function as AOL may reasonably request, and (b) TS shall reimburse AOL for AOL's reasonable costs and expenses associated with providing the customer service function. Notwithstanding the foregoing, if, at any time, AOL shall have assumed the customer service function or outsourced it to a third party provider and TS shall thereafter demonstrate to AOL's reasonable satisfaction that it can conform to the applicable customer service standards, TS shall have the right to resume the provision of the customer service function and AOL shall cause the transition of the customer service function back to TS. 6. AT&T Reseller Services. It is anticipated by the parties that the Services will include initially, and TS initially shall provide as part thereof, AT&T-based operator services, directory assistance, calling card services and international. In the event TS replaces such AT&T-based services, TS shall ensure that the replacement services are of substantially equivalent or better quality and price. 7. Network Integrity. TS shall comply with the applicable network integrity provisions of the TS Performance List developed pursuant to Article II. 8. Billing. a. TS shall comply with the applicable billing provisions of the TS Performance List developed pursuant to Article II. b. If TS fails to conform to the billing services guidelines developed as part of the applicable Performance List pursuant to Article II within thirty (30) days following notice of such non-conformance from AOL, AOL shall have the right, at its discretion and as one of its available remedies, either to assume the billing services function itself or to outsource it to a third provider. In that event, (a) TS shall, at TS's expense, assist AOL in the transition of the billing service function as AOL may reasonably request, and (b) TS shall reimburse AOL for AOL's reasonable costs and expenses associated with providing the billing service function. Notwithstanding the foregoing, if, at any time, AOL shall have assumed the billing services function or outsourced it to a third party provider and TS shall thereafter demonstrate to AOL's reasonable satisfaction that it can conform to the applicable billing services standards, TS shall have the right to resume the provision of the billing services function and AOL shall cause the transition of the billing services function back to TS. 9. TS shall provide to AOL as promptly as reasonably practicable after the end of each month an updated roster of End Users at such month-end in order to facilitate performance by AOL of its obligations under Section III.B.4. 10. TS shall, where possible, make available the Dedicated CIC and shall route all Services to End Users thereunder and shall not route any other customers of its telecommunications services based thereon (excluding customers (i) in Alaska, Hawaii, Puerto Rico and the Virgin Islands, (ii) in other areas in the 48 contiguous states of the United States where OBN is not loaded and (iii) in overflow situations where required to manage capacity). All non-OBN traffic shall be carried on the AT&T network. TS shall use its best efforts to at all times have the capability to route the Dedicated CIC over a redundant network. D. Regulatory. 1. TS shall be responsible for obtaining and maintaining all federal, state and local consents, approvals and licenses required to be obtained or maintained by TS for TS's provision of the Services hereunder other than any consents and approvals or licenses required by applicable law to be obtained or maintained by AOL by reason of its performance of its obligations hereunder or otherwise, for all of which AOL shall be responsible, and all expenses of obtaining and maintaining such, including all tariffs, taxes, filings and fees with respect thereto, shall be borne exclusively by the party so responsible for obtaining or maintaining such. 2. TS shall file any required state and federal tariffs in accordance with applicable law and regulations. 3. TS shall pay all federal, state and local taxes required by applicable law or tariff. E. AT&T. 1. Not later than 5:00 p.m. EST on Tuesday, February 25, 1997, TS shall provide written evidence to AOL that a statement that * * * . During the Term, TS will use commercially reasonable efforts to maintain the ability so to * * * . If, notwithstanding such efforts, such statements can no longer be used in the advertising, promotion and provision of the Services, the "Vesting Multiplier" applicable to the Supplemental Warrant shall, from and after the date such statement can no longer so be used (the "Multiplier Adjustment Date"), be doubled. 2. TS shall notify AOL as promptly as reasonably practicable of any changes in its relationship with AT&T that could have a material adverse effect on the performance of the parties' obligations under this Agreement and/or the provision of the Services to End Users. F. LOAs. 1. TS shall be the contracting party to the telecommunication letters of agency (and any other contracts and agreements with the customers for the provision of telecommunications services to the End Users, collectively, "LOAs") and thereby be entitled to all rights deriving therefrom. Except in connection with an assignment of this Agreement permitted by Section XII.F, TS shall not assign any of the LOAs, i.e., not sell any of the End Users. G. Representatives. 1. TS shall appoint a technical representative, a marketing representative, a billing and customer service representative and a project manager to interface with their respective AOL counterparts. If AOL is dissatisfied with any of the foregoing representatives or manager, it shall so inform TS and TS shall replace him/her as soon as reasonably practicable, consistent with a smooth transition and TS's staffing commitments. AOL shall not be entitled to have more than one representative or manager replaced in any six month period. Except as may be the case pursuant to Section XII.H, no TS manager or representative appointed hereunder shall have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, TS. H. Limitation on TS Authority. TS shall have no right, authority or power, and shall not hold itself out as having the right, power or authority, to create any contract or obligation, express or implied, binding upon AOL. I. Insurance. So long as TS shall have executory obligations under this Agreement, TS shall maintain insurance in amounts and types customary within its industry for companies of comparable size. ARTICLE V PAYMENTS TO AOL A. Initial Payment to AOL. 1. On the date hereof, TS shall pay to AOL an initial payment in the amount of $100,000,000 (the "Initial Payment"). Up to $57,000,000 of the Initial Payment shall be earned by AOL over time in increments in accordance with the performance milestones set forth in Schedule E. B. Marketing Payments to AOL. 1. In partial consideration of AOL providing marketing services and exclusivity commitments hereunder, TS shall make the following payments in immediately available funds wired to AOL's account pursuant to the wiring instructions attached as Schedule F (which instructions may be modified in writing by AOL on five (5) days notice): a. For each calendar quarter ending on March 31, June 30, September 30 and December 31, commencing with the Effective Date and so long as this Agreement shall not have terminated or been terminated, TS shall pay to AOL, in accordance with the procedures set forth in Section V.B.3, the Quarterly Payment Amount for such quarter. b. Against the amount of each such payment to be made to AOL for any calendar quarter after December 31, 1997 and through (and including) the calendar quarter ending June 30, 2000, there shall be credited to TS, as of the last day of such quarter, a portion of the Initial Payment equal to the lesser of (a) the Quarterly Payment Amount for such quarter and (b)$4,300,000, and such amount so credited shall, for all purposes, be deemed to have been paid by TS to AOL and to have satisfied TS's obligation to AOL in such amount. The amount, if any, by which $4,300,000 exceeds the Quarterly Payment Amount in any such calendar quarter is called a "Quarterly Shortfall Amount". 2. If this Agreement shall be terminated by either party prior to the end of the Term, TS' only obligation to pay AOL hereunder (exclusive of any damages to which AOL may be entitled as a result of such termination) shall be as set forth in Articles X and XI hereof. 3. Within thirty (30) days after the end of any period for which payment is to be made pursuant to Section V.B.1 or V.B.2 hereof, TS shall deliver to AOL a statement of the Applicable Profit Percentage (for periods prior to any termination hereof) and Pre-Tax Profit for such period and the amount, if any, payable to AOL with respect to such period, showing the manner in which it was determined and certified as correct by the Chief Financial Officer of TS. Such statement shall be accompanied by a payment of any such amount. This Section V.B.3 shall survive the termination or expiration of this Agreement. 4. TS shall keep for two (2) years from the date of each payment to AOL pursuant to Section V.B.1 complete and accurate records in sufficient detail to allow AOL to determine if TS has computed Gross Revenues, Actual Services Costs and Pre-Tax Profit accurately. AOL shall have the right for a period of two (2) years after receiving any report or statement with respect to payment due to inspect such records. TS shall make such records available for inspection during regular business hours at its principal place of business, upon reasonable notice from AOL. Such inspection right shall not be exercised more than once in any calendar year and shall not be exercised more than once with respect to any particular records furnished by TS to AOL. AOL agrees to hold in strict confidence all information learned in the course of any such inspection, except to the extent necessary for AOL to reveal such information in order to enforce its rights under this Agreement or if disclosure is required by law. AOL shall pay for such inspections, except that in the event there is any upward adjustment in payments owed for any quarter shown by such inspection of more than two percent (2%) of the amount paid, TS shall pay the reasonable costs of such inspection. If AOL and TS are unable to agree on the amount owed, then the dispute shall be resolved by arbitration pursuant to Section XI.D hereof. Payments not made within the time period set forth in Section V.B.3 hereof shall bear interest at a rate of one percent (1%) per month or the highest rate permitted by law, whichever is lower, from the due date until paid in full. This Section V.B.4 shall survive the termination or expiration of this Agreement. 5. It is understood and agreed that the foregoing payment terms and conditions in this Section V.B. are in respect of the provision of Long Distance Telecommunications Services only and that the parties are to mutually agree as to payment terms and conditions in respect of the provision of Services of any other nature at the time such other Services are to be offered hereunder. ARTICLE VI WARRANTS; WARRANT HOLDER AND STOCKHOLDERS AGREEMENT A. Warrants. On the date hereof and to induce AOL to enter into the ongoing business relationship represented by this Agreement and as partial consideration therefor, Holdings is entering into two Warrant Agreements, each dated as of the date hereof (collectively, the "Warrants"), one giving AOL the right to acquire 5,000,000 shares of Holdings Common Stock (the "Holdings Common Stock") on the terms and subject to the conditions thereof, and the other (the "Supplemental Warrant") giving AOL the right to acquire up to 7,000,000 shares of Holdings Common Stock on the terms and subject to the conditions thereof. B. Warrantholder and Stockholders Agreement. On the date hereof, AOL, TS and Holdings are entering into the Warrantholder and Stockholders Agreement, dated as of the date hereof (the "Warrantholders and Stockholders Agreement"). ARTICLE VII EXCLUSIVITY; NON-COMPETITION A. Exclusive Arrangement. 1. Except as specifically provided in this Section VII.A., during the Term, TS shall be the exclusive provider of Long Distance Telecommunications Services, Local Telecommunications Services and Commercial Mobile Radio Services marketed by AOL (or its affiliates) on the AOL Service to the AOL Service subscribers; * * * . 2. At such time, if any, that TS elects to offer Local Telecommunications Services and/or Commercial Mobile Radio Services during the Term, AOL (or its affiliates) shall utilize TS as the provider of such Services marketed as provided herein by AOL (or its affiliates) on the AOL Service to the AOL Service subscibers unless (a) the TS offering of any such Services to End Users is not competitive (as to End Users) with other generally available offerings of such Services to End Users by other providers or (b) the inclusion of such offering in the Services would, in and of itself, be materially detrimental to AOL's business. In the event of any such offering of new Services, TS and AOL shall negotiate in good faith an amendment to this Agreement describing the rollout, the marketing and the performance lists applicable to such offering and setting forth the economic arrangements between the parties in respect of such offering, which economic arrangements will generally reflect, in respect of such new offering, the economic arrangements, in terms of services to be provided by AOL and payments to be made by TS, in respect of Long Distance Telecommunications Services provided herein (without, in any event, giving any effect to the Initial Payment or the Warrants). If the parties are unable to reach agreement on the terms of such amendment, the amendment terms will be submitted for resolution pursuant to Section XI.D. hereof and the resolution pursuant thereto shall be, in all respects, binding on the parties. 3. Notwithstanding anything in Section VII.A.1 or VII.A.2 to the contrary, if, prior to the date, if any, that TS becomes the provider of Local Telecommunications Services or Commercial Mobile Radio Services, as the case may be, under this Agreement, * * * . Notwithstanding the foregoing, (a) AOL shall not, on or before December 31, 1997, accept any other Offer from, or contract with, any party for provision of local telecommunications services or commercial mobile radio services, and (b) AOL shall not provide online call detail for any Restricted Service as to which TS is then the exclusive provider hereunder as part of the AOL Service. * * * . 4. Nothing contained in this Agreement shall prohibit or restrict AOL in any manner from selling online advertising to telecommunications service providers other than TS * * * . 5. Except as otherwise specifically provided herein, during and after the Term, AOL shall have the exclusive right to target market products and services, including the Services, to subscribers to the AOL Service and to End Users and TS shall not, directly or indirectly (through subsidiaries, affiliates or otherwise), knowingly target market subscribers to the AOL Service or the End Users. Notwithstanding the foregoing, TS may, directly or indirectly through a third party on its behalf, telemarket the Services to AOL Service subscribers during periods proximate to the deployment of Pop-Up Ads, so long as (i) the costs of all such telemarketing are borne solely by TS and excluded from Actual Services Costs; (ii) any subscriber identity information necessary to perform such telemarketing information is passed through a third party or otherwise handled in a manner that is designed to prevent disclosure of such information to TS (other than by virtue of TS's contact with any such subscribers when and after such subscriber is called); and (iii) AOL shall have approved in advance all procedures, scripts and other materials used in such telemarketing, such approval not to be unreasonably withheld; and provided that AOL shall be entitled to limit the amount, frequency and duration of such telemarketing efforts in the event AOL determines, in its reasonable discretion, that such telemarketing efforts are resulting in significant subscriber complaints or otherwise disrupting AOL's relations with its subscribers. 6. Prior to the first anniversary of the date of this Agreement, without regard to whether or not this Agreement has terminated prior to such first anniversary, TS shall not, directly or indirectly (through affiliates or otherwise), contract with any AOL competitor (including online services, ISPs, or online content aggregators), for the marketing or provision online to their customers of the long distance, local or commercial mobile radio services then provided by TS or provide any such entity the ability to do online billing of such services. After such first anniversary date and during the Term, TS may only so contract subject to payment by TS to AOL of a mutually acceptable override. Anything to the contrary notwithstanding, TS may market and provision for its own account any telecommunications services over the Internet, including the World Wide Web, including, without limitation, the provision of online billing for such services. 7. During the Term, neither TS nor AOL shall sell or otherwise transfer any list that specifically identifies End Users as such. AOL shall not sell or otherwise transfer any list of subscribers to the AOL Service to any provider of a telecommunications service in the nature of a Restricted Service as to which TS is then eligible to be the exclusive provider hereunder for the purpose of, or with the reasonable expectation of, facilitating target marketing by any party. TS shall not sell or otherwise transfer any list of customers of TS's telecommunications services to any provider of an online service in the nature of the AOL Service for the purpose of, or with the reasonable expectation of, facilitating target marketing by any party. 8. The exclusive arrangement set forth in Section VII.A.1 hereof does not include paging service offered in conjunction with another Commercial Mobile Radio Service, conference calling service, information services (as defined in the Communications Act of 1934, as amended), private line service, the communications components of Internet Telephony as identified in the definition of "Services" above, Commercial Mobile Radio Services used exclusively for data services or for data services with ancillary voice usage, in either case using a modem or CODEC and, subject to payment by AOL to TS of a mutually acceptable override intended to compensate for diverted traffic and revenues (if TS offers prepaid calling cards, which it does as of the date hereof), prepaid calling cards. 9. AOL may elect to eliminate its exclusivity obligations and/or cease its marketing obligations under this Agreement with respect to (a) Long Distance Telecommunications Services; (b) Local Telecommunication Services; or (c) Commercial Mobile Radio Services if TS's overall pricing for such category of services exceeds overall prices for such services which are generally available from major carriers so as to be non-competitive with those carriers' offerings. If an arbitration concludes, or the parties agree, that TS's overall pricing for such category of Services exceeds overall prices for such services which are generally available from major carriers so as to be non-competitive with those carriers' offerings, and AOL then separately markets such services without TS, AOL may sell Pop-Up Ads for those services. B. Confidentiality. 1. Each party hereto shall treat, and shall cause its respective directors, officers, employees, agents, representatives and consultants to treat, as the other party's confidential property and not use or disclose to others or permit its directors, officers, employees, agents, representatives and consultants to use or disclose to others, without the prior written consent of such other party, any non-publicly available information or data of such other party (including, but not limited to, the identity of End Users or subscribers to the AOL Service from time to time hereunder or any information with respect thereto or any technical information or data provided by such other party) that may have heretofore or hereafter been provided or disclosed by such other party in connection with this Agreement, any negotiations pertaining thereto or to any of the transactions contemplated hereby. 2. The foregoing Section VII.B.1 shall not prevent any party hereto from using or disclosing to others information: (i) which such party can show has become part of the public domain other than by acts or omissions of such party, its directors, officers, employees, agents, representatives and consultants; (ii) which has been furnished to such party by third parties as a matter of right, without restriction on disclosure or use known to such party; (iii) which was lawfully in such party's possession prior to the time AOL and TS first entered into discussions relating to the subject matter of this Agreement and that was not acquired by such party, its directors, officers, employees, agents, representatives and consultants directly or indirectly from the other party, its employees or agents; (iv) which a party can prove was developed by it independently of any information received from such other party, its directors, officers, employees, agents, representatives and consultants, either directly or indirectly; (v) that such party is required to disclose by applicable law or regulation, in which case the party so required to disclose shall give the other party prompt notice of such requirement in all cases with sufficient time for such other party to seek a protective order or other limit on disclosure (unless the party subject to the disclosure requirement would suffer penalties or sanctions for failure to immediately disclose such information). It is further understood and agreed that specific information shall not be deemed available to the public or in any party's prior possession merely because it is embraced by more general information available to the public or in such party's prior possession; or (vi) as necessary for the enforcement of this Agreement. In addition, (1) either party may disclose the terms of this Agreement to the extent it deems such disclosure reasonably necessary under applicable federal and state securities laws, regulations and policies in connection with its (or Holdings') status as a public company and with transactions involving the offering of its (or Holdings') securities and (2) either party may disclose the terms of this Agreement to third parties as necessary in connection with other financing or merger and acquisition activities, provided that, in the case of clauses (1) and (2) above it seeks to protect the confidentiality of such confidential information in the same manner and to the same degree as its own confidential information, to the full extent that such confidential treatment is consistent with the purpose of the disclosure. If either party becomes aware of any motion or other regulatory or court proceeding that might require it to disclose any of the terms of this Agreement, that party will give immediate written notice of such motion or proceeding to the other and both parties shall act cooperatively to retain the confidentiality of the terms hereof. For purposes of this paragraph, "third party", does not include a person (other than a direct competitor of AOL or TS or their respective affiliates) retained by either party to provide advice, consultation, analysis, legal counsel or any other services in connection with this Agreement, if such person agrees to be bound by the confidentiality obligations of this Agreement. 3. In the event that this Agreement is terminated, any and all notes, memoranda, records, drawings, tracings, specifications, sketches, reports or other documents, including, without implied limitation, all copies, excerpts or reproductions thereof, furnished or made available by TS to AOL, or AOL to TS, as the case may be, their respective directors, officers, employees, agents, representatives and consultants or developed thereby (except, in any case, for information necessary to complete the performance of such party's obligations under this Agreement and, in the case of TS, for any information relating to any End User hereunder with respect to the Services, and, in the case of AOL, any information relating to any subscriber to the AOL Service with respect to the AOL Service) shall be promptly destroyed by such party at such other party's request and such party shall advise such other party in writing that such destruction has been completed. This Section shall survive any termination of this Agreement. C. Public Announcement. 1. No press release, public announcement, confirmation or other information regarding this Agreement or the Warrants or the contents hereof or thereof shall be made by any party without the prior written consent of the other party, which consent shall not be unreasonably withheld. It is agreed and understood that the parties shall work together to prepare any such press release or public announcement. The foregoing notwithstanding, if a party is required pursuant to applicable securities laws to make such a public announcement or press release, such party shall be permitted to do so provided that such party has furnished the other party with the text of such public announcement or press release sufficiently in advance of such public announcement or press release as to afford the receiving party a reasonable opportunity to review such public announcement or press release and such party, to the extent consistent with its legal disclosure obligations, modifies such public announcement or press release as reasonably requested by the other party. ARTICLE VIII REPRESENTATIONS AND WARRANTIES A. AOL Representations and Warranties. AOL hereby represents and warrants to TS as follows: 1. Due Organization; Etc. AOL (a) is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization; (b) is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which its ownership or lease of property or its conduct of business requires it so to be qualified or licensed; (c) has all licenses, authorizations, consents, orders, approvals and qualifications necessary to conduct its business; and (d) has the corporate power and authority to own its properties and assets and to carry on its business as now conducted. 2. Authorization. The execution, delivery and performance by AOL of this Agreement are within its corporate powers and have been duly authorized by all necessary corporate action. 3. No Conflict. The execution, delivery and performance by AOL of this Agreement (i) do not contravene any provision of its charter or by-laws; and (ii) do not violate or conflict with any law, regulation or contractual restriction to which it is subject or result in a violation of or conflict with any other agreement to which it is a party or by which it is bound. 4. Enforceability. This Agreement is the legal, valid and binding obligation of AOL, enforceable against AOL in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, or other laws affecting creditors' rights generally or by the availability of equitable remedies. 5. Acquisition for Investment. AOL is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. AOL is acquiring the Warrants and the Holdings Common Stock issuable upon exercise thereof for its own account for investment and not for the account of others or with a view to the distribution or resale of such Warrants or Holdings Common Stock. AOL has such knowledge and experience in financial and business matters generally that AOL is capable of evaluating the merits and risks of an investment in the Warrants and Holdings Common Stock. AOL is aware that neither the Warrants nor the Holdings Common Stock issuable upon exercise thereof may be sold or otherwise transferred absent registration under the Securities Act or an exemption therefrom. AOL acknowledges that it has received from Holdings all financial and other information regarding its investment in the Warrants and the Holdings Common Stock issuable upon exercise thereof that it has requested and has been afforded the opportunity to discuss such investment with Holdings. The only representations and warranties that have been made with respect to Holdings, its subsidiaries, including TS, or their respective businesses and assets or otherwise in connection with the transactions herein contemplated are those contained in this Agreement and in the Warrants. B. TS Representations and Warranties. TS hereby represents and warrants to AOL as follows: 1. Due Organization; Etc. TS (a) is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization; (b) is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which its ownership or lease of property or its conduct of business requires it so to be qualified or licensed; (c) has all licenses, authorizations, consents, orders, approvals and qualifications necessary to conduct its business; and (d) has the corporate power and authority to own its properties and assets and to carry on its business as now conducted. 2. Authorization. The execution, delivery and performance by TS of this Agreement are within its corporate powers and have been duly authorized by all necessary corporate action. 3. No Conflict. The execution, delivery and performance by TS of this Agreement (i) do not contravene any provision of its charter or by-laws; and (ii) do not violate or conflict with any law, regulation or contractual restriction to which it is subject or result in a violation of or conflict with any other agreement to which it is a party or by which it is bound. 4. Enforceability. This Agreement is the legal, valid and binding obligation of TS, enforceable against TS in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization, or other laws affecting creditors' rights generally or by the availability of equitable remedies. 5. AOL Representations. The only representations and warranties that have been made with respect to AOL, its subsidiaries or their respective businesses and assets or otherwise in connection with the transactions herein contemplated are those contained in this Agreement. ARTICLE IX THE EFFECTIVE DATE A. The Effective Date 1. Between the date hereof and 5:00 p.m., EST, on Thursday, February 27, 1997, AOL may, in its sole discretion, consider whether it is satisfied that the references to AT&T set forth in Section IV.E.1 * * * and do such investigation as it may deem necessary. This Agreement and the obligations of the parties shall become effective for all purposes at 5:00 p.m., EST, on February 27, 1997 if, on or before such time on such date, AOL shall not have given written notice to TS that it had elected not to proceed with this Agreement, accompanied by the return of the full amount of the Initial Payment to TS and of the Warrants to Holdings and (ii) TS has provided to AOL a legal opinion reasonably acceptable to AOL with respect to the valid issuance and due authorization of the Warrants and (iii) the check representing the Initial Payment delivered to AOL on the date hereof shall have cleared so long as it was deposited in a bank on Monday, February 24, 1997. Such time on such date that this Agreement so becomes effective, or such earlier time as the parties shall agree in writing that this Agreement shall be effective, is called the "Effective Date." 2. If AOL shall elect, as provided above, not to proceed and shall, on or before 5:00 p.m., EST, on February 27, 1997, have returned the full amount of the Initial Payment to TS and the Warrants to Holdings, this Agreement and the Warrants shall be void and of no further force and effect, without any further obligation on the part of any party hereto. B. Announcement. Immediately following the Effective Date, if it shall occur, TS and AOL shall publicly announce the entering into the relationship contemplated by this Agreement, subject to the parties' mutual agreements on the content of such announcement and the procedures for the same pursuant to Section VII.C. ARTICLE X TERM AND TERMINATION A. Term of Agreement. 1. The term of this Agreement shall be for the Term; provided that, notwithstanding anything set forth in this Agreement to the contrary, so long as any End User shall be using any Service, each of TS and AOL shall continue to perform its obligations under Article IV and Section III.D.1, respectively, with respect to End Users post such Term as well as any other obligations that survive termination or expiration of this Agreement pursuant to Section XI.K. B. Extension of the Term. 1. If this Agreement shall not previously have been terminated, AOL shall have the right, by irrevocable written notice to TS at least ninety (90) days prior to the end of the initial Term or the end of any extension thereof pursuant to the provisions of this Section, to extend the term of this Agreement for successive four-calendar-quarter periods (each, an "Extension Period"), on the same terms and conditions herein provided, except that, against each Quarterly Payment Amount to be paid to AOL for any calendar quarter in any Extension Period after the second Extension Period, there shall be credited to TS, as of the last day of such quarter, a portion of the Initial Payment equal to the lesser of (a) * * * of the amount that, but for this provision, was to be paid to AOL in respect of such quarter pursuant to Section V.B.1(a) hereof and (b) the then remaining portion of the Initial Payment that shall not theretofore have been credited to TS pursuant to either Section V.B.1.(b) hereof or this provision, and such amount so credited shall, for all purposes, be deemed to have been paid by TS to AOL and to have satisfied TS's obligation to AOL in such amount. Each such notice shall be binding on AOL and TS for all purposes hereof. 2. In connection with each of the first two Extension Periods, if any, elected by AOL, and in consideration thereof and to induce AOL so to extend, Holdings shall deliver to AOL, on or before the first day of the applicable Extension Period, a warrant (each, an "Additional Warrant" and the Additional Warrant that is issued with respect to the first Extension Period, the "First Additional Warrant" and the Additional Warrant that is issued with respect to the second Extension Period, the "Second Additional Warrant") to purchase up to 1,000,000 shares (as such number would have been adjusted after the date hereof pursuant to the terms of the Supplemental Warrant, the "Additional Warrant Number") of Holdings Common Stock, at an exercise price equal to the average of the closing prices of such Common Stock for the ten (10) consecutive business days before the issuance of such Additional Warrant, and substantially in the form of the Supplemental Warrant, except that (a) the "Vesting Multiplier" thereunder shall be 1 (as such number would have been adjusted after the date hereof pursuant to the terms of the Supplemental Warrant), (b) the "Termination Date" shall be the fifth anniversary of the issuance date of such Additional Warrant and (c) the "Warrant Shares" thereunder shall mean at any time such number of shares of Common Stock as shall have vested as of such time as follows: (i) such number of shares of Common Stock as shall equal the product of the "Vesting Multiplier" times the amount by which (x) the number (the "First Quarter Number") of End Users for whom TS is providing Services as of the last day of the first full calendar quarter of such Extension Period (the "First Vesting Date") exceeds (y) the number of End Users (the "Starting Number") for whom TS was providing services as of the last day of the calendar quarter next preceding such Extension Period, shall vest and shall be Warrant Shares thereunder as of such First Vesting Date; and (ii) such number of shares of Common Stock as shall equal the product of the "Vesting Multiplier" times the amount by which (x) the number of End Users (each, a "Subsequent Quarter Number") for whom TS is providing Services as of the last day of each full calendar quarter (each, a "Subsequent Vesting Date") after the First Vesting Date and on or before the last day of the full calendar quarter in which this Agreement is terminated, exceeds (y) the greatest of the Starting Number, the First Quarter Number and any prior Subsequent Quarter Number, shall vest and shall be Warrant Shares thereunder as of such Subsequent Vesting Date; provided that in no event will the aggregate number of Warrant Shares exceed the Additional Warrant Number, subject to further adjustment as provided in Paragraph 6 of such Additional Warrant and to successive reduction upon any exercise of such Additional Warrant as provided in such Additional Warrant and provided, further, that no Warrant Shares under the Second Additional Warrant shall vest until all Warrant Shares have vested under the First Additional Warrant (and no Warrant Shares shall vest under any Additional Warrant on account of any End User that was the basis of any Warrant Share vesting under the other Additional Warrant). C. Termination of Agreement. 1. This Agreement may be terminated as follows: a. TS and AOL may terminate this Agreement at any time by mutual written consent. b. Either TS or AOL may terminate this Agreement at any time upon 30 days prior written notice to the other upon a material breach by the other in the performance of its agreements and obligations hereunder and such other party's failure to cure such breach within 30 days after written notice thereof, provided that the party giving notice pursuant to this clause (b) is not in such breach of this Agreement as would permit the other party to give a notice pursuant to this clause (b). c. Either AOL or TS may terminate this Agreement by thirty (30) days prior written notice to the other in the event of an acquisition of the other party, or all or substantially all of the assets of such other party, through merger, asset acquisition, stock acquisition or otherwise, by a competitor of the party giving such notice * * * . d. If, at any time during the Term, AT&T ceases to provide long distance telecommunications services to TS, TS shall promptly inform AOL in writing and AOL may, upon thirty (30) days written notice to TS given within fourteen (14) days after AOL receives notice of such AT&T termination from TS, plus payment by AOL to TS of an amount equal to the aggregate of all amounts theretofore paid to AOL by TS pursuant to Section V.B. hereof, if any (i.e., not including the Initial Payment), terminate this Agreement; provided, however, that AOL shall have no obligation to make the foregoing payment if TS shall not have contracted for viable substitute services to replace those formerly provided by AT&T. e. If, as the result, direct or indirect, of an event described in Section XII.O, which event is either incurable or has continued for at least 60 days, the performance of this Agreement substantially as contemplated hereby is rendered impracticable, either AOL or TS may terminate this Agreement by 30 days prior written notice to the other. D. Effects of Termination. 1. Except as otherwise provided below, upon termination or expiration of this Agreement, neither party shall have any further liability or obligation to the other, other than for amounts accrued but unpaid as of the date of expiration on termination, liabilities for any damages to which a party may be entitled in connection with a termination pursuant to Section X.C.1(b), obligations contemplated to be performed or observed subsequent to any termination or expiration of this Agreement and obligations that are specifically described herein as surviving termination of this Agreement. 2. Upon the expiration or any termination of this Agreement after the first day of the Test Launch Period, and provided that AOL elects to continue to provide to TS online billing services of the types described in Section III.D. hereof, TS shall pay to AOL, for each subsequent calendar quarter, in arrears at the time and in accordance with the procedures set forth in Section V.B.3 hereof, an amount equal to * * * of the Pre-Tax Profit for such quarter derived by TS, or any successor to TS, or any third party to which TS may assign customers who were End Users as of the date of expiration or termination of this Agreement, from telecommunication services in the nature of the Services provided to customers who were End Users as of the date of expiration or termination of this Agreement. Such election shall be made not less than 30 days prior to expiration or 10 days prior to the effective date of termination, as the case may be, by written notice to TS. Against the amount of each payment to be made to AOL by TS pursuant to this Section for any calendar quarter, there shall be credited to TS, as of the last day of such quarter, in accordance with the terms of this Agreement, an amount equal to the lesser of (a) * * * of the amount that, but for this provision, was to be paid to AOL in respect of such quarter pursuant to this Section X.D.2 and (b) the amount of (i) the sum of * * * , plus the aggregate of all * * * , plus * * * , minus (ii) the sum of the aggregate amount of * * * , plus any amount theretofore paid by AOL to TS pursuant to * * * . 3. If this Agreement shall have been terminated by TS pursuant to Section X.C.1(b) hereof by reason of a material breach by AOL or by AOL pursuant to Section X.C.1(c) hereof or by either party pursuant to Section X.C.1(e) hereof, AOL shall, within 10 days after such termination, pay to TS in immediately available funds, the amount, if any, equal to the Unamortized Amount at the time of such termination. 4. If this Agreement terminates (other than by AOL pursuant to Section X.C.1(b)) or expires, in each case, on or after June 30, 2000, and * * * , then: a. AOL shall not * * * and TS shall not * * *, but AOL and TS may * * * ; b. AOL shall not * * * ; and c. If, during the two (2)-year period after the date of termination or expiration, * * * , TS experiences End User attrition greater than it would have experienced had AOL * * * , then AOL shall make TS whole with respect to * * * . Other than the restrictions set forth above in this Section X.D.4, AOL shall be entitled * * * . 5. If at any time subsequent to the expiration or termination of this Agreement, TS shall make or receive any offer to transfer or assign, directly or indirectly, all or any portion of its rights to provide Services to End Users, which shall in any event include assumption by the offeror of TS's responsibilities to End Users and obligations to AOL hereunder, TS shall give AOL written notice of such offer, stating the name of the third party and describing the offer's material terms. If AOL shall not, within thirty (30) days after receiving such notice, offer to acquire such rights on terms and conditions substantially similar to those offered by or to such third party (it being understood that if the offer to or from the third party includes securities of such third party, AOL shall have no obligation to provide such securities as part of its offer but shall be required to provide equivalent value), TS shall be free to transfer or assign such rights to such third party, provided that any such transaction is completed within a period of ninety (90) days after expiration of the foregoing thirty (30) day period. Otherwise, AOL shall have the right, exercisable for thirty (30) days, to acquire such rights upon the terms set forth in AOL's offer. 6. Termination without Cause. Notwithstanding anything provided in this Section X.D.6 or otherwise in this Agreement, neither TS nor AOL has the right to terminate this Agreement without cause. a. If AOL should nonetheless terminate this Agreement without cause, TS may elect as its sole remedy, in lieu of its other remedies in law and equity, to be awarded liquidated compensatory damages in an amount of $ * * * less amounts previously credited to AOL pursuant to Section V.B.1(b). The parties have agreed to this liquidated damage clause because of the difficulty of ascertaining with accuracy, in advance, the amount of damages that TS would suffer if AOL were to terminate this contract without cause. The parties further agree that (i) these liquidated damage payments are wholly compensatory in nature and constitute a reasonable approximation of the damages TS would actually suffer in the event of a termination by AOL, and (ii) as a result of a termination by AOL, TS would lose funds that it had invested in its arrangement with AOL and these liquidated damages would provide the funds necessary for TS to establish and finance a comparable arrangement with another online service if it elects to do so. b. If TS should nonetheless terminate this Agreement without cause, AOL, as a remedy in addition to those it already possesses in equity and in law, shall be able to require TS to provide 180 days of Service under this Agreement from the date of termination or notice of termination, whichever is earlier. The purpose of this 180-day period is to provide AOL with the time necessary reasonably to transfer End Users to other comparable telecommunications carrier(s) with a minimum of disruption. c. For purposes of this Section X.D.6 only, the parties further agree that a termination made by either party with a good faith belief that such party has a right to terminate pursuant to a provision of this Agreement (a "Permitted Termination"), which is ultimately determined not to have been effected pursuant to a provision of this Agreement, will not constitute a termination without cause for purposes of this Section. A termination without cause shall be any termination other than a Permitted Termination. ARTICLE XI REMEDIES A. Indemnification. 1. Subject to the terms and conditions of this Article XI, AOL hereby indemnifies and agrees to defend and hold harmless TS from and against all losses, costs, damages and expenses, including, without limitation, reasonable attorneys' fees (collectively "Damages"), incurred by TS resulting from or relating to (i) a breach of any representation or warranty of AOL contained in this Agreement, (ii) the non-performance of any obligation to be performed by AOL under this Agreement or (iii) any claim that the AOL Marks that are authorized by this Agreement infringe the intellectual property rights of any third party. 2. Subject to the terms and conditions of this Article XI, TS hereby indemnifies and agrees to defend and hold harmless AOL from and against all Damages incurred by AOL resulting from or relating to (i) a breach of any representation or warranty of TS contained in this Agreement, (ii) the non-performance of any covenant or obligation to be performed by TS under this Agreement or (iii) any claim that any TS trademarks, service marks, trade names or logos displayed in connection with the marketing of the Services infringe the intellectual property rights of any third party. B. Conditions of Indemnification. 1. The party seeking indemnification under this Agreement (the "Indemnified Party") shall promptly notify the party expected to provide indemnification under this Agreement (the "Indemnifying Party") of the facts and circumstances upon which the Indemnified Party intends to base a claim for indemnification hereunder ("Notice of Claim"). Notice shall in all events be considered prompt if given (a) no later than thirty (30) days after the Indemnified Party learns of such facts and circumstances, or (b) if later, in sufficient time to allow the Indemnifying Party to exercise its rights pursuant to this subpart 3 without any material impairment of, or prejudice to, the Indemnifying Party in the exercise of such rights. C. Defense of Third-Party Claims. 1. Subject to subsection (b) below, if Damages arise out of a third party claim seeking recovery of money damages (a "Money Claim"), the Indemnifying Party shall have the right and obligation, at its expense, to assume sole control of the defense of such Money Claim with counsel reasonably acceptable to the Indemnified Party. Notwithstanding the foregoing, the Indemnified Party shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (x) the employment of such counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such action at the expense of the Indemnifying Party, or (y) the Indemnifying Party shall not have employed counsel to have charge of the defense of such action within a reasonable time after the Notice of Claim is given, or having assumed such defense, fails to pursue it within reasonable time, or (z) the named parties to such claim include both the Indemnified and the Indemnifying Parties and the Indemnified Party shall have been advised by counsel that counsel employed by the Indemnifying Party would, under applicable professional standards, have a conflict in representing both the Indemnifying Party and the Indemnified Party, in any of which events such fees and expenses of one additional counsel for the Indemnified Party shall be borne by the Indemnifying Party. The Indemnified Party shall have the right to settle or compromise any Money Claim and recover the amount paid in such settlement from the Indemnifying Party without the consent of the Indemnifying Party if the Indemnified Party has given written notice thereof to the Indemnifying Party and the Indemnifying Party has failed to assume the defense of the Money Claim or, having assumed the defense, has failed to pursue it diligently within a reasonable length of time. The Indemnifying Party shall have the right to settle or compromise any Money Claim against the Indemnified Party without the consent of the Indemnified Party provided that the terms of such settlement or compromise provide for the unconditional release of the Indemnified Party and require the payment of money damages only by the Indemnifying Party. 2. If Damages arise out of a third party claim seeking equitable relief alone or in addition to monetary damages and, if such equitable relief, standing alone, if obtained, would materially and adversely affect the business, operations, assets or financial condition of the Indemnified Party (an "Equitable Claim"), the Indemnified Party shall be entitled to defend such Equitable Claim with counsel reasonably acceptable to the Indemnifying Party in a reasonable manner under the circumstances and at the reasonable expense of the Indemnifying Party. The Indemnifying Party shall be provided by counsel to the Indemnified Party with regular information regarding the costs of such defense. The Indemnifying Party shall be entitled to participate at its own expense in the defense of any such Equitable Claim. The Indemnified Party shall make no settlement, compromise, admission, or acknowledgment which would give rise to liability on the part of the Indemnifying Party without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld or delayed. 3. The parties shall extend reasonable cooperation to one another in connection with the defense of any third-party claim pursuant to this Article XI and, in connection therewith, shall furnish such records, information, and testimony and attend such conferences, discovery proceedings, hearings, trials, and appeals as may be reasonably requested. 4. Notwithstanding anything else in this Agreement or elsewhere contained, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EXCEPT FOR LIABILITY AMONG THE PARTIES HERETO ARISING UNDER SECTIONS IIIE, IIIF, VIIB AND VIIC HEREOF, NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL LOSSES OR DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF GOODWILL OR LOSS OF PROFITS, ARISING IN ANY MANNER FROM THIS AGREEMENT OR THE PERFORMANCE OR NONPERFORMANCE OF ITS OBLIGATIONS HEREUNDER. D. Arbitration. 1. If the parties are unable to resolve any dispute, controversy or claim arising under this Agreement (excluding, any disputes relating to intellectual property rights or confidentiality) (each a "Dispute"), such Dispute will be submitted to senior executive officers of each of the parties for resolution. If such officers are unable to resolve the Dispute within ten (10) days after submission to them, the dispute shall be solely and finally settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") then obtaining; provided that the Federal Rules of Evidence shall apply in toto to any such Dispute and, subject to the arbitrators' limiting the time for and scope of discovery to comply with the time limit set forth in Section XI.D.4, the Federal Rules of Civil Procedure shall apply with respect to discovery. 2. The arbitration panel shall be composed of three arbitrators, one of whom shall be chosen by AOL, one by TS and the third by the two so chosen. If both or either of AOL or TS fails to choose an arbitrator or arbitrators within seven (7) days after receiving notice of commencement of arbitration or if the two arbitrators fail to choose a third arbitrator within seven (7) days after their appointment, the then director of the office of the American Arbitration Association in the District of Columbia shall, upon the request of both or either of the parties to the arbitration, appoint the arbitrator or arbitrators required to complete the board. 3. Unless the parties to the arbitration shall otherwise agree to a place of arbitration, the place of arbitration shall be in the District of Columbia. 4. The arbitration panel shall commence proceedings no later than sixty (60) days after the appointment of the third arbitrator. All discovery shall be completed prior to commencement of proceedings. Such proceedings shall be conducted for no less than three (3) full days per week until completed. 5. The arbitration panel is empowered to render the following awards in accordance with the terms and conditions of this Agreement: (i) enjoining a party from performing any act prohibited, or compelling a party to perform any act required, by the terms of this Agreement and any order entered pursuant to this Agreement or deemed necessary by the arbitration panel to resolve disputes arising under or relating to this Agreement or any order; (ii) where, and only where, violations of this Agreement have been found, shortening or lengthening any period established by this Agreement or any order; (iii) monetary awards and (iv) ordering such other legal or equitable relief, including any provisional legal or equitable relief, or specifying such procedures as the arbitrators deem appropriate, to resolve any Dispute submitted to it for arbitration. The arbitration panel shall not be empowered to award consequential or punitive damages and shall not be empowered to award specific performance in the event that such performance would have a materially detrimental effect on aspects of the party's business that are not directly related hereto. 6. When resolving a Dispute arising under Article II hereof and resulting from the failure of the parties to mutually agree on a guideline to be included on the Performance List of one of the parties, each party shall submit to the arbitrators a form of the particular guideline proposed by such party. The arbitrators' decision in any such instance shall be limited to designating one of the proposals as being the most consistent with generally accepted industry practice in the context of comparable business arrangements. The proposed guideline so designated by the arbitrators shall be included in the Performance List of the appropriate party. 7. The arbitrators shall render their decision within thirty (30) days after submission of all evidence and the conclusion of all testimony. The decision of the arbitrators shall be by majority vote and, at the request of either party, the arbitration panel shall issue to both parties a written explanation of the reasons for the award and a full statement of the facts as found and the rules of law applied in reaching its decision. 8. Any monetary awards shall be made and shall be payable in U.S. dollars free of any tax or any other deduction (except as may be required by law). Monetary awards shall include interest from the date of breach or other violation of this Agreement to the date when the award is paid in full. The interest rate or rates applied during such period shall be the lower of 12% per annum or the maximum rate permitted by applicable law (the "Interest Rate"). 9. The award of the arbitration panel will be the sole and exclusive remedy between the parties regarding any and all claims and counterclaims with respect to the subject matter of the arbitrated dispute. An award rendered in connection with an arbitration shall be final and binding upon the parties, and any judgment upon such an award may be entered and enforced in any court of competent jurisdiction. The parties hereby waive all jurisdictional defenses in connection with any arbitration hereunder or the enforcement of an order or award rendered pursuant thereto (assuming that the terms and conditions of this arbitration clause have been complied with), defenses based on the general invalidity of this Agreement or this arbitration clause. With respect to any order issued by the arbitration panel pursuant to this Agreement, the parties expressly agree and consent (i) to the bringing of an action by one party against the other in the federal courts of the forum state agreed to above to enforce and confirm such order; and (ii) that any federal court sitting in such state may enter judgment and enforce such order, whether pursuant to the U.S. Arbitration Act or otherwise. 10. Neither party shall be excused from performing its obligations hereunder during the pendency of such arbitration. E. Reservation of Remedies. Except where otherwise expressly specified, the rights and remedies granted to a party under this Agreement are cumulative and in addition to, and not in lieu of, any other rights or remedies which the party may possess at law or in equity. F. Survival. This Article XI shall survive termination of this Agreement. ARTICLE XII GENERAL A. Regulatory Filings. Each of TS and AOL will cooperate to the extent reasonably practicable in the preparation and filing of any other regulatory filings necessary or advisable to permit the proposed transactions and the provision of the Services hereunder, including, without limitation, the provision of any information as may reasonably be necessary therefor. B. Notices. All notices and other communications hereunder shall be given by telephone and immediately confirmed in writing and shall be deemed given if delivered personally or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): 1. if to TS or Holdings: Tel-Save Holdings, Inc. Law Department 6805 Route 202 New Hope, Pennsylvania 18938 Attention: General Counsel Telephone Number: (215) 862-1500 Facsimile Number: (215) 862-1515 2. if to AOL: America Online Inc. 22000 AOL Way Dulles, Virginia 20166-9323 Attention: General Counsel Telephone Number: (703) 265-2739 Facsimile Number: (703) 265-2208 with a copy to: Head of Business Affairs AOL Networks 22000 AOL Way Dulles, Virginia 20166-9323 Telephone Number: (703) 265-2365 Facsimile Number: (703) 265-1206 C. Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. References to Sections, Articles and Schedules refer to sections, articles and exhibits of this Agreement unless otherwise stated. D. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants, and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated and the parties shall negotiate in good faith to modify this Agreement to preserve, to the fullest extent legally permitted, each party's anticipated benefits and obligations under this Agreement. If the parties are unable to so agree, the matter shall be resolved pursuant to Article XI.D hereof. E. Entire Agreement. This Agreement, together with the other agreements referred to herein and the schedules attached hereto, constitutes the entire agreement, and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof. F. Assignments. This Agreement (i) is not intended to confer upon any other person any rights or remedies hereunder; and (ii) shall not be assigned by operation of law or otherwise except (a) to a wholly owned subsidiary (provided such subsidiary becomes a party to this Agreement and that the transferring party agrees and acknowledges that it is not released from its obligations hereunder), or (b) to any entity that may acquire all or substantially all of the assets of a party hereto. This Agreement, together with the other agreements referred to herein and the schedules attached hereto, shall inure to the benefit of and be binding upon the parties' respective successors and permitted assigns. G. Governing Law. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the internal laws of the State of New York, without giving effect to the principles of conflict of laws thereof. H. Amendments. No provision of this Agreement may be amended, modified or waived except by written agreement duly executed by each of the parties, by, in the case of AOL, an officer of at least equal standing to that officer who signed this Agreement on behalf of AOL. I. Independent Contractors. The parties to this Agreement are independent contractors. Neither party is an agent, representative, or partner of the other party. Neither party shall have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other party. This Agreement shall not be interpreted or construed to create an association, agency, joint venture or partnership between the parties or to impose any liability attributable to such a relationship upon either party. J. No Waiver. The failure of either party to insist upon or enforce strict performance by the other party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such part's right to assert or rely upon any such provision or right in that or any other instance; rather, the same shall be and remain in full force and effect. K. Survival. Any provision of this Agreement which contemplates performance or observance subsequent to, or otherwise states that it would survive, any termination or expiration of this Agreement will survive the termination or expiration of this Agreement. This Article XII shall survive termination of this Agreement. L. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and thereto, as the case may be, and their respective successors and permitted assigns, and are not for the benefit of nor may any provision hereof be enforced by, any other person, including, without limitation, any End User (such End Users having no rights whatsoever herein). M. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original, but together shall be construed as one document. N. Nonsolicitation. Neither party, for itself, or through any third party shall, directly or indirectly, solicit or attempt to solicit, entice or persuade any employee of or consultant to the other party to leave the services of such other party. O. Force Majeure. Neither Party shall be held liable for failure to perform any of its obligations hereunder if such failure is (i) due to an Act of God, fire, explosion, accident, flood, landslide, lightning, earthquake, storm, civil disturbance, power failure, strike or other labor disturbance affecting a party other than TS or AOL, act of war (whether war be declared or not), national defense requirement, failure of a non-party telecommunications carrier, failure or disruption of machinery, apparatus or systems; acts, injunction, or restraint of government (whether or not now threatened) and (ii) beyond the reasonable control of such party. For purposes of this Section XII.O, a failure shall not be deemed to be beyond the reasonable control of the party affected if (i) such failure would not have occurred had the affected party been performing in accordance with the provisions of this Agreement, including its Performance List, or in accordance with generally accepted industry practice; or (ii) with respect to acts, injunctions or restraints of governments, such failure results from the unlawful act or omission of the affected party (other than actions contemplated by the parties in furtherance of this Agreement). Upon such an occurrence, the party whose performance is affected shall immediately give written notice of the occurrence to the other party, and shall thereafter exert all reasonable efforts to overcome the occurrence and resume performance of this Agreement. If, despite such efforts, the affected party cannot overcome the occurrence and resume performance within 90 days following notification given hereunder, then unless either party has terminated this Agreement in accordance with Section X.C.1(e), the parties shall mutually agree on an equitable resolution. If the parties are unable to reach mutual agreement, the matter shall be submitted for resolution in accordance with Section XI.D. ARTICLE XIII HOLDINGS GUARANTEE Holdings hereby unconditionally guarantees to AOL (i) the full and prompt payment of all amounts which may become due and owing to AOL from TS pursuant to this Agreement and (ii) the due performance by TS of all of its obligations under this Agreement, (all of the foregoing, collectively, are hereinafter referred to as the "Guaranteed Obligations"). The obligations of Holdings under this Article shall not be impaired by any modification, supplement, extension or amendment of any contract or agreement between AOL and TS, whether now existing or hereafter arising, including, without limitation, this Agreement, nor by any modification, release or other alteration of any of the Guaranteed Obligations or of any security therefor, and the liability of Holdings shall apply to the Guaranteed Obligations as so altered, modified, supplemented, extended or amended. No invalidity, irregularity or unenforceability of all or any part of the Guaranteed Obligations or of any security therefor (including, without limitation, as a result of the bankruptcy, reorganization or insolvency of the TS, or pursuant to any assignment for the benefit of creditors, receivership, or similar proceeding) shall affect, impair or be a defense to the obligations of Holdings under this Article XIII which are a primary obligations of Holdings, and nothing shall discharge or satisfy the liability of Holdings hereunder except the full payment and performance of the Guaranteed Obligations. This Article XIII shall survive termination of this Agreement. * * * IN WITNESS WHEREOF, the undersigned have caused this Agreement to be signed on their behalf as of the day and year first written above. AMERICA ONLINE INC. By /s/ David M. Colburn ------------------------------- Name: David M. Colburn Title: Senior Vice President TEL-SAVE, INC. By /s/ Daniel Borislow ------------------------------- Name: Daniel Borislow Title: Chairman & CEO TEL-SAVE HOLDINGS, INC. By /s/ Daniel Borislow ------------------------------- Name: Daniel Borislow Title: Chairman & CEO CONFIDENTIAL Schedule A Schedule A ACTUAL SERVICES COSTS COST SEGMENT DETERMINATION Interstate Access Specific to state supplied by TMI on a monthly basis Intrastate Access Specific to state supplied by TMI on a monthly basis International Access Specific to state supplied by TMI on a monthly basis *** *** Interstate, Intrastate, and International Actual tariff cost to Tel-Save from Switched Services for servicing unserved AT&T with applicable discounts based areas on total Tel-Save usage. Calculated in 18 second and 8 second increments International Charge per minute based on contract tariff and applicable discounts in 18 and 6 second increments Connection & SDN Charges for Charged at $0.002 per minute billed International and Overflow connections in six second increments plus applicable usage *** *** PIC Charge to change reimbursement Actual cost to reimburse new customers for the LEC charge to change IXC PIC Calling Card 18(cent)per completed call plus applicable usage Customer Service 60(cent)per End User, revisit after 12 months with AOL option to adopt new cost based on actual and audited servicing, personnel, and telecom expenses Billing Actual charges for credit card processing Amortization/Overhead 2.0% of total bill Uncollectables Actual uncollectable funds Credits/Adjustments Actual credits and adjustments for billing cycle ACCESS COSTS FOR INTERSTATE AND INTRASTATE To be updated as access is reduced by Local Exchange Carrier from TMI files on a monthly basis
STATE OTHER OTHER GTE GTE UNITED UNITED INTER INTER INTER INTER INTER INTER ORIG TERM ORIG TERM ORIG TERM ALABAMA 0.0248690 0.0268390 0.0381421 0.0499541 ALASKA 0.0500000 0.0500000 0.0500000 0.0500000 ARIZONA 0.0285371 0.0265371 ARKANSAS 0.0248774 0.0248774 0.0367722 0.0485012 CALIFORNIA 0.0222033 0.0222033 0.0256877 0.0266877 COLORADO 0.026585 0.0265835 CONNECTICUT 0.0274745 0.0274745 DELAWARE 0.0220000 0.0220000 D.C. 0.0220000 0.0220000 FLORIDA 0.0248690 0.0258390 0.0270190 0.0396190 0.0295197 0.0350807 GEORGIA 0.0248690 0.0288390 HAWAII 0.0050000 0.0350000 IDAHO 0.0265371 0.0285371 0.0466057 0.0552857 ILLINOIS 0.0218103 0.0218103 0.0401230 0.0496400 INDIANA 0.0246083 0.0248083 0.0336408 0.0419588 0.0316487 0.0459507 IOWA 0.0265371 0.0265371 0.0410699 0.0483128 KANSAS 0.0248774 0.0248774 0.0376265 0.0621685 KENTUCKY 0.0248690 0.0268390 0.0374140 0.0469290 LOUISIANA 0.0248690 0.0268390 MAINE 0.0372191 0.0372181 MARYLAND 0.0220000 0.0220000 MASS. 0.0372191 0.0372191 MICHIGAN 0.0254523 0.0254523 0.0373855 0.0477925 MINNESOTA 0.0265371 0.0265371 0.0624690 0.0716690 0.0377255 0.0822655 MISSISSIPPI 0.0248690 0.0268390 MISSOURI 0.0248774 0.0248774 0.0302374 0.0387958 0.0378245 0.0623645 MONTANA 0.0265421 0.0265421 0.0509669 0.0615389 NEBRASKA 0.0285421 0.0265421 0.0373240 0.0419177 0.0375275 0.0620675 NEVADA 0.0269182 0.0269182 0.0137726 0.0137726 NEW HAMP. 0.0372191 0.0372191 NEW JERSEY 0.0220000 0.0220000 0.0302582 0.0312712 NEW MEXICO 0.0265371 0.0265371 0.0331642 0.0444722 NEW YORK 0.0362624 0.0382624 NO. CAROLINA 0.0248690 0.0268390 0.0353736 0.0436876 0.0265114 0.0305674 NO. DAKOTA 0.0265371 0.0265371 OHIO 0.0254533 0.0254533 0.0353310 0.0448450 0.0353933 0.0482873 OKLAHOMA 0.0248774 0.0248774 0.0320951 0.0436561 OREGON 0.0265421 0.0265421 0.0350241 0.0456371 0.0476351 0.0628511 PENN. 0.0220000 0.0220000 0.0309838 0.0405008 0.0301082 0.0311232 RHODE ISLAND 0.0372191 0.0372191 S0. CAROLINA 0.0248690 0.0268390 0.0343256 0.0438416 0.0242097 0.0327797 SO. DAKOTA 0.0265371 0.0265371 TENNESSEE 0.0248690 0.0268390 0.0242587 0.0328287 TEXAS 0.0248374 0.0248374 0.0336265 0.0488165 0.0387155 0.0632555 UTAH 0.0265371 0.0265371 VERMONT 0.0372191 0.0372191 VIRGINIA 0.0220000 0.0220000 0.0429233 0.0547353 0.0240137 0.0325837 WASHINGTON 0.0265371 0.0265371 0.0347073 0.0442243 0.0474551 0.0626711 W. VIRGINIA 0.0220000 0.0220000 WISCONSIN 0.0242993 0.0242993 0.0387878 0.0482848 WYOMING 0.0265371 0.0265371 0.0381215 0.0626615 AVG COST 0.0268936 0.0272554 0.0376733 0.0465297 0.0326001 0.0454051
1 ACCESS COSTS FOR INTERSTATE AND INTRASTATE To be updated as access is reduced by Local Exchange Carrier from TMI files on a monthly basis
STATE OTHER OTHER GTE GTE UNITED UNITED INTRA INTRA INTRA INTRA INTRA INTRA ORIG TERM ORIG TERM ORIG TERM ALABAMA 0.0184310 0.0184310 0.0329320 0.0368079 ALASKA 0.0500000 0.0500000 0.0500000 0.0500000 ARIZONA 0.0413882 0.0552170 ARKANSAS 0.0171454 0.0171454 0.0247144 0.0247144 CALIFORNIA 0.0106331 0.0106331 0.0252765 0.0249790 COLORADO 0.0484920 0.0583830 CONNECTICUT 0.0274692 0.0274692 DELAWARE 0.0149040 0.0249040 D.C. FLORIDA 0.0263882 0.0349182 0.0559929 0.0681251 0.0658033 0.0734033 GEORGIA 0.0184342 0.0184342 HAWAII 0.0350000 0.0350000 IDAHO 0.0389071 0.0446071 0.1210000 0.1190000 ILLINOIS 0.0153893 0.0153893 0.0269911 0.0282688 INDIANA 0.0237213 0.0237213 0.0340897 0.040569 IOWA 0.0354717 0.0459117 0.0690030 0.0697443 KANSAS 0.0382030 0.0421830 0.0988820 0.0997070 KENTUCKY 0.0149304 0.0149304 LOUISIANA 0.0209992 0.0257492 MAINE 0.2162800 0.1028600 MARYLAND 0.0239875 0.0239875 MASS. 0.0082470 0.0373370 MICHIGAN 0.0241044 0.0241044 0.0378386 0.0477925 MINNESOTA 0.0274213 0.0546183 0.0599495 0.0888815 0.0523780 0.0717220 MISSISSIPPI 0.0251472 0.0271172 MISSOURI 0.0261800 0.0343130 0.0743483 0.1158612 0.0823230 0.1232230 MONTANA 0.0262087 0.0262087 0.0566871 0.0566871 NEBRASKA 0.0592550 0.0783550 0.0717579 0.1042748 0.0855610 0.1267810 NEVADA 0.0298640 0.0298640 0.0116143 0.0116143 NEW HAMP. 0.0358190 0.0358190 NEW JERSEY 0.0321340 0.0321340 0.0473470 0.0473470 NEW MEXICO 0.0558800 0.0558800 0.0976368 0.0987636 NEW YORK 0.0446480 0.0446480 NO. CAROLINA 0.0332722 0.0650722 0.0479884 0.0905676 0.0268000 0.0690000 NO. DAKOTA 0.0591000 0.0591000 OHIO 0.0209413 0.0217103 0.0254827 0.0568089 0.0368503 0.0657503 OKLAHOMA 0.0248694 0.0548694 0.0575194 0.0410184 OREGON 0.0224284 0.0382214 0.0365995 0.0529869 0.0447708 0.0660808 PENN. 0.0344015 0.0344015 0.0629748 0.0829748 0.0486800 0.0727400 RHODE ISLAND 0.0720000 0.0152520 S0. CAROLINA 0.0294633 0.0458533 0.0314857 0.0304373 0.0168136 0.1080386 SO. DAKOTA 0.0297437 0.0297437 TENNESSEE 0.0400712 0.0538112 0.0205846 0.0273816 TEXAS 0.0446000 0.0718000 0.0477575 0.0868575 0.0468000 0.0988000 UTAH 0.0242497 0.0404497 VERMONT 0.0369100 0.0536580 VIRGINIA 0.0261860 0.0261860 0.0378184 0.0378184 0.0518540 0.0756540 WASHINGTON 0.0327200 0.0455200 0.0423512 0.0600584 0.0461100 0.0919800 W. VIRGINIA 0.0272460 0.0272460 0.0587235 0.0587235 WISCONSIN 0.0187743 0.0187743 0.0334258 0.0399541 WYOMING 0.0402237 0.0522227 0.1008380 0.1032380 AVG COST 0.0348342 0.0382696 0.0501238 0.0601495 0.0487732 0.0767002
2 INTERNATIONAL COSTS INTERNATIONAL COSTS/MINUTE - - APPLICABLE DISCOUNTS APPLY BASED ON TOTAL TEL-SAVE USAGE PER TARIFF - - TO BE UPDATED AS RATES ARE REDUCED BY IXC
INITIAL EACH INITIAL EACH INITIAL EACH INITIAL COUNTRY 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 Albania $ 0.3795 $ 0.1265 $ 0.3605250 $ 0.1201750 $ 0.3510375 $ 0.1170125 $ 0.1138500 Algeria $ 0.2895 $ 0.0965 $ 0.2750250 $ 0.0916750 $ 0.2677875 $ 0.0892625 $ 0.2605500 American Samoa $ 0.2430 $ 0.0810 $ 0.2308500 $ 0.0769500 $ 0.2247750 $ 0.0749250 $ 0.2187000 Andorra $ 0.1485 $ 0.0495 $ 0.1410750 $ 0.0470250 $ 0.1373625 $ 0.0457875 $ 0.1336500 Angola $ 0.4050 $ 0.1350 $ 0.3847500 $ 0.1282500 $ 0.3746250 $ 0.1248750 $ 0.3645000 Anguilla $ 0.1890 $ 0.0630 $ 0.1795500 $ 0.0598500 $ 0.1748250 $ 0.0582750 $ 0.1701000 Antarctica $ 0.3750 $ 0.1250 $ 0.3562500 $ 0.1187500 $ 0.3468750 $ 0.1156250 $ 0.3375000 Antigua and Barbuda $ 0.1860 $ 0.0620 $ 0.1767000 $ 0.0589000 $ 0.1720500 $ 0.0573500 $ 0.1674000 Argentina $ 0.2432 $ 0.0811 $ 0.2310400 $ 0.0770450 $ 0.2249600 $ 0.0750175 $ 0.2188800 Armenia $ 0.3069 $ 0.1023 $ 0.2915550 $ 0.0971850 $ 0.2838825 $ 0.0946275 $ 0.2762100 Aruba $ 0.1788 $ 0.0596 $ 0.1698600 $ 0.0566200 $ 0.1653900 $ 0.0551300 $ 0.1609200 Australia $ 0.0789 $ 0.0263 $ 0.0749550 $ 0.0249850 $ 0.0729825 $ 0.0729825 $ 0.0710100 Austria $ 0.1579 $ 0.0526 $ 0.1500050 $ 0.0499700 $ 0.1460575 $ 0.0486550 $ 0.1421100 Azerbaijan $ 0.4050 $ 0.1350 $ 0.3847500 $ 0.1282500 $ 0.3746250 $ 0.1248750 $ 0.3645000 Bahamas, The $ 0.0879 $ 0.0293 $ 0.0835050 $ 0.2078350 $ 0.0813075 $ 0.0271025 $ 0.0791100 Bahrain $ 0.2656 $ 0.0885 $ 0.2523200 $ 0.0840750 $ 0.2456800 $ 0.0818625 $ 0.2390400 Bangladesh $ 0.3885 $ 0.1295 $ 0.3690750 $ 0.1230250 $ 0.3593625 $ 0.1197875 $ 0.3496500 Barbados $ 0.1583 $ 0.0528 $ 0.1503850 $ 0.0501600 $ 0.1464275 $ 0.0488400 $ 0.1424700 Belarus $ 0.3054 $ 0.1018 $ 0.2901300 $ 0.0967100 $ 0.2824950 $ 0.0941650 $ 0.2748600 Belgium $ 0.1232 $ 0.0411 $ 0.1170400 $ 0.0390450 $ 0.1139600 $ 0.0380175 $ 0.1108800 Belize $ 0.2490 $ 0.0830 $ 0.2365500 $ 0.0788500 $ 0.2303250 $ 0.0767750 $ 0.2241000 Benin $ 0.2679 $ 0.0893 $ 0.2545050 $ 0.0848350 $ 0.2478075 $ 0.0826025 $ 0.2411100 Bermuda $ 0.1358 $ 0.0453 $ 0.1290100 $ 0.0430350 $ 0.1256150 $ 0.0419025 $ 0.1222200 Bhutan $ 0.8550 $ 0.2850 $ 0.8122500 $ 0.2707500 $ 0.7908750 $ 0.2636250 $ 0.7695000 Bolivia $ 0.2530 $ 0.0843 $ 0.2403500 $ 0.0800850 $ 0.2340250 $ 0.0779775 $ 0.2277000 Bosnia and Herzegovin $ 0.2839 $ 0.0946 $ 0.2697050 $ 0.0898700 $ 0.2626075 $ 0.0875050 $ 0.2555100 Botswana $ 0.2396 $ 0.0799 $ 0.2276200 $ 0.0759050 $ 0.2216300 $ 0.0739075 $ 0.2156400 Brazil $ 0.1421 $ 0.0474 $ 0.1349950 $ 0.0450300 $ 0.1314425 $ 0.0438450 $ 0.1278900 Brunei $ 0.3914 $ 0.1305 $ 0.3718300 $ 0.1239750 $ 0.3620450 $ 0.1207125 $ 0.3522600 Bulgaria $ 0.2430 $ 0.0810 $ 0.2308500 $ 0.0769500 $ 0.2247750 $ 0.0749250 $ 0.2187000
EACH COUNTRY 6 SEC. OR Albania $ 0.1138500 Algeria $ 0.0868500 American Samoa $ 0.0729000 Andorra $ 0.0445500 Angola $ 0.1215000 Anguilla $ 0.0567000 Antarctica $ 0.1125000 Antigua and Barbuda $ 0.0558000 Argentina $ 0.0729900 Armenia $ 0.0920700 Aruba $ 0.0536400 Australia $ 0.0236700 Austria $ 0.0473400 Azerbaijan $ 0.1215000 Bahamas, The $ 0.0263700 Bahrain $ 0.0796500 Bangladesh $ 0.1165500 Barbados $ 0.0475200 Belarus $ 0.0916200 Belgium $ 0.0369900 Belize $ 0.0747000 Benin $ 0.0803700 Bermuda $ 0.0407700 Bhutan $ 0.2565000 Bolivia $ 0.0758700 Bosnia and Herzegovin $ 0.0851400 Botswana $ 0.0719100 Brazil $ 0.0426600 Brunei $ 0.1174500 Bulgaria $ 0.0729000 Page 1
INITIAL EACH INITIAL EACH INITIAL EACH INITIAL COUNTRY 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 Burkina $ 0.1916 $ 0.0639 $ 0.1820200 $ 0.0607050 $ 0.1772230 $ 0.0591075 $ 0.1724400 Burma $ 1.0050 $ 0.3350 $ 0.9547500 $ 0.3182500 $ 0.9296250 $ 0.3098750 $ 0.9045000 Burundi $ 0.8609 $ 0.2870 $ 0.8178550 $ 0.2726500 $ 0.7963325 $ 0.2654750 $ 0.7748100 Cambodia $ 0.5826 $ 0.1942 $ 0.5534700 $ 0.1844900 $ 0.5389050 $ 0.1796350 $ 0.5243400 Cameroon $ 0.3467 $ 0.1156 $ 0.3293650 $ 0.1098200 $ 0.3206975 $ 0.1069300 $ 0.3120300 Canada $ 0.0379 $ 0.0126 $ 0.0360050 $ 0.0119700 $ 0.0350575 $ 0.0116550 $ 0.0341100 Canary Island $ 0.0060 $ 0.0020 $ 0.0057000 $ 0.0019000 $ 0.0055500 $ 0.0018500 $ 0.0054000 Cape Verde $ 0.0405 $ 0.1335 $ 0.3804750 $ 0.1268250 $ 0.3704625 $ 0.1234875 $ 0.3604500 Cayman Islands $ 0.1640 $ 0.0547 $ 0.1558000 $ 0.0519650 $ 0.1517000 $ 0.0505975 $ 0.1476000 Central African $ 0.6360 $ 0.2120 $ 0.6042000 $ 0.2014000 $ 0.5883000 $ 0.1961000 $ 0.5724000 Republic Chad $ 1.0710 $ 0.3570 $ 1.0174500 $ 0.3391500 $ 0.9906750 $ 0.3302250 $ 0.9639000 Chagos Archlpelago $ 0.3670 $ 0.1225 $ 0.3486500 $ 0.1163750 $ 0.3394750 $ 0.1133125 $ 0.3303000 Chile $ 0.1215 $ 0.0405 $ 0.1154250 $ 0.0384750 $ 0.1123875 $ 0.0374625 $ 0.1093500 China $ 0.3379 $ 0.1126 $ 0.3210050 $ 0.1069700 $ 0.3125575 $ 0.1041550 $ 0.3041100 Colombia $ 0.2148 $ 0.0716 $ 0.2040600 $ 0.0680200 $ 0.1986900 $ 0.0662300 $ 0.1933200 Cornoros $ 0.6647 $ 0.2216 $ 0.6314650 $ 0.2105200 $ 0.6148475 $ 0.2049800 $ 0.5982300 Congo $ 0.3224 $ 0.1075 $ 0.3062800 $ 0.1021250 $ 0.2982200 $ 0.0994375 $ 0.2901600 Cook Islands $ 0.7078 $ 0.2359 $ 0.6724100 $ 0.2241050 $ 0.6547150 $ 0.2182075 $ 0.6370200 Costa Rico $ 0.8132 $ 0.0611 $ 0.1740400 $ 0.0580450 $ 0.1694600 $ 0.0565175 $ 0.1648800 Cote d'Ivoire $ 0.3628 $ 0.1209 $ 0.3446600 $ 0.1148550 $ 0.3355900 $ 0.1118325 $ 0.3265200 Croatia $ 0.2180 $ 0.0727 $ 0.2071000 $ 1.0690650 $ 0.2016500 $ 0.0672475 $ 0.1962000 Cuba $ 0.2976 $ 0.0992 $ 0.2827200 $ 0.0942400 $ 0.2752800 $ 0.0917600 $ 0.2678400 Cyprus $ 0.2180 $ 0.0727 $ 0.2071000 $ 0.0690650 $ 0.2016500 $ 0.0672475 $ 0.1962000 Czech Republic $ 0.2180 $ 0.0727 $ 0.2071000 $ 0.0690500 $ 0.2016500 $ 0.0674750 $ 0.1962000 Denmark $ 0.1579 $ 0.0526 $ 0.1500050 $ 0.0499700 $ 0.1460575 $ 0.0486550 $ 0.1421100 Djibouti $ 0.4569 $ 0.1523 $ 0.4340550 $ 0.1446850 $ 0.4226325 $ 0.1408775 $ 0.4112100 Dominica $ 0.1971 $ 0.0657 $ 0.1872450 $ 0.0624150 $ 0.1823175 $ 0.0607725 $ 0.1773900 Dominican Republic $ 0.1170 $ 0.0390 $ 0.1111500 $ 0.0370500 $ 0.1082250 $ 0.0360750 $ 0.1053000 Ecuador $ 0.2492 $ 0.0831 $ 0.2367400 $ 0.0789450 $ 0.2305100 $ 0.0768675 $ 0.2242800 Egypt $ 0.2767 $ 0.0922 $ 0.2628650 $ 0.0875900 $ 0.2559475 $ 0.0852850 $ 0.2490300 El Salvador $ 0.2235 $ 0.0745 $ 0.2123250 $ 0.0707750 $ 0.2067375 $ 0.0689125 $ 0.2011500 Equatorial Guinea $ 0.6338 $ 0.2113 $ 0.6021100 $ 0.2007350 $ 0.5862650 $ 0.1954525 $ 0.5704200 Estonia $ 0.3047 $ 0.1016 $ 0.2894650 $ 0.0965200 $ 0.2818475 $ 0.0939800 $ 0.2742300
EACH COUNTRY 6 SEC. OR Burkina $ 0.0575100 Burma $ 0.3015000 Burundi $ 0.2583000 Cambodia $ 0.1747800 Cameroon $ 0.1040400 Canada $ 0.0113400 Canary Island $ 0.0018000 Cape Verde $ 0.1201500 Cayman Islands $ 0.0492300 Central African $ 0.1908000 Republic Chad $ 0.3213000 Chagos Archlpelago $ 0.1102500 Chile $ 0.0364500 China $ 0.1013400 Colombia $ 0.0644400 Cornoros $ 0.1994400 Congo $ 0.0967500 Cook Islands $ 0.2123100 Costa Rico $ 0.0549900 Cote d'Ivoire $ 0.1088100 Croatia $ 0.0654430 Cuba $ 0.0892800 Cyprus $ 0.0654300 Czech Republic $ 0.0654300 Denmark $ 0.0473400 Djibouti $ 0.1370700 Dominica $ 0.0591300 Dominican Republic $ 0.0351000 Ecuador $ 0.0747900 Egypt $ 0.0829800 El Salvador $ 0.0670500 Equatorial Guinea $ 0.1901700 Estonia $ 0.0914400 Page 2
INITIAL EACH INITIAL EACH INITIAL EACH INITIAL COUNTRY 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 Ethiopia $ 0.3887 $ 0.1296 $ 0.3692650 $ 0.1231200 $ 0.3595475 $ 0.1198800 $ 0.3498300 Fiji $ 0.3783 $ 0.1261 $ 0.3593850 $ 0.1197950 $ 0.3499275 $ 0.1166425 $ 0.3404700 Finland $ 0.1211 $ 0.0404 $ 0.1150450 $ 0.0383800 $ 0.1120175 $ 0.0373700 $ 0.1089900 France $ 0.0632 $ 0.0211 $ 0.0600400 $ 0.0200450 $ 0.0584600 $ 0.0195175 $ 0.0568800 French Guiana $ 0.2386 $ 0.0795 $ 0.2266700 $ 0.0755250 $ 0.2207050 $ 0.0735375 $ 0.2147400 French Overseas $ 0.2175 $ 0.0725 $ 0.2066250 $ 0.0688750 $ 0.2011875 $ 0.0670625 $ 0.1957500 French Polynesia $ 0.4040 $ 0.1347 $ 0.3838000 $ 0.1279650 $ 0.3737000 $ 0.1245975 $ 0.3636000 Gabon $ 0.2526 $ 0.0842 $ 0.2399700 $ 0.0799900 $ 0.2336550 $ 0.0778850 $ 0.2273400 Gambia, The $ 0.2482 $ 0.0827 $ 0.2357900 $ 0.0785650 $ 0.2295850 $ 0.0764975 $ 0.2233800 Georgia $ 0.5100 $ 0.1700 $ 0.4845000 $ 0.1615000 $ 0.4717500 $ 0.1572500 $ 0.4590000 Germany $ 0.0632 $ 0.0211 $ 0.0600400 $ 0.0200450 $ 0.0584600 $ 0.0195175 $ 0.0568800 Ghana $ 0.2718 $ 0.0906 $ 0.2582100 $ 0.0860700 $ 0.2514150 $ 0.0838050 $ 0.2446200 Gibraltar $ 0.2386 $ 0.0795 $ 0.2266700 $ 0.0755250 $ 0.2207050 $ 0.0735375 $ 0.2147400 Greece $ 0.2053 $ 0.0648 $ 0.1950350 $ 0.0615600 $ 0.1899025 $ 0.0599400 $ 0.1847700 Greenland $ 0.2087 $ 0.0696 $ 0.1982650 $ 0.0661200 $ 0.1930475 $ 0.0643800 $ 0.1878300 Grenada $ 0.2037 $ 0.0679 $ 0.1935150 $ 0.0645050 $ 0.1884225 $ 0.0628075 $ 0.1833300 Guadeloupe $ 0.2961 $ 0.0987 $ 0.2812950 $ 0.0937650 $ 0.2738925 $ 0.0912975 $ 0.2664900 Guam $ 0.1976 $ 0.0659 $ 0.1877200 $ 0.0626050 $ 0.1827800 $ 0.0609575 $ 0.1778400 Guatemala $ 0.2136 $ 0.0712 $ 0.2029200 $ 0.0674000 $ 0.1975800 $ 0.0658600 $ 0.1922400 Guinea-Bissau $ 0.5976 $ 0.1992 $ 0.5677200 $ 0.1892400 $ 0.5527800 $ 0.1842600 $ 0.5378400 Guinea $ 0.3981 $ 0.1327 $ 0.3781950 $ 0.1260650 $ 0.3682425 $ 0.1227475 $ 0.3582900 Guyana $ 0.3030 $ 0.1010 $ 0.2878500 $ 0.0959500 $ 0.2802750 $ 0.0934250 $ 0.2727000 Haiti $ 0.2251 $ 0.0750 $ 0.2138450 $ 0.0712500 $ 0.0208175 $ 0.0693750 $ 0.2025900 Honduras $ 0.2716 $ 0.0905 $ 0.2580200 $ 0.0859750 $ 0.2512300 $ 0.0837125 $ 0.2444400 Hong Kong $ 0.1283 $ 0.0428 $ 0.1218850 $ 0.0406600 $ 0.1186775 $ 0.0395900 $ 0.1154700 Hungary $ 0.2180 $ 0.0727 $ 0.2071000 $ 0.0690650 $ 0.2016500 $ 0.0672475 $ 0.1962000 Iceland $ 0.2507 $ 0.0836 $ 0.2381650 $ 0.0794200 $ 0.2318975 $ 0.0773300 $ 0.2256300 India $ 0.2905 $ 0.0986 $ 0.2759750 $ 0.0936700 $ 0.2687125 $ 0.0912050 $ 0.2614500 Indonesia $ 0.3388 $ 0.1129 $ 0.3218600 $ 0.1072550 $ 0.3133900 $ 0.1044325 $ 0.3049200 Iran $ 0.2866 $ 0.0955 $ 0.2722700 $ 0.0907250 $ 0.2651050 $ 0.0883375 $ 0.2579400 Iraq $ 0.4955 $ 0.1652 $ 0.4707250 $ 0.1569400 $ 0.4583375 $ 0.1528100 $ 0.4459500 Ireland $ 0.1225 $ 0.0408 $ 0.1163750 $ 0.0387600 $ 0.1133125 $ 0.0377400 $ 0.1102500 Israel $ 0.2433 $ 0.0811 $ 0.2311350 $ 0.0770450 $ 0.2250525 $ 0.0750175 $ 0.2189700
EACH COUNTRY 6 SEC. OR Ethiopia $ 0.1166400 Fiji $ 0.1134900 Finland $ 0.0363600 France $ 0.0189900 French Guiana $ 0.0715500 French Overseas $ 0.0652500 French Polynesia $ 0.1212300 Gabon $ 0.0757800 Gambia, The $ 0.0744300 Georgia $ 0.1530000 Germany $ 0.0189900 Ghana $ 0.0815400 Gibraltar $ 0.0715500 Greece $ 0.0583200 Greenland $ 0.0626400 Grenada $ 0.0611100 Guadeloupe $ 0.0888300 Guam $ 0.0593100 Guatemala $ 0.0640800 Guinea-Bissau $ 0.1792800 Guinea $ 0.1194300 Guyana $ 0.0909000 Haiti $ 0.0675000 Honduras $ 0.0814500 Hong Kong $ 0.0385200 Hungary $ 0.0654300 Iceland $ 0.0752400 India $ 0.0887400 Indonesia $ 0.1016100 Iran $ 0.0859500 Iraq $ 0.1486800 Ireland $ 0.0367200 Israel $ 0.0729900 Page 3
INITIAL EACH INITIAL EACH INITIAL EACH INITIAL COUNTRY 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 Italy $ 0.1263 $ 0.0421 $ 0.1199850 $ 0.0399950 $ 0.1168275 $ 0.0389425 $ 0.1136700 Jamaica $ 0.2069 $ 0.0690 $ 0.1965550 $ 0.0655500 $ 0.1913825 $ 0.0638250 $ 0.1862100 Japan $ 0.0915 $ 0.0305 $ 0.0869250 $ 0.0289750 $ 0.0846375 $ 0.0282125 $ 0.0823500 Jordan $ 0.2526 $ 0.0842 $ 0.2399700 $ 0.0799900 $ 0.2336550 $ 0.0778850 $ 0.2273400 Kazakhstan $ 0.5069 $ 0.1690 $ 0.4815550 $ 0.1605500 $ 0.4688825 $ 0.1563250 $ 0.4562100 Kenya $ 0.2494 $ 0.0831 $ 0.2369300 $ 0.0789450 $ 0.2306950 $ 0.0768675 $ 0.2244600 Kiribati $ 0.8058 $ 0.2686 $ 0.7655100 $ 0.2551700 $ 0.7453650 $ 0.2484550 $ 0.7252200 Korea, South $ 0.1688 $ 0.0563 $ 0.1603600 $ 0.0534850 $ 0.1561400 $ 0.0520775 $ 0.1519200 Kuwait $ 0.2818 $ 0.0939 $ 0.2677100 $ 0.0892050 $ 0.2606650 $ 0.0868575 $ 0.2536200 Kyrgyzstan $ 0.5285 $ 0.1762 $ 0.5020750 $ 0.1673900 $ 0.4886250 $ 0.1629850 $ 0.4756500 Laos $ 0.8230 $ 0.2743 $ 0.7818500 $ 0.2605850 $ 0.7612750 $ 0.2537275 $ 0.7407000 Latvia $ 0.2985 $ 0.0995 $ 0.2835750 $ 0.0945250 $ 0.2761125 $ 0.0920375 $ 0.2686500 Lebanon $ 0.4143 $ 0.1381 $ 0.3935850 $ 0.1311950 $ 0.3832275 $ 0.1277425 $ 0.3728700 Lesotho $ 0.2977 $ 0.0992 $ 0.2828150 $ 0.0942400 $ 0.2753725 $ 0.0917600 $ 0.2679300 Liberia $ 0.1860 $ 0.0620 $ 0.1767000 $ 0.0589000 $ 0.1720500 $ 0.0573500 $ 0.1674000 Libya $ 0.3041 $ 0.1014 $ 0.2888950 $ 0.0963300 $ 0.2812925 $ 0.0937950 $ 0.2736900 Liechtenstein $ 0.2022 $ 0.0674 $ 0.1920900 $ 0.0640300 $ 0.1870350 $ 0.0623450 $ 0.1819800 Lituania $ 0.3050 $ 0.1017 $ 0.2897500 $ 0.0966150 $ 0.2821250 $ 0.0940725 $ 0.2745000 Luxembourg $ 0.1832 $ 0.0611 $ 0.1740400 $ 0.0580450 $ 0.1694600 $ 0.0565175 $ 0.1648800 Macau $ 0.4232 $ 0.1411 $ 0.4020400 $ 0.1340450 $ 0.3914600 $ 0.1305175 $ 0.3808800 Madagascar $ 1.0933 $ 0.3644 $ 1.0386350 $ 0.3461800 $ 1.0113025 $ 0.3370700 $ 0.9839700 Malawi $ 0.2884 $ 0.0961 $ 0.2739800 $ 0.0912950 $ 0.2667700 $ 0.0888925 $ 0.2595600 Malaysia $ 0.2223 $ 0.0741 $ 0.2111850 $ 0.0703950 $ 0.2056275 $ 0.0685425 $ 0.2000700 Maldives $ 0.6290 $ 0.2097 $ 0.5975500 $ 0.1992150 $ 0.5818250 $ 0.1939725 $ 0.5661000 Mali $ 0.4443 $ 0.1481 $ 0.4220850 $ 0.1406950 $ 0.4109775 $ 0.1369925 $ 0.3998700 Malta $ 0.3050 $ 0.1017 $ 0.2897500 $ 0.0966150 $ 0.2821250 $ 0.0940725 $ 0.2745000 Marshall Islands $ 0.4175 $ 0.1392 $ 0.3966250 $ 0.1322400 $ 0.3861875 $ 0.1287600 $ 0.3757500 Mauritania $ 0.3847 $ 0.1282 $ 0.3654650 $ 0.1217900 $ 0.3558475 $ 0.1185850 $ 0.3462300 Mauritius $ 0.5220 $ 0.1740 $ 0.4959000 $ 0.1653000 $ 0.4828500 $ 0.1609500 $ 0.4698000 Mexico $ 0.1650 $ 0.0550 $ 0.1567500 $ 0.0522500 $ 0.1526250 $ 0.0508750 $ 0.1485000 Indonesia, Federated $ 0.3847 $ 0.1282 $ 0.3654650 $ 0.1217900 $ 0.3558475 $ 0.1185850 $ 0.3462300 Midway Atoll $ 0.4890 $ 0.1630 $ 0.4645500 $ 0.1548500 $ 0.4523250 $ 0.1507750 $ 0.4401000 Moldova $ 0.4200 $ 0.1400 $ 0.3990000 $ 0.1330000 $ 0.3885000 $ 0.1295000 $ 0.3780000
EACH COUNTRY 6 SEC. OR Italy $ 0.0378900 Jamaica $ 0.0621000 Japan $ 0.0274500 Jordan $ 0.0757800 Kazakhstan $ 0.1521000 Kenya $ 0.0747900 Kiribati $ 0.2417400 Korea, South $ 0.0506700 Kuwait $ 0.0845100 Kyrgyzstan $ 0.1585800 Laos $ 0.2468700 Latvia $ 0.0895500 Lebanon $ 0.1242900 Lesotho $ 0.0892800 Liberia $ 0.0558000 Libya $ 0.0912600 Liechtenstein $ 0.0606600 Lituania $ 0.0915300 Luxembourg $ 0.0549900 Macau $ 0.1269900 Madagascar $ 0.3279600 Malawi $ 0.0864900 Malaysia $ 0.0665900 Maldives $ 0.1887300 Mali $ 0.1332900 Malta $ 0.0915300 Marshall Islands $ 0.1252800 Mauritania $ 0.1153800 Mauritius $ 0.1566000 Mexico $ 0.0495000 Indonesia, Federated $ 0.1153800 Midway Atoll $ 0.1467000 Moldova $ 0.1260000 Page 4
INITIAL EACH INITIAL EACH INITIAL EACH INITIAL COUNTRY 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 Mongolia $ 0.9599 $ 0.3200 $ 0.9119050 $ 0.3040000 $ 0.8879075 $ 0.2960000 $ 0.8639100 Montserrat $ 0.1988 $ 0.0663 $ 0.1886000 $ 0.0629850 $ 0.1838900 $ 0.0613275 $ 0.1789200 Morocco $ 0.3333 $ 0.1111 $ 0.3166350 $ 0.1055450 $ 0.3083025 $ 0.1027675 $ 0.2999700 Mozambique $ 0.4969 $ 0.1656 $ 0.4720550 $ 0.1573200 $ 0.4596325 $ 0.1531800 $ 0.4472100 Namibia $ 0.2728 $ 0.0926 $ 0.2639100 $ 0.0879700 $ 0.2569650 $ 0.0856550 $ 0.2500200 Nauru $ 1.1330 $ 0.3777 $ 1.0763500 $ 0.3588150 $ 1.0480250 $ 0.3493725 $ 1.0197000 Nepal $ 0.3422 $ 0.1141 $ 0.3250900 $ 1.1083950 $ 0.3165350 $ 0.1055425 $ 0.3079800 Netherlands $ 0.1010 $ 0.0337 $ 0.0959500 $ 0.0320150 $ 0.0934250 $ 0.0311725 $ 0.0909000 Netherlands Antilles $ 0.1924 $ 0.0641 $ 0.1827800 $ 0.0608950 $ 0.1779700 $ 0.0592925 $ 0.1731600 New Caledonia $ 0.4143 $ 0.1381 $ 0.3935850 $ 0.1311950 $ 0.3832275 $ 0.1277425 $ 0.3728700 New Zealand $ 0.1672 $ 0.0557 $ 0.1588400 $ 0.0529150 $ 0.1546600 $ 0.0515225 $ 0.1504800 Nicaragua $ 0.2445 $ 0.0815 $ 0.2322750 $ 0.0774250 $ 0.2261625 $ 0.0753875 $ 0.2200500 Niger $ 0.4580 $ 0.1527 $ 0.4351000 $ 0.1450650 $ 0.4236500 $ 0.1412475 $ 0.4122000 Nigeria $ 0.1947 $ 0.0649 $ 0.1849650 $ 0.0616550 $ 0.1800975 $ 0.0600325 $ 0.1752300 Niue $ 0.6296 $ 0.2099 $ 0.5981200 $ 0.1994050 $ 0.5823800 $ 0.1941575 $ 0.5666400 Norfolk Island $ 0.6293 $ 0.2098 $ 0.5978350 $ 0.1993100 $ 0.5821025 $ 0.1940650 $ 0.5663700 Northern Mariana $ 0.3600 $ 0.1200 $ 0.342000 $ 0.1140000 $ 0.3330000 $ 0.1110000 $ 0.3240000 Island Norway $ 0.1195 $ 0.0398 $ 0.1135250 $ 0.0378100 $ 0.1105375 $ 0.0368150 $ 0.1075500 Oman $ 0.2896 $ 0.0965 $ 0.2751200 $ 0.0916750 $ 0.2678800 $ 0.0892625 $ 0.2606400 Pacific Islands $ 0.4791 $ 0.1597 $ 0.4551450 $ 0.1517150 $ 0.4431675 $ 0.1477225 $ 0.4311900 Pakistan $ 0.3969 $ 0.1323 $ 0.3770550 $ 0.1256850 $ 0.3671325 $ 0.1223775 $ 0.3572100 Panama $ 0.1947 $ 0.0649 $ 0.1849650 $ 0.0616550 $ 0.1800975 $ 0.0600325 $ 0.1752300 Papua New Guinea $ 0.3225 $ 0.1075 $ 0.3063750 $ 0.1021250 $ 0.2983125 $ 0.0994375 $ 0.2902500 Paraguay $ 0.3057 $ 0.1019 $ 0.2904150 $ 0.0968050 $ 0.2827725 $ 0.0942575 $ 0.2751300 Peru $ 0.2142 $ 0.0714 $ 0.2034900 $ 0.0678300 $ 0.1981350 $ 0.0660450 $ 0.1927800 Philippines $ 0.1926 $ 0.0642 $ 0.1829700 $ 0.0609900 $ 0.1781550 $ 0.0593850 $ 0.1733400 Poland $ 0.2175 $ 0.0725 $ 0.2066250 $ 0.0688750 $ 0.2011875 $ 0.0670625 $ 0.1957500 Portugal $ 0.1986 $ 0.0662 $ 0.1886700 $ 0.0628900 $ 0.1837050 $ 0.0612350 $ 0.1787400 Qalar $ 0.2559 $ 0.0853 $ 0.2431050 $ 0.0810350 $ 0.2367075 $ 0.0789025 $ 0.2303100 Reunion $ 0.4563 $ 0.1521 $ 0.4335800 $ 0.1444950 $ 0.4221700 $ 0.1406925 $ 0.4107600 Romania $ 0.3116 $ 0.1039 $ 0.2960200 $ 0.0987050 $ 0.2882300 $ 0.0961075 $ 0.2804400 Russia $ 0.3632 $ 0.1211 $ 0.3450400 $ 0.1150450 $ 0.3359600 $ 0.1120175 $ 0.3268800 Rwanda $ 0.5018 $ 0.1673 $ 0.4767100 $ 0.1589350 $ 0.4641650 $ 0.1545725 $ 0.4516200
EACH COUNTRY 6 SEC. OR Mongolia $ 0.2880000 Montserrat $ 0.0596700 Morocco $ 0.0999900 Mozambique $ 0.1490400 Namibia $ 0.0833400 Nauru $ 0.3399300 Nepal $ 0.1026900 Netherlands $ 0.0303300 Netherlands Antilles $ 0.0576900 New Caledonia $ 0.1242900 New Zealand $ 0.0501300 Nicaragua $ 0.0733500 Niger $ 0.1374300 Nigeria $ 0.0584100 Niue $ 0.1889100 Norfolk Island $ 0.1888200 Northern Mariana $ 0.1080000 Island Norway $ 0.0358200 Oman $ 0.0868500 Pacific Islands $ 0.1437300 Pakistan $ 0.1190700 Panama $ 0.0584100 Papua New Guinea $ 0.0967500 Paraguay $ 0.0917100 Peru $ 0.0642600 Philippines $ 0.0577800 Poland $ 0.0652500 Portugal $ 0.0595800 Qalar $ 0.0767700 Reunion $ 0.1368900 Romania $ 0.0935100 Russia $ 0.1089900 Rwanda $ 0.1505700 Page 5
INITIAL EACH INITIAL EACH INITIAL EACH INITIAL COUNTRY 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 Saint Helena $ 0.5504 $ 0.1835 $ 0.5228800 $ 0.1743250 $ 0.5091200 $ 0.1697375 $ 0.4953600 Saint Kids and Nevis $ 0.1924 $ 0.0641 $ 0.1827800 $ 0.0608950 $ 0.1779700 $ 0.0592925 $ 0.1731160 Saint Lucia $ 0.2159 $ 0.0720 $ 0.2051050 $ 0.0684000 $ 0.1997075 $ 0.0666000 $ 0.1943100 Saint Pierre and $ 0.2121 $ 0.0707 $ 0.2014950 $ 0.0671650 $ 0.1961925 $ 0.0653975 $ 0.1908900 Saint Vincent and $ 0.2102 $ 0.0701 $ 0.1996900 $ 0.0665950 $ 0.1944350 $ 0.0648425 $ 0.1891800 the ____ Sao Tome and Principe $ 0.5303 $ 0.1768 $ 0.5037850 $ 0.1679410 $ 0.4905275 $ 0.1635215 $ 0.4772700 Saudia Arabia $ 0.3510 $ 0.1170 $ 0.3334500 $ 0.1111500 $ 0.3246750 $ 0.1082250 $ 0.3159000 Senegal $ 0.4137 $ 0.1379 $ 0.3930150 $ 0.1310050 $ 0.3826725 $ 0.1275575 $ 0.3723300 Serbia $ 0.2839 $ 0.0946 $ 0.2697050 $ 0.0898700 $ 0.2626075 $ 0.0875050 $ 0.2555100 Seychelles $ .05099 $ 0.1700 $ 0.4844050 $ 0.1615000 $ 0.4716575 $ 0.1572500 $ 0.4589100 Sierra Leone $ 0.3187 $ 0.1062 $ 0.3027650 $ 0.1008900 $ 0.2947975 $ 0.0982350 $ 0.2863000 Singapore $ 0.1105 $ 0.0368 $ 0.1049750 $ 0.0349600 $ 0.1022125 $ 0.0340400 $ 0.0994500 Slovakia $ 0.2180 $ 0.0727 $ 0.2071000 $ 0.0690650 $ 0.2016500 $ 0.0672475 $ 0.1962000 Solomon Islands $ 0.4791 $ 0.1597 $ 0.4551450 $ 0.1517150 $ 0.4431675 $ 0.1477225 $ 0.4311900 Somalia $ 0.5761 $ 0.1920 $ 0.5472950 $ 0.1824000 $ 0.5328925 $ 0.1776000 $ 0.5184900 South Africa $ 0.1704 $ 0.0568 $ 0.1618800 $ 0.0539600 $ 0.1576200 $ 0.0525400 $ 0.1533600 Spain $ 0.1579 $ 0.0526 $ 0.1500050 $ 0.0499700 $ 0.1460575 $ 0.0486550 $ 0.1421100 Sri Lanka $ 0.3757 $ 0.1252 $ 0.3569150 $ 0.1189400 $ 0.3475225 $ 0.1158100 $ 0.3381300 Sudan $ 0.4994 $ 0.1665 $ 0.4744300 $ 0.1581750 $ 0.4619450 $ 0.1540125 $ 0.4494600 Suriname $ 0.3353 $ 0.1118 $ 0.3185350 $ 0.1062100 $ 0.3101525 $ 0.1034150 $ 0.3017700 Swaziland $ 0.2985 $ 0.0995 $ 0.2835750 $ 0.0945250 $ 0.2761125 $ 0.0920375 $ 0.2686500 Sweden $ 0.0773 $ 0.0258 $ 0.0734350 $ 0.0245100 $ 0.0715025 $ 0.0238650 $ 0.0695700 Switzerland $ 0.0899 $ 0.0300 $ 0.0854050 $ 0.0285000 $ 0.0831575 $ 0.0277500 $ 0.0809100 Syria $ 0.4192 $ 0.1397 $ 0.3982400 $ 0.1327150 $ 0.3877600 $ 0.1292225 $ 0.3772800 Taiwan $ 0.1559 $ 0.0520 $ 0.1481050 $ 0.0494000 $ 0.1442075 $ 0.0481000 $ 0.1403100 Tajikistan $ 0.9308 $ 0.3103 $ 0.8842600 $ 0.2947850 $ 0.8609900 $ 0.2870275 $ 0.8377200 Tanzania $ 0.2646 $ 0.0882 $ 0.2513700 $ 0.0837900 $ 0.2447550 $ 0.0815850 $ 0.2381400 Thailand $ 0.2522 $ 0.0841 $ 0.2395900 $ 0.0798950 $ 0.2332850 $ 0.0777925 $ 0.2269800 Togo $ 0.2510 $ 0.0837 $ 0.2384500 $ 0.0795150 $ 0.2321750 $ 0.0774225 $ 0.2259000 Tonga $ 0.3546 $ 0.1182 $ 0.3368700 $ 0.1122900 $ 0.3280050 $ 0.1093350 $ 0.3191400 Trinidad and Tobago $ 0.1990 $ 0.0663 $ 0.1890500 $ 0.0629850 $ 0.1840750 $ 0.0613275 $ 0.1791000
EACH COUNTRY 6 SEC. OR Saint Helena $ 0.1651500 Saint Kids and Nevis $ 0.0576900 Saint Lucia $ 0.0648000 Saint Pierre and $ 0.0636300 Saint Vincent and $ 0.0630900 the ____ Sao Tome and Principe $ 0.1591020 Saudia Arabia $ 0.1053000 Senegal $ 0.1241100 Serbia $ 0.0851400 Seychelles $ 0.1530000 Sierra Leone $ 0.0955800 Singapore $ 0.0331200 Slovakia $ 0.0654300 Solomon Islands $ 0.1437300 Somalia $ 0.1728000 South Africa $ 0.0511200 Spain $ 0.0473400 Sri Lanka $ 0.1126800 Sudan $ 0.1498500 Suriname $ 0.1006200 Swaziland $ 0.0895500 Sweden $ 0.0232200 Switzerland $ 0.0270000 Syria $ 0.1257300 Taiwan $ 0.0468000 Tajikistan $ 0.2792700 Tanzania $ 0.0793800 Thailand $ 0.0756900 Togo $ 0.0753300 Tonga $ 0.1063800 Trinidad and Tobago $ 0.0596700 Page 6
INITIAL EACH INITIAL EACH INITIAL EACH INITIAL COUNTRY 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 6 SEC. OR 1ST 18 Tunisia $ 0.3090 $ 0.1030 $ 0.2935500 $ 0.0978500 $ 0.2858250 $ 0.0952750 $ 0.2781000 Turkey $ 0.2451 $ 0.0817 $ 0.2328450 $ 0.0776150 $ 0.2267175 $ 0.0755725 $ 0.2205900 Turkmenistan $ 0.7652 $ 0.2551 $ 0.7269400 $ 0.2423450 $ 0.7078100 $ 0.2359675 $ 0.6886800 Turks and Caicos $ 0.2037 $ 0.0679 $ 0.1935150 $ 0.0645050 $ 0.1884225 $ 0.0628075 $ 0.1833300 Islands Tivalu $ 0.7790 $ 0.2593 $ 0.7400500 $ 0.2463350 $ 0.7205750 $ 0.2398525 $ 0.7011000 Uganda $ 0.2745 $ 0.0915 $ 0.2607750 $ 0.0869250 $ 0.2539125 $ 0.0846375 $ 0.2470500 Ukraine $ 0.3050 $ 0.1017 $ 0.2897500 $ 0.0966150 $ 0.2821250 $ 0.0940725 $ 0.2745000 United Arab Emirates $ 0.2212 $ 0.0737 $ 0.2101400 $ 0.0700150 $ 0.2046100 $ 0.0681725 $ 0.1990800 United Kingdom $ 0.0455 $ 0.0152 $ 0.0432250 $ 0.0144400 $ 0.0420875 $ 0.0140600 $ 0.0409500 Uruguay $ 0.2342 $ 0.0781 $ 0.224900 $ 0.0741950 $ 0.2166350 $ 0.0722425 $ 0.2107800 Uzbekistan $ 0.3050 $ 0.1017 $ 0.2897500 $ 0.0966150 $ 0.2821250 $ 0.0940725 $ 0.2745000 Vanuatu $ 0.8124 $ 0.2708 $ 0.7717800 $ 0.2572600 $ 0.7514700 $ 0.2504900 $ 0.7311600 Venezuela $ 0.1233 $ 0.0411 $ 0.1171350 $ 0.0390450 $ 0.1140525 $ 0.0380175 $ 0.1109700 Vietnam $ 0.4216 $ 0.1405 $ 0.4005200 $ 0.1334750 $ 0.3899800 $ 0.1299625 $ 0.3794400 Virgin Islands, $ 0.1847 $ 0.0616 $ 0.1754650 $ 0.0585200 $ 0.1708475 $ 0.0569800 $ 0.1662300 British Wallis and Futuna $ 0.5696 $ 0.1899 $ 0.5411200 $ 0.1804050 $ 0.5268800 $ 0.1756575 $ 0.5126400 Western Samoa $ 0.2515 $ 0.0838 $ 0.2389250 $ 0.0796100 $ 0.2326375 $ 0.0775150 $ 0.2263500 Yemen $ 0.2950 $ 0.0986 $ 0.2811050 $ 0.0936700 $ 0.2737075 $ 0.0912050 $ 0.2663100 Zaire $ 0.3326 $ 0.1109 $ 0.3159700 $ 0.1053550 $ 0.3076550 $ 0.1025825 $ 0.2993400 Zambia $ 0.2920 $ 0.0973 $ 0.2774000 $ 0.0924350 $ 0.2701000 $ 0.0900025 $ 0.2628000 Zimbabwe $ 0.2077 $ 0.0692 $ 0.1973150 $ 0.0657400 $ 0.1921225 $ 0.0640100 $ 0.1869300
EACH COUNTRY 6 SEC. OR Tunisia $ 0.0927000 Turkey $ 0.0735300 Turkmenistan $ 0.2295900 Turks and Caicos $ 0.0611100 Islands Tivalu $ 0.2333700 Uganda $ 0.0823500 Ukraine $ 0.0915300 United Arab Emirates $ 0.0663300 United Kingdom $ 0.0136800 Uruguay $ 0.0702900 Uzbekistan $ 0.0915300 Vanuatu $ 0.2437200 Venezuela $ 0.0369900 Vietnam $ 0.1264500 Virgin Islands, $ 0.0554400 British Wallis and Futuna $ 0.1709100 Western Samoa $ 0.0754200 Yemen $ 0.0887400 Zaire $ 0.0998100 Zambia $ 0.0875700 Zimbabwe $ 0.0622800 Page 7 INTERNATIONAL COSTS INTERNATIONAL COSTS/MINUTE - - APPLICABLE DISCOUNTS APPLY BASED ON TOTAL TEL-SAVE USAGE PER TARIFF - - TO BE UPDATED AS RATES ARE REDUCED BY IXC Cost/Min. Cost/Min. Cost/Min. Cost/Min. Country No Disc. @ 5% 7.5% 10% Albania $ 1.2650 $ 1.2018 $ 1.1701 $ 1.1385 Algeria $ 0.9650 $ 0.9168 $ 0.8926 $ 0.8685 American Samoa $ 0.8100 $ 0.7695 $ 0.7493 $ 0.7290 Andorra $ 0.4950 $ 0.4703 $ 0.4579 $ 0.4455 Angola $ 1.3500 $ 1.2825 $ 1.2488 $ 1.2150 Anguilla $ 0.6300 $ 0.5985 $ 0.5828 $ 0.5670 Antarctica $ 1.2500 $ 1.1875 $ 1.1563 $ 1.1250 Antigua and Barbuda $ 0.6200 $ 0.5890 $ 0.5735 $ 0.5580 Argentina $ 0.8109 $ 0.7704 $ 0.7501 $ 0.7298 Armenia $ 1.0230 $ 0.9719 $ 0.9463 $ 0.9207 Aruba $ 0.5960 $ 0.5662 $ 0.5513 $ 0.5364 Australia $ 0.2630 $ 0.2499 $ 0.2433 $ 0.2367 Austria $ 0.5261 $ 0.4998 $ 0.4866 $ 0.4735 Azerbaijan $ 1.3500 $ 1.2825 $ 1.2488 $ 1.2150 Bahamas, The $ 0.2930 $ 0.2784 $ 0.2710 $ 0.2637 Bahrain $ 0.8851 $ 0.8408 $ 0.8187 $ 0.7966 Bangladesh $ 1.2950 $ 1.2303 $ 1.1979 $ 1.1655 Barbados $ 0.5279 $ 0.5015 $ 0.4883 $ 0.4751 Belarus $ 1.0180 $ 0.9671 $ 0.9417 $ 0.9162 Belgium $ 0.4109 $ 0.3904 $ 0.3801 $ 0.3698 Belize $ 0.8300 $ 0.7885 $ 0.7678 $ 0.7470 Benin $ 0.8930 $ 0.8484 $ 0.8260 $ 0.8037 Bermuda $ 0.4529 $ 0.4303 $ 0.4189 $ 0.4076 Bhutan $ 2.8550 $ 2.7075 $ 2.6363 $ 2.5650 Bolivia $ 0.8431 $ 0.8009 $ 0.7799 $ 0.7588 Bosnia and Herzegovin $ 0.9461 $ 0.8988 $ 0.8751 $ 0.8515 Botswana $ 0.7989 $ 0.7590 $ 0.7390 $ 0.7190 Brazil $ 0.4739 $ 0.4502 $ 0.4384 $ 0.4265 Brunei $ 1.3049 $ 1.2397 $ 1.2070 $ 1.1744 Page 1 Cost/Min. Cost/Min. Cost/Min. Cost/Min. Country No Disc. @ 5% 7.5% 10% Bulgaria $ 0.8100 $ 0.7695 $ 0.7493 $ 0.7290 Burkina $ 0.6389 $ 0.6070 $ 0.5910 $ 0.5750 Burma $ 3.3500 $ 3.1825 $ 3.0988 $ 3.0150 Burundi $ 2.8669 $ 2.7264 $ 2.6547 $ 2.5829 Cambodia $ 1.9420 $ 1.8449 $ 1.7964 $ 1.7478 Cameroon $ 1.1559 $ 1.0981 $ 1.0692 $ 1.0403 Canada $ 0.1261 $ 0.1198 $ 0.1166 $ 0.2235 Canary Island $ 0.0200 $ 0.0190 $ 0.0185 $ 0.0180 Cape Verde $ 1.3350 $ 1.2683 $ 1.2349 $ 1.2015 Cayman Islands $ 0.5469 $ 0.5196 $ 0.5059 $ 0.4922 Central African $ 2.1200 $ 2.0140 $ 1.9610 $ 1.9080 Republic Chad $ 3.5700 $ 3.3915 $ 3.3915 $ 3.2130 Chagos Archlpelago $ 1.2245 $ 1.1633 $ 1.1327 $ 1.1021 Chile $ 0.4050 $ 0.3848 $ 0.3746 $ 0.3645 China $ 1.1261 $ 1.0698 $ 1.0416 $ 1.0135 Colombia $ 0.7160 $ 0.6802 $ 0.6623 $ 0.6444 Cornoros $ 2.2159 $ 2.1051 $ 2.0497 $ 1.9943 Congo $ 1.0749 $ 1.0212 $ 0.9943 $ 0.9674 Cook Islands $ 2.3591 $ 2.2411 $ 2.1822 $ 2.1232 Costa Rico $ 0.6109 $ 0.5804 $ 0.5651 $ 0.5498 Cote d'Ivoire $ 1.2091 $ 1.1486 $ 1.1184 $ 1.0882 Croatia $ 0.7269 $ 0.6906 $ 0.6724 $ 0.6542 Cuba $ 0.9920 $ 0.9424 $ 0.9176 $ 0.8928 Cyprus $ 0.7269 $ 0.6906 $ 0.6724 $ 0.6542 Czech Republic $ 0.7269 $ 0.6906 $ 0.6724 $ 0.6542 Denmark $ 0.5261 $ 0.4998 $ 0.4866 $ 0.4735 Djibouti $ 1.5230 $ 1.4469 $ 1.4088 $ 1.3707 Dominica $ 0.6570 $ 0.6242 $ 0.6077 $ 0.5913 Dominican Republic $ 0.3900 $ 0.3705 $ 0.3608 $ 0.3510 Ecuador $ 0.8309 $ 0.7894 $ 0.7686 $ 0.7478 Egypt $ 0.9221 $ 0.8760 $ 0.8529 $ 0.8299 El Salvador $ 0.7450 $ 0.7078 $ 0.6891 $ 0.6705 Equatorial Guinea $ 2.1129 $ 2.0073 $ 1.9544 $ 1.9016 Page 2 Cost/Min. Cost/Min. Cost/Min. Cost/Min. Country No Disc. @ 5% 7.5% 10% Estonia $ 1.0159 $ 0.9651 $ 0.9397 $ 0.9143 Ethiopia $ 1.2959 $ 1.2311 $ 1.1987 $ 1.1663 Fiji $ 1.2610 $ 1.1980 $ 1.1664 $ 1.1349 Finland $ 0.4039 $ 0.3837 $ 0.3736 $ 0.3635 France $ 0.2109 $ 0.2004 $ 0.1951 $ 0.1898 French Guiana $ 0.7951 $ 0.7553 $ 0.7355 $ 0.7156 French Overseas $ 0.7250 $ 0.6888 $ 0.6706 $ 0.6525 Department French Polynesia $ 1.3469 $ 1.2796 $ 1.2459 $ 1.2122 Gabon $ 0.8420 $ 0.7999 $ 0.7789 $ 0.7578 Gambia, The $ 0.8271 $ 0.7857 $ 0.7651 $ 0.7444 Georgia $ 1.7000 $ 1.6150 $ 1.5725 $ 1.5300 Germany $ 0.2109 $ 0.2004 $ 0.1951 $ 0.1898 Ghana $ 0.9060 $ 0.8607 $ 0.8381 $ 0.8154 Gibraltar $ 0.7951 $ 0.7553 $ 0.7355 $ 0.7156 Greece $ 0.6589 $ 0.6260 $ 0.6095 $ 0.5930 Greenland $ 0.6959 $ 0.6611 $ 0.6437 $ 0.6263 Grenada $ 0.6790 $ 0.6451 $ 0.6281 $ 0.6111 Guadeloupe $ 0.9870 $ 0.9377 $ 0.9130 $ 0.8883 Guam $ 0.6589 $ 0.6260 $ 0.6095 $ 0.5930 Guatemala $ 0.7120 $ 0.6764 $ 0.6586 $ 0.6408 Guinea-Bissau $ 1.9920 $ 1.8924 $ 1.8426 $ 1.7928 Guinea $ 1.3270 $ 1.2607 $ 1.2275 $ 1.1943 Guyana $ 1.0100 $ 0.9595 $ 0.9343 $ 0.9090 Haiti $ 0.7501 $ 0.7126 $ 0.6938 $ 0.6751 Honduras $ 0.9051 $ 0.8598 $ 0.8372 $ 0.8146 Hong Kong $ 0.4279 $ 0.4065 $ 0.3958 $ 0.3851 Hungary $ 0.7269 $ 0.6906 $ 0.6724 $ 0.6542 Iceland $ 0.8359 $ 0.7941 $ 0.7732 $ 0.7523 India $ 0.9807 $ 0.9317 $ 0.9071 $ 0.8826 Indonesia $ 1.1291 $ 1.0726 $ 1.0444 $ 1.0162 Iran $ 0.9551 $ 0.9073 $ 0.8835 $ 0.8596 Iraq $ 1.6519 $ 1.5693 $ 1.5280 $ 1.4867 Ireland $ 0.4081 $ 0.3877 $ 0.3775 $ 0.3673 Page 3 Cost/Min. Cost/Min. Cost/Min. Cost/Min. Country No Disc. @ 5% 7.5% 10% Israel $ 0.8110 $ 0.7705 $ 0.7502 $ 0.7299 Italy $ 0.4210 $ 0.4000 $ 0.3894 $ 0.3789 Jamaica $ 0.6899 $ 0.6554 $ 0.6382 $ 0.6209 Japan $ 0.3050 $ 0.2898 $ 0.2831 $ 0.2745 Jordan $ 0.8420 $ 0.7999 $ 0.7789 $ 0.7578 Kazakhstan $ 1.6899 $ 1.6054 $ 1.5632 $ 1.5209 Kenya $ 0.8311 $ 0.7895 $ 0.7688 $ 0.7480 Kiribati $ 2.6860 $ 2.5517 $ 2.4846 $ 2.4174 Korea, South $ 0.5629 $ 0.5348 $ 0.5207 $ 0.5066 Kuwait $ 0.9391 $ 0.8921 $ 0.8687 $ 0.8452 Kyrgyzstan $ 1.7619 $ 1.6738 $ 1.6298 $ 1.5857 Laos $ 2.7431 $ 2.6059 $ 2.5374 $ 2.4688 Latvia $ 0.9950 $ 0.9453 $ 0.9204 $ 0.8955 Lebanon $ 1.3810 $ 1.3120 $ 1.2774 $ 1.2429 Lesotho $ 0.9921 $ 0.9425 $ 0.9177 $ 0.8929 Liberia $ 0.6200 $ 0.5890 $ 0.5735 $ 0.5580 Libya $ 1.0139 $ 0.9632 $ 0.9379 $ 0.9125 Liechtenstein $ 0.6740 $ 0.6403 $ 0.6235 $ 0.6066 Lituania $ 1.0169 $ 0.9661 $ 0.9406 $ 0.9152 Luxembourg $ 0.6109 $ 0.5804 $ 0.5651 $ 0.5498 Macau $ 0.4109 $ 1.3404 $ 1.3051 $ 1.2698 Madagascar $ 3.6441 $ 3.4619 $ 3.3708 $ 3.2797 Malawi $ 0.9611 $ 0.9130 $ 0.8890 $ 0.8650 Malaysia $ 0.7410 $ 0.7040 $ 0.6854 $ 0.6669 Maldives $ 2.0969 $ 1.9921 $ 1.9396 $ 1.8872 Mali $ 1.4810 $ 1.4070 $ 1.3699 $ 1.3329 Malta $ 1.0169 $ 0.9661 $ 0.9406 $ 0.9152 Marshall Islands $ 1.3919 $ 1.3223 $ 1.2875 $ 1.2527 Mauritania $ 1.2821 $ 1.2180 $ 1.1859 $ 1.1539 Mauritius $ 1.7400 $ 1.6530 $ 1.6095 $ 1.5660 Mexico $ 0.5500 $ 0.5225 $ 0.5088 $ 0.4950 Indonesia, Federated $ 1.2821 $ 1.2180 $ 1.1859 $ 1.1539 Midway Atoll $ 1.6300 $ 1.5485 $ 1.5078 $ 1.4670 Page 4 Cost/Min. Cost/Min. Cost/Min. Cost/Min. Country No Disc. @ 5% 7.5% 10% Moldova $ 1.4000 $ 1.3300 $ 1.2950 $ 1.2600 Mongolia $ 3.1999 $ 3.0399 $ 2.9599 $ 2.8799 Montserrat $ 0.6629 $ 0.6298 $ 0.6132 $ 0.5966 Morocco $ 1.1110 $ 1.0555 $ 1.0277 $ 0.9999 Mozambique $ 1.6561 $ 1.5733 $ 1.5319 $ 1.4905 Namibia $ 0.9260 $ 0.8797 $ 0.8566 $ 0.8334 Nauru $ 3.7769 $ 3.5881 $ 3.4936 $ 3.3992 Nepal $ 1.1409 $ 1.0839 $ 1.0553 $ 1.0268 Netherlands $ 0.3369 $ 0.3201 $ 0.3116 $ 0.3032 Netherlands Antilles $ 0.6411 $ 0.6090 $ 0.5930 $ 0.5770 New Caledonia $ 1.3810 $ 1.3120 $ 1.2774 $ 1.2429 New Zealand $ 0.5571 $ 0.5292 $ 0.5153 $ 0.5014 Nicaragua $ 0.8150 $ 0.7743 $ 0.7539 $ 0.7335 Niger $ 1.5269 $ 1.4506 $ 1.4124 $ 1.3742 Nigeria $ 0.6490 $ 0.6166 $ 0.6003 $ 0.5841 Niue $ 2.0989 $ 1.9940 $ 1.9415 $ 1.8890 Norfolk Island $ 2.0979 $ 1.9930 $ 1.9406 $ 1.8881 Northern Mariana Island $ 1.2000 $ 1.1400 $ 1.1100 $ 1.0800 Norway $ 0.3981 $ 0.3782 $ 0.3682 $ 0.3583 Oman $ 0.9651 $ 0.9168 $ 0.8927 $ 0.8686 Pacific Islands (Palau) $ 1.5970 $ 1.5172 $ 1.4772 $ 1.4373 Pakistan $ 1.3230 $ 1.2569 $ 1.2238 $ 1.1907 Panama $ 0.6490 $ 0.6166 $ 0.6003 $ 0.5841 Papua New Guinea $ 1.0750 $ 1.0213 $ 0.9944 $ 0.9675 Paraguay $ 1.0190 $ 0.9681 $ 0.9426 $ 0.9171 Peru $ 0.7140 $ 0.6783 $ 0.6605 $ 0.6426 Philippines $ 0.6420 $ 0.6099 $ 0.5939 $ 0.5778 Poland $ 0.7250 $ 0.6888 $ 0.6706 $ 0.6525 Portugal $ 0.6620 $ 0.6289 $ 0.6124 $ 0.5958 Qalar $ 0.8530 $ 0.8104 $ 0.7890 $ 0.7677 Reunion $ 1.5211 $ 1.4450 $ 1.4070 $ 1.3690 Romania $ 1.0389 $ 0.9870 $ 0.9610 $ 0.9350 Russia $ 1.2109 $ 1.1504 $ 1.1201 $ 1.0898 Page 5 Cost/Min. Cost/Min. Cost/Min. Cost/Min. Country No Disc. @ 5% 7.5% 10% Rwanda $ 1.6729 $ 1.5893 $ 1.5474 $ 1.5056 Saint Helena $ 1.8349 $ 1.7432 $ 1.6973 $ 1.6514 Saint Kids and Nevis $ 0.6411 $ 0.6090 $ 0.5930 $ 0.5770 Saint Lucia $ 0.7199 $ 0.6839 $ 0.6659 $ 0.6479 Saint Pierre and Miquel $ 0.7070 $ 0.6717 $ 0.6540 $ 0.6363 Saint Vincent and the $ 0.7009 $ 0.6659 $ 0.6483 $ 0.6308 ---- Sao Tome and Principe $ 1.7678 $ 1.6794 $ 1.6352 $ 1.5910 Saudia Arabia $ 1.1700 $ 1.1115 $ 1.0823 $ 1.0530 Senegal $ 1.3790 $ 1.3101 $ 1.2756 $ 1.2411 Serbia $ 0.9461 $ 0.8988 $ 0.8751 $ 0.8515 Seychelles $ 1.6999 $ 1.6149 $ 1.5724 $ 1.5299 Sierra Leone $ 1.0621 $ 1.0090 $ 0.9824 $ 0.9559 Singapore $ 0.3681 $ 0.3497 $ 0.3405 $ 0.3313 Slovakia $ 0.7269 $ 0.6906 $ 0.6724 $ 0.6542 Solomon Islands $ 1.5970 $ 1.5172 $ 1.4772 $ 1.4373 Somalia $ 1.9201 $ 1.8241 $ 1.7761 $ 1.7281 South Africa $ 0.5680 $ 0.5396 $ 0.5254 $ 0.5112 Spain $ 0.5261 $ 0.4998 $ 0.4866 $ 0.4735 Sri Lanka $ 1.2521 $ 1.1895 $ 1.1582 $ 1.1269 Sudan $ 1.6649 $ 1.5817 $ 1.5400 $ 1.4984 Suriname $ 1.1179 $ 1.0620 $ 1.0341 $ 1.0061 Swaziland $ 0.9950 $ 0.9453 $ 0.9204 $ 0.8955 Sweden $ 0.2579 $ 0.2450 $ 0.2386 $ 0.2321 Switzerland $ 0.2999 $ 0.2849 $ 0.2774 $ 0.2699 Syria $ 1.3971 $ 1.3272 $ 1.2923 $ 1.2574 Taiwan $ 0.5199 $ 0.4939 $ 0.4809 $ 0.4679 Tajikistan $ 3.1029 $ 2.9478 $ 2.8702 $ 2.7926 Tanzania $ 0.8820 $ 0.8379 $ 0.8159 $ 0.7938 Thailand $ 0.8409 $ 0.7989 $ 0.7778 $ 0.7568 Togo $ 0.8369 $ 0.7951 $ 0.7741 $ 0.7532 Tonga $ 1.1820 $ 1.1229 $ 1.0934 $ 1.0638 Trinidad and Tobago $ 0.6631 $ 0.6299 $ 0.6134 $ 0.5968 Tunisia $ 1.0300 $ 0.9785 $ 0.9528 $ 0.9270 Page 6 Cost/Min. Cost/Min. Cost/Min. Cost/Min. Country No Disc. @ 5% 7.5% 10% Turkey $ 0.8170 $ 0.7762 $ 0.7557 $ 0.7353 Turkmenistan $ 2.5509 $ 2.4234 $ 2.3596 $ 2.2958 Turks and Caicos $ 0.6790 $ 0.6451 $ 0.6281 $ 0.6111 Islands Tivalu $ 2.5941 $ 2.4644 $ 2.3995 $ 2.3347 Uganda $ 0.9150 $ 0.8693 $ 0.8464 $ 0.8235 Ukraine $ 1.0169 $ 0.9661 $ 0.9406 $ 0.9152 United Arab Emirates $ 0.7371 $ 0.7002 $ 0.6818 $ 0.6634 United Kingdom $ 0.1519 $ 0.1443 $ 0.1405 $ 0.1367 Uruguay $ 0.7809 $ 0.7419 $ 0.7223 $ 0.7028 Uzbekistan $ 1.0169 $ 0.9661 $ 0.9406 $ 0.9152 Vanuatu $ 2.7080 $ 2.5726 $ 2.5049 $ 2.4372 Venezuela $ 0.4110 $ 0.3905 $ 0.3802 $ 0.3699 Vietnam $ 1.4051 $ 1.3348 $ 1.2997 $ 1.2646 Virgin Islands, British $ 0.6159 $ 0.5851 $ 0.5697 $ 0.5543 Wallis and Futuna $ 1.8989 $ 1.8040 $ 1.7565 $ 1.7090 Western Samoa $ 0.8381 $ 0.7962 $ 0.7752 $ 0.7543 Yemen $ 0.9861 $ 0.9368 $ 0.9121 $ 0.8875 Zaire $ 1.1089 $ 1.0535 $ 1.0257 $ 0.9980 Zambia $ 0.9731 $ 0.9244 $ 0.9001 $ 0.8758 Zimbabwe $ 0.6921 $ 0.6575 $ 0.6402 $ 0.6229 Page 7 800 Costs Interstate 800 Readyline - ------------------------ To be updated as tariff changes are made or negotiated. - -------------------------------------------------------- Rate Rate National Per Hr Per Min -------- ------ -------- All States $ 6.60 $ 0.11
Day Eve N/W Day Eve N/W Rate Rate Rate Per Per Per State Per Hr Per Hr Per Hr Min Min Min ----- ------- ------- ------- ------- ------- ------- ALABAMA $ 10.20 $ 10.20 $ 10.20 0.17000 0.17000 0.17000 ALASKA ARIZONA $ 13.20 $ 12.00 $ 10.80 0.22000 0.20000 0.18000 ARKANSAS $ 15.96 $ 15.96 $ 15.96 0.26600 0.26600 0.26600 CALIFORNIA $ 11.61 $ 9.25 $ 7.40 0.18350 0.15417 0.12333 COLORADO $ 15.01 $ 12.07 $ 11.76 0.25017 0.20117 0.19600 CONNECTICUT $ 13.71 $ 13.71 $ 13.71 0.22850 0.22850 0.22850 DELAWARE $ 14.18 $ 13.50 $ 13.50 0.23633 0.22500 0.22500 D.C. FLORIDA $ 15.29 $ 14.82 $ 14.82 0.25483 0.24700 0.24700 GEORGIA $ 12.40 $ 12.40 $ 12.40 0.20667 0.20667 0.20667 HAWAII $ 14.19 $ 14.19 $ 14.19 0.23650 0.23650 0.23650 IDAHO $ 18.00 $ 18.00 $ 18.00 0.30000 0.30000 0.30000 ILLINOIS $ 12.60 $ 12.15 $ 12.15 0.21000 0.20250 0.20250 INDIANA $ 12.46 $ 12.46 $ 12.46 0.20767 0.20767 0.20767 IOWA $ 16.05 $ 15.29 $ 15.29 0.26750 0.25483 0.25483 KANSAS $ 17.73 $ 17.73 $ 17.73 0.29550 0.29550 0.29550 KENTUCKY $ 15.36 $ 15.36 $ 15.36 0.25600 0.25600 0.25600 LOUISIANA $ 12.60 $ 12.60 $ 12.60 0.21000 0.21000 0.21000 MAINE $ 22.20 $ 22.20 $ 22.20 0.37000 0.37000 0.37000 MARYLAND $ 10.20 $ 8.75 $ 9.75 0.17000 0.16250 0.16250 MASSACHUSETTS $ 10.08 $ 9.25 $ 8.00 0.16800 0.15417 0.13333 MICHIGAN $ 13.23 $ 12.60 $ 12.60 0.22050 0.21000 0.21000 MINNESOTA $ 13.68 $ 13.68 $ 13.68 0.22800 0.22800 0.22800
MISSISSIPPI $ 10.20 $ 10.20 $ 10.20 0.17000 0.17000 0.17000 MISSOURI $ 15.60 $ 15.60 $ 15.60 0.26000 0.26000 0.26000 MONTANA $ 14.63 $ 14.63 $ 14.63 0.24383 0.24383 0.24383 NEBRASKA $ 16.38 $ 16.38 $ 16.38 0.27300 0.27300 0.27300 NEVADA $ 12.83 $ 10.66 $ 8.54 0.21383 0.17767 0.14233 NEW HAMPSHIRE $ 19.20 $ 19.20 $ 19.20 0.32000 0.32000 0.32000 NEW JERSEY $ 10.08 $ 9.27 $ 9.00 0.16800 0.15450 0.15000 NEW MEXICO $ 15.60 $ 12.90 $ 10.80 0.26000 0.21500 0.18000 NEW YORK $ 13.65 $ 10.98 $ 9.18 0.22750 0.18300 0.15300 NO. CAROLINA $ 13.80 $ 13.80 $ 13.80 0.23000 0.23000 0.23000 NO. DAKOTA $ 14.40 $ 14.40 $ 14.40 0.24000 0.24000 0.24000 OHIO $ 13.50 $ 13.50 $ 13.50 0.22500 0.22500 0.22500 OKLAHOMA $ 16.94 $ 16.94 $ 16.94 0.28233 0.28233 0.28333 OREGON $ 15.84 $ 15.09 $ 15.09 0.26400 0.25150 0.25150 PENNSYLVANIA $ 12.92 $ 10.80 $ 9.60 0.21533 0.18000 0.16000 RHODE ISLAND $ 13.42 $ 10.06 $ 10.06 0.22367 0.18767 0.16767 SO. CAROLINA $ 14.22 $ 14.22 $ 14.22 0.23700 0.23700 0.23700 SO. DAKOTA $ 15.01 $ 14.36 $ 14.36 0.25017 0.23933 0.23933 TENNESSEE $ 12.66 $ 12.66 $ 12.66 0.21100 0.21100 0.21100 TEXAS $ 12.27 $ 12.27 $ 12.27 0.20450 0.20450 0.20450 UTAH $ 12.99 $ 12.37 $ 12.37 0.21650 0.20617 0.20617 VERMONT $ 14.68 $ 11.48 $ 10.97 0.24467 0.19133 0.18283 VIRGINIA $ 14.18 $ 10.80 $ 10.80 0.23633 0.18000 0.18000 WASHINGTON $ 12.47 $ 11.88 $ 11.88 0.20783 0.19800 0.19800 W. VIRGINIA $ 13.53 $ 13.20 $ 13.20 0.22550 0.22000 0.22000 WISCONSIN $ 13.23 $ 12.60 $ 12.60 0.22050 0.21000 0.21000 WYOMING $ 15.33 $ 15.33 $ 15.33 0.25550 0.25550 0.25550 AVG COST $ 14.05 $ 13.32 $ 13.06 0.23409 0.22202 0.21764
SDN Costs Interstate SDN - -------------- To be updated as tariff changes are made or renegotiated - -------------------------------------------------------- NATIONAL 1st ADD'L 18 SEC. 6 SEC. ALL STATES $0.0282 $0.0084 Interstate SDN - -------------- To be updated as tariff changes are made or renegotiated
InterLATA State DAY DAY EVE EVE N/W N/W 1ST ADD'L RATE PER PER PER 18 SEC 6 SEC PER HR MIN MIN MIN ALABAMA 0.0468 0.0156 0.0384 0.0128 0.0384 0.0128 ALASKA ARIZONA 0.0678 0.0226 0.0474 0.0158 0.0474 0.0158 ARKANSAS 0.0603 0.0201 0.0540 0.0160 0.0540 0.0180 CALIFORNIA 0.0429 0.0143 0.0342 0.0114 0.0342 0.0114 COLORADO 0.0510 0.0170 0.0408 0.0136 0.0408 0.0136 CONNECTICUT 0.0543 0.0181 0.0489 0.0163 0.0489 0.0163 DELAWARE 0.0492 0.0164 0.0489 0.0163 0.0489 0.0163 D.C FLORIDA 0.0705 0.0235 0.0618 0.0206 0.0618 0.0206 GEORGIA 0.0528 0.0176 0.0444 0.0148 0.0444 0.0148 HAWAII 0.0792 0.0264 0.0534 0.0178 0.0396 0.0132 IDAHO 0.0672 0.0224 0.0540 0.0180 0.0540 0.0180 ILLINOIS 0.0519 0.0173 0.0465 0.0155 0.0465 0.0155 INDIANA 0.0516 0.0172 0.0444 0.0148 0.0444 0.0148 IOWA 0.0648 0.0216 0.0558 0.0186 0.0588 0.0186 KANSAS 0.0705 0.0235 0.0618 0.0206 0.0818 0.0208 KENTUCKY 0.0582 0.0194 0.0519 0.0173 0.0519 0.0173 LOUISIANA 0.0504 0.0168 0.0456 0.0152 0.0456 0.0152 MAINE 0.1200 0.0400 0.1200 0.0400 0.1200 0.0400 MARYLAND 0.0519 0.0173 0.0426 0.0142 0.0426 0.0142 MASS. 0.0516 0.0172 0.0435 0.0145 0.0435 0.0145
SDN Costs Interstate SDN - -------------- To be updated as tariff changes are made or renegotiated
IntarLATA State DAY DAY EVE EVE N/W N/W 1ST ADD'L RATE PER PER PER 18 SEC 6 SEC PER HR MIN MIN MIN ALABAMA 0.0468 0.0156 0.0384 0.0128 0.0384 0.0128 ALASKA ARIZONA 0.0678 0.0226 0.0474 0.0158 0.0474 0.0158 ARKANSAS 0.0603 0.0201 0.0540 0.0180 0.0540 0.0180 CALIFORNIA 0.0246 0.0082 0.0198 0.0066 0.0198 0.0066 COLORADO 0.0510 0.0170 0.0408 0.0136 0.0408 0.0136 CONNECTICUT 0.0543 0.0181 0.0489 0.0163 0.0489 0.0163 DELAWARE 0.0492 0.0164 0.0489 0.0163 0.0489 0.0163 D.C FLORIDA 0.0540 0.0180 0.0492 0.0164 0.0492 0.0164 GEORGIA 0.0528 0.0176 0.0444 0.0148 0.0444 0.0148 HAWAII 0.0792 0.0264 0.0534 0.0178 0.0396 0.0132 IDAHO 0.0576 0.0192 0.0492 0.0164 0.0486 0.0162 ILLINOIS 0.0198 0.0068 0.0163 0.0061 0.0183 0.0061 INDIANA 0.0480 0.0180 0.0444 0.0148 0.0444 0.0148 IOWA 0.0507 0.0169 0.0477 0.0159 0.0477 0.0159 KANSAS 0.0705 0.0235 0.0618 0.0206 0.0618 0.0206 KENTUCKY 0.0558 0.0186 0.0510 0.0170 0.0510 0.0170 LOUISIANA 0.0504 0.0168 0.0456 0.0152 0.0456 0.0152 MAINE 0.1200 0.0400 0.1200 0.0400 0.1200 0.0400 MARYLAND 0.0495 0.0165 0.0405 0.0135 0.0405 0.0135 MASS. 0.0279 0.0093 0.0228 0.0076 0.0150 0.0050
2 SDN Costs Interstate SDN - -------------- To be updated as tariff changes are made or renegotiated
InterLATA State DAY DAY EVE EVE N/W N/W 1ST ADD'L RATE PER PER PER 18 SEC 6 SEC PER HR MIN MIN MIN MICHIGAN 292 0.0510 0.0170 0.0408 0.0136 0.0408 0.0136 MICHIGAN 430 0.0554 0.0192 0.0443 0.0153 0.4430 0.0153 MICHIGAN 925 0.0597 0.0216 0.0477 0.0172 0.4770 0.0172 MINNESOTA 0.0555 0.0185 0.0429 0.0143 0.0429 0.0143 MISSISSIPPI 0.0480 0.0160 0.0441 0.0147 0.0441 0.0147 MISSOURI 0.0720 0.0240 0.0612 0.0204 0.0612 0.0204 MONTANA 0.0510 0.0170 0.0408 0.0136 0.0408 0.0136 NEBRASKA 0.0684 0.0228 0.0579 0.0193 0.0579 0.0193 NEVADA 0.0480 0.0160 0.0384 0.0128 0.0384 0.0128 NEW HAMP. 0.0804 0.0268 0.0804 0.0288 0.0804 0.0268 NEW JERSEY 0.0537 0.0179 0.0453 0.0151 0.0453 0.0151 NEW MEXICO 0.0780 0.0260 0.0624 0.0208 0.0624 0.0208 NEW YORK 0.0654 0.0218 0.0552 0.0184 0.0552 0.0184 NO. CAROLINA 0.0642 0.0214 0.0546 0.0182 0.0546 0.0182 NO. DAKOTA 0.0660 0.0220 0.0534 0.0178 0.0534 0.0178 OHIO 0.0510 0.0170 0.0453 0.0151 0.0453 0.0151 OKLAHOMA 0.0612 0.0204 0.0552 0.0184 0.0552 0.0184 OREGON 55 0.0639 0.0213 0.0630 0.0210 0.0630 0.0210 OREGON 292 0.0702 0.0234 0.0630 0.0210 0.0630 0.0210 OREGON 430 0.0744 0.0248 0.0630 0.0210 0.0630 0.0210 OREGON 440 0.0774 0.0258 0.0630 0.0210 0.0630 0.0210 PENN. 0.0522 0.0174 0.0458 0.0152 0.0456 0.0152 RHODE ISLAND 0.0780 0.0260 0.0690 0.0230 0.0690 0.0230 SO. CAROLINA 0.0609 0.0203 0.0504 0.0168 0.0504 0.0168 SO. DAKOTA 0.0579 0.0193 0.0462 0.0154 0.0462 0.0154 TENNESSEE 0.0630 0.0210 0.0567 0.0189 0.0587 0.0189 TEXAS 0.0615 0.0205 0.0579 0.0193 0.0579 0.0193 UTAH 0.0630 0.0210 0.0504 0.0168 0.0504 0.0168 VERMONT 0.0648 0.0216 0.0519 0.0173 0.0519 0.0173 VIRGINIA 0.0537 0.0179 0.0453 0.0151 0.0453 0.0151 WASHINGTON 0.0561 0.0187 0.0495 0.0165 0.0495 0.0165
3 SDN Costs Interstate SDN - -------------- To be updated as tariff changes are made or renegotiated
IntraLATA State DAY DAY EVE EVE N/W N/W 1ST ADD'L RATE PER PER PER 18 SEC 6 SEC PER HR MIN MIN MIN MICHIGAN 292 0.0510 0.0170 0.0408 0.0136 0.0408 0.0136 MICHIGAN 430 0.0554 0.0192 0.0443 0.0153 0.4430 0.0153 MICHIGAN 925 0.0597 0.0216 0.0477 0.0172 0.4770 0.0172 MINNESOTA 0.0555 0.0185 0.0429 0.0143 0.0429 0.0143 MISSISSIPPI 0.0480 0.0160 0.0441 0.0147 0.0441 0.0147 MISSOURI 0.0720 0.0240 0.0612 0.0204 0.0612 0.0204 MONTANA 0.0510 0.0170 0.0408 0.0136 0.0408 0.0136 NEBRASKA 0.0684 0.0228 0.0579 0.0193 0.0579 0.0193 NEVADA 0.0480 0.0160 0.0384 0.0128 0.0384 0.0128 NEW HAMP. 0.0804 0.0268 0.0804 0.0288 0.0804 0.0268 NEW JERSEY 0.0414 0.0138 0.0354 0.0118 0.0285 0.0095 NEW MEXICO 0.0780 0.0260 0.0624 0.0208 0.0624 0.0208 NEW YORK 0.0552 0.0184 0.0474 0.0158 0.0435 0.0145 NO. CAROLINA 0.0642 0.0214 0.0546 0.0182 0.0546 0.0182 NO. DAKOTA 0.0660 0.0220 0.0534 0.0178 0.0534 0.0178 OHIO 0.0510 0.0170 0.0453 0.0151 0.0453 0.0151 OKLAHOMA 0.0612 0.0204 0.0552 0.0184 0.0552 0.0184 OREGON 55 0.0639 0.0213 0.0630 0.0210 0.0630 0.0210 OREGON 292 0.0702 0.0234 0.0630 0.0210 0.0630 0.0210 OREGON 430 0.0744 0.0248 0.0630 0.0210 0.0630 0.0210 OREGON 440 0.0774 0.0258 0.0630 0.0210 0.0630 0.0210 PENN. 0.0522 0.0174 0.0456 0.0152 0.0456 0.0152 RHODE ISLAND 0.0780 0.0260 0.0690 0.0230 0.0690 0.0230 SO. CAROLINA 0.0609 0.0203 0.0504 0.0168 0.0504 0.0168 SO. DAKOTA 0.0579 0.0193 0.0462 0.0154 0.0462 0.0154 TENNESSEE 0.0447 0.0149 0.0417 0.0139 0.0417 0.0139 TEXAS 0.0615 0.0205 0.0579 0.0193 0.0579 0.0193 UTAH 0.0630 0.0210 0.0504 0.0168 0.0504 0.0168 VERMONT 0.0648 0.0216 0.0519 0.0173 0.0519 0.0173 VIRGINIA 0.0537 0.0179 0.0453 0.0151 0.0453 0.0151 WASHINGTON 0.0561 0.0187 0.0495 0.0165 0.0495 0.0165
4 SDN Costs Interstate SDN - -------------- To be updated as tariff changes are made or renegotiated InterLATA State DAY DAY EVE EVE N/W N/W 1ST ADD'L RATE PER PER PER 18 SEC 6 SEC PER HR MIN MIN MIN W. VIRGINIA 0.0555 0.0185 0.0468 0.0156 0.0468 0.0156 WISCONSIN 0.0525 0.0176 0.0390 0.0130 0.0390 0.0130 WYOMING 0.0750 0.0250 0.0600 0.0200 0.0600 0.0200 AVG COST 0.0613 0.0205 0.0522 0.0174 0.0676 0.0174 5 SDN Costs Interstate SDN - -------------- To be updated as tariff changes are made or renegotiated IntraLATA State DAY DAY EVE EVE N/W N/W 1ST ADD'L RATE PER PER PER 18 SEC 6 SEC PER HR MIN MIN MIN W. VIRGINIA 0.0555 0.0185 0.0468 0.0156 0.0468 0.0156 WISCONSIN 0.0525 0.0176 0.0390 0.0130 0.0390 0.0130 WYOMING 0.0750 0.0250 0.0600 0.0200 0.0600 0.0200 AVG COST 0.05849 0.01954 0.05008 0.01673 0.06480 0.01652 6 CONFIDENTIAL Schedule B Checklist Items Schedule PERIOD TASK WHO Pre launch * * * AOL Pre launch * * * TS and AOL Pre launch * * * TS and AOL Pre launch * * * TS and AOL Pre launch * * * TS and AOL Pre launch * * * AOL Pre launch * * * TS and AOL Pre launch * * * TS Pre launch * * * TS Pre launch * * * AOL Pre launch * * * AOL Pre launch * * * AOL Pre launch * * * TS Pre launch * * * TS and AOL Pre launch * * * TS and AOL Pre launch * * * AOL Test Launch * * * TS and AOL Test Launch * * * AOL Test Launch * * * TS and AOL Test Launch * * * TS and AOL Test Launch * * * TS Test Launch * * * TS Test Launch * * * TS Test Launch * * * TS Test Launch * * * AOL Test Launch * * * AOL Test Launch * * * AOL Test Launch * * * AOL Test Launch * * * TS Test Launch * * * AOL Test Launch * * * AOL Test Launch * * * TS Test Launch * * * AOL Test Launch * * * TS Test Launch * * * TS and AOL Test Launch * * * TS and AOL Test Launch * * * TS Test Launch * * * TS Test Launch * * * TS Test Launch * * * TS Test Launch * * * TS Test Launch * * * AOL and TS Test Launch * * * TS Test Launch * * * TS Test Launch * * * TS Test Launch * * * TS and AOL Test Launch * * * TS Test Launch * * * TS and AOL Test Launch * * * TS and AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Initial Launch * * * AOL Commercial * * * TS and AOL Rollout Commercial * * * AOL Rollout Commercial * * * AOL Rollout CONFIDENTIAL SCHEDULE C Initial Long Distance Services 1. Outbound and inbound long distance, including but not limited to interlata, intralata, intrastate, international and toll-free services. 2. Calling cards, including but not limited to domestic and international, credit and debit cards 3. Operator services, including but not limited to, collect calling, etc. 4. Directory assistance. 5. Conference calling. 6. Private line and dedicated services. 7. Online Billing and paper Billing Services for all telecom services. CONFIDENTIAL Schedule D Rate Schedule SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. 1 + Direct Calling INTERSTATE Dialed Rate Card - ---------- ------------ --------- Direct Dial - 1+AC+number $ 0.097 $ 0.240 800 Readyline $ 0.240 --- page 1 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. Intrastate/Intralata (By state) 1+Direct Calling Dialed Rate Card ------------ --------- ALABAMA $ 0.97 $ 0.240 ARIZONA $ 0.150 $ 0.240 ARKANSAS $ 0.097 $ 0.240 CALIFORNIA $ 0.097 $ 0.240 COLORADO $ 0.150 $ 0.240 CONNECTICUT $ 0.097 $ 0.240 DELAWARE $ 0.097 $ 0.240 FLORIDA $ 0.097 $ 0.240 GEORGIA $ 0.097 $ 0.240 IDAHO $ 0.120 $ 0.240 ILLINOIS $ 0.097 $ 0.240 INDIANA $ 0.097 $ 0.240 IOWA $ 0.120 $ 0.240 KANSAS $ 0.120 $ 0.240 KENTUCKY $ 0.097 $ 0.240 LOUISIANA $ 0.097 $ 0.240 MAINE $ 0.450 $ 0.240 MARYLAND $ 0.097 $ 0.240 MASSACHUSETTS $ 0.097 $ 0.240 MICHIGAN $ 0.097 $ 0.240 MINNESOTA $ 0.097 $ 0.240 MISSISSIPPI $ 0.097 $ 0.240 MISSOURI $ 0.097 $ 0.240 MONTANA $ 0.097 $ 0.240 NEBRASKA $ 0.150 $ 0.240 NEVADA $ 0.097 $ 0.240 NEW HAMPSHIRE $ 0.097 $ 0.240 NEW JERSEY $ 0.097 $ 0.240 NEW MEXICO $ 0.150 $ 0.240 NEW YORK $ 0.120 $ 0.240 NO. CAROLINA $ 0.120 $ 0.240 Page 2 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. Intrastate/Intralata (By state) 1+Direct Calling Dialed Rate Card ------------ --------- NO. DAKOTA $ 0.150 $ 0.240 OHIO $ 0.097 $ 0.240 OKLAHOMA $ 0.120 $ 0.240 OREGON $ 0.097 $ 0.240 PENNSYLVANIA $ 0.097 $ 0.240 RHODE ISLAND $ 0.120 $ 0.240 SO. CAROLINA $ 0.097 $ 0.240 SO. DAKOTA $ 0.097 $ 0.240 TENNESSEE $ 0.120 $ 0.240 TEXAS $ 0.150 $ 0.240 UTAH $ 0.097 $ 0.240 VERMONT $ 0.120 $ 0.240 VIRGINIA $ 0.097 $ 0.240 WASHINGTON $ 0.097 $ 0.240 W. VIRGINIA $ 0.097 $ 0.240 WISCONSIN $ 0.097 $ 0.240 WYOMING $ 0.120 $ 0.240 800 Readyline (all states) $ 0.240 ___ Page 3 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. 1 + Direct Calling INTERSTATE Dialed Rate Card - ---------- ----------- -------- Direct Dial - 1+AC+number $ 0.097 $ 0.240 800 Readyline $ 0.240 --- page 4 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. International (by country) 1+Direct Calling Dialed Rate Card ----------- --------- ALBANIA $ 1.550 $ 1.650 ALGERIA $ 1.200 $ 1.300 AMERICAN SAMOA $ 1.000 $ 1.100 ANDORRA $ 0.650 $ 0.750 ANGOLA $ 1.650 $ 1.750 ANGUILLA $ 0.800 $ 0.900 ANTARTICA $ 1.550 $ 1.650 ANTIGUA AND BARBUDA $ 0.800 $ 0.900 ARGENTINA $ 0.800 $ 0.900 ARMENIA $ 1.250 $ 1.350 ARUBA $ 0.750 $ 0.850 AUSTRALIA $ 0.500 $ 0.600 AUSTRIA $ 0.650 $ 0.750 AZERBAIJAN $ 1.700 $ 1.800 BAHAMAS $ 0.500 $ 0.600 BAHRAIN $ 1.100 $ 1.200 BANGLADESH $ 1.600 $ 1.700 BARBADOS $ 0.650 $ 0.750 BELARUS $ 1.250 $ 1.350 BELGIUM $ 0.600 $ 0.700 BELIZE $ 1.050 $ 1.150 BENIN $ 1.100 $ 1.200 BERMUDA $ 0.600 $ 0.700 BHUTAN $ 3.500 $ 3.600 BOLIVIA $ 1.050 $ 1.150 BOSNIA and HERZEGOVINA $ 1.200 $ 1.300 BOTSWANA $ 1.000 $ 1.100 BRAZIL $ 0.550 $ 0.650 BRUNEI $ 1.600 $ 1.700 BULGARIA $ 1.000 $ 1.100 BURKINA $ 0.800 $ 0.900 page 5 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. International (by country) 1+Direct Calling Dialed Rate Card ----------- --------- BURMA $ 4.100 $ 4.200 BURUNDI $ 3.500 $ 3.600 CAMBODIA $ 2.400 $ 2.500 CAMEROON $ 1.450 $ 1.550 CANADA $ 0.160 $ 0.260 CANARY ISLAND $ 0.300 $ 0.400 CAPE VERDE $ 1.650 $ 1.750 CAYMAN ISLANDS $ 0.700 $ 0.800 CENTRAL AFRICAN REPUBLIC $ 2.600 $ 2.700 CHAD $ 4.350 $ 4.450 CHAGOS ARCHIPELAGO $ 1.650 $ 1.750 CHILE $ 0.750 $ 0.850 CHINA $ 1.100 $ 1.200 COLOMBIA $ 0.750 $ 0.850 COMOROS $ 2.700 $ 2.800 CONGO $ 1.350 $ 1.450 COOK ISLANDS $ 2.900 $ 3.000 COSTA RICA $ 0.750 $ 0.850 COTE D'IVOIRE $ 1.500 $ 1.600 CROATIA $ 0.900 $ 1.000 CUBA $ 1.000 $ 1.100 CYPRUS $ 0.900 $ 1.000 CZECH REPUBLIC $ 0.900 $ 1.000 DENMARK $ 0.700 $ 0.800 DJIBOUTI $ 1.900 $ 2.000 DOMINICA $ 0.850 $ 0.950 DOMINICAN REPUBLIC $ 0.500 $ 0.600 ECUADOR $ 1.000 $ 1.100 EGYPT $ 1.000 $ 1.100 EL SALVADOR $ 0.900 $ 1.000 EQUATORIAL GUINEA $ 2.600 $ 2.700 page 6 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. International (by country) 1+Direct Calling Dialed Rate Card ----------- --------- ESTONIA $ 1.250 $ 1.350 ETHIOPIA $ 1.600 $ 1.700 FIJI $ 1.550 $ 1.650 FINLAND $ 0.550 $ 0.650 FRANCE $ 0.300 $ 0.400 FRENCH GUIANA $ 1.000 $ 1.100 FRENCH OVERSEAS DEPARTMENTS $ 1.000 $ 1.100 FRENCH POLYNESIA $ 1.700 $ 1.800 GABON $ 1.050 $ 1.150 GAMBIA, THE $ 1.050 $ 1.150 GEORGIA $ 2.100 $ 2.200 GERMANY $ 0.300 $ 0.400 GHANA $ 1.150 $ 1.250 GIBRALTAR $ 1.000 $ 1.100 GREECE $ 0.750 $ 0.850 GREENLAND $ 0.900 $ 1.000 GRENADA $ 0.900 $ 1.000 GUADALOUPE $ 1.250 $ 1.350 GUAM $ 0.850 $ 0.950 GUATEMALA $ 0.900 $ 1.000 GUINEA-BISSAU $ 2.450 $ 2.550 GUINEA $ 1.650 $ 1.750 GUYANA $ 1.100 $ 1.200 HAITI $ 0.800 $ 0.900 HONDURAS $ 1.000 $ 1.100 HONG KONG $ 0.500 $ 0.600 HUNGARY $ 0.900 $ 1.000 ICELAND $ 1.050 $ 1.150 INDIA $ 1.000 $ 1.100 INDONESIA $ 1.100 $ 1.200 IRAN $ 1.000 $ 1.100 page 7 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. International (by country) 1+Direct Calling Dialed Rate Card ----------- --------- IRAQ $ 2.050 $ 2.150 IRELAND $ 0.600 $ 0.700 ISRAEL $ 0.850 $ 0.950 ITALY $ 0.600 $ 0.700 JAMAICA $ 0.700 $ 0.800 JAPAN $ 0.400 $ 0.500 JORDAN $ 1.050 $ 1.150 KAZAKHSTAN $ 2.100 $ 2.200 KENYA $ 1.050 $ 1.150 KIRIBATI $ 3.250 $ 3.350 KOREA, SOUTH $ 0.600 $ 0.700 KUWAIT $ 1.200 $ 1.300 KYRGYZSTAN $ 2.150 $ 2.250 LAOS $ 3.350 $ 3.450 LATVIA $ 1.250 $ 1.350 LEBANON $ 1.700 $ 1.800 LESOTHO $ 1.250 $ 1.350 LIBERIA $ 0.800 $ 0.900 LIBYA $ 1.250 $ 1.350 LIECHTENSTEIN $ 0.850 $ 0.950 LITHUANIA $ 1.250 $ 1.350 LUXEMBOURG $ 0.800 $ 0.900 MACAU $ 1.750 $ 1.850 MADAGASCAR $ 4.450 $ 4.550 MALAWI $ 1.200 $ 1.300 MALAYSIA $ 1.000 $ 1.100 MALDIVES $ 2.550 $ 2.650 MALI $ 1.850 $ 1.950 MALTA $ 1.250 $ 1.350 MARITIME - ATLANTIC $ 5.000 $ 5.100 MARITIME - OTHER OCEANS $ 5.000 $ 5.100 page 8 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. International (by country) 1+Direct Calling Dialed Rate Card ----------- --------- MARITIME - PACIFIC $ 5.000 $ 5.100 MARSHALL ISLANDS $ 1.700 $ 1.800 MAURITANIA $ 1.600 $ 1.700 MAURITIUS $ 2.150 $ 2.250 MEXICO $ 0.500 $ 0.600 MICRONESIA, FEDERATED STATES OF $ 1.150 $ 1.250 MIDWAY ATOLL $ 2.150 $ 2.250 MOLDOVA $ 1.750 $ 1.850 MONGOLIA $ 3.900 $ 4.000 MONTSERRAT $ 0.850 $ 0.950 MOROCCO $ 1.400 $ 1.500 MOZAMBIQUE $ 2.050 $ 2.150 NAMIBIA $ 1.150 $ 1.250 NAURU $ 4.550 $ 4.650 NEPAL $ 1.400 $ 1.500 NETHERLANDS $ 0.400 $ 0.500 NETHERLANDS ANTILLES $ 0.800 $ 0.900 NEW CALEDONIA $ 1.700 $ 1.800 NEW ZEALAND $ 0.700 $ 0.800 NICARAGUA $ 1.000 $ 1.100 NIGER $ 1.900 $ 2.000 NIGERIA $ 1.000 $ 1.100 NIUE $ 2.550 $ 2.650 NORFOLK ISLAND $ 2.550 $ 2.650 NORTHERN MARIANA ISLANDS $ 1.600 $ 1.700 NORWAY $ 0.500 $ 0.600 OMAN $ 1.200 $ 1.300 PACIFIC ISLANDS (PALAU) $ 1.950 $ 2.050 PAKISTAN $ 1.400 $ 1.500 PANAMA $ 0.750 $ 0.850 PAPUA NEW GUINEA $ 1.350 $ 1.450 page 9 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. International (by country) 1+Direct Calling Dialed Rate Card ----------- -------- PARAGUAY $ 1.250 $ 1.350 PERU $ 1.000 $ 1.100 PHILIPPINES $ 0.600 $ 0.700 POLAND $ 0.750 $ 0.850 PORTUGAL $ 0.850 $ 0.950 QATAR $ 1.050 $ 1.150 REUNION $ 1.900 $ 2.000 ROMANIA $ 1.300 $ 1.400 RUSSIA $ 1.200 $ 1.300 RWANDA $ 2.050 $ 2.150 SAINT HELENA $ 2.250 $ 2.350 SAINT KITTS AND NEVIS $ 0.650 $ 0.750 SAINT LUCIA $ 0.900 $ 1.000 SAINT PIERRE AND MIQUELON $ 0.900 $ 1.000 SAINT VINCENT AND THE GRENADINES $ 0.900 $ 1.000 SAO TOME AND PRINCIPE $ 2.400 $ 2.500 SAUDI ARABIA $ 1.200 $ 1.300 SENEGAL $ 1.700 $ 1.800 SERBIA $ 1.200 $ 1.300 SEYCHELLES $ 2.100 $ 2.200 SIERRA LEONE $ 1.300 $ 1.400 SINGAPORE $ 0.550 $ 0.650 SLOVAKIA $ 0.900 $ 1.000 SLOVENIA $ 0.900 $ 1.000 SOLOMON ISLANDS $ 1.950 $ 2.050 SOMALIA $ 2.350 $ 2.450 SOUTH AFRICA $ 0.750 $ 0.850 SPAIN $ 0.700 $ 0.800 SRI LANKA $ 1.550 $ 1.650 SUDAN $ 2.050 $ 2.150 SURINAME $ 1.250 $ 1.350 page 10 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. International (by country) 1+Direct Calling Dialed Rate Card ----------- --------- SWAZILAND $ 1.250 $ 1.350 SWEDEN $ 0.400 $ 0.500 SWITZERLAND $ 0.500 $ 0.600 SYRIA $ 1.750 $ 1.850 TAIWAN $ 0.550 $ 0.650 TAJIKISTAN $ 3.750 $ 3.850 TANZANIA $ 1.100 $ 1.200 THAILAND $ 1.000 $ 1.100 TOGO $ 1.050 $ 1.150 TONGA $ 1.500 $ 1.600 TRINIDAD & TOBAGO $ 0.800 $ 0.900 TUNISIA $ 1.300 $ 1.400 TURKEY $ 1.000 $ 1.100 TURKMENISTAN $ 3.100 $ 3.200 TURKS AND CAICOS ISLANDS $ 0.900 $ 1.000 TUVALU $ 3.150 $ 3.250 UGANDA $ 1.150 $ 1.250 UKRAINE $ 1.250 $ 1.350 UNITED ARAB EMIRATES $ 0.950 $ 1.050 UNITED KINGDOM $ 0.200 $ 0.300 URUGUAY $ 1.000 $ 1.100 UZBEKISTAN $ 1.250 $ 1.350 VANUATU $ 3.300 $ 3.400 VENEZUELA $ 0.500 $ 0.600 VIETNAM $ 1.350 $ 1.450 VIRGIN ISLANDS, BRITISH $ 0.800 $ 0.900 WALLIS AND FUTUNA $ 2.300 $ 2.400 WESTERN SAMOA $ 1.050 $ 1.150 YEMEN $ 1.250 $ 1.350 ZAIRE $ 1.400 $ 1.500 ZAMBIA $ 1.200 $ 1.300 page 11 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. International (by country) 1+Direct Calling Dialed Rate Card ----------- ------- ZIMBABWE $ 0.900 $ 1.000 page 12 SCHEDULE D RATE SCHEDULE All prices billed at full minute increments Note: Pricing for Intrastate/Intralata and International will be reflective of AT&T One Rate plan rates discounted by 20% when information is made available. 1 + Direct Calling Dialed Rate Card OTHER SERVICES ----------- ------- Directory Assistance $ 0.750 $ 0.850 Collect (Automated or Operator Assisted) $ 2.250 --- Billed to 3rd Party $ 2.350 --- Coin Sent Paid Operator $ 2.300 --- Person to Person $ 4.900 --- Source: AT&T Tariff F.C.C. No.27 page 13 CONFIDENTIAL Schedule E Performance Milestones Commitment or Deliverable Amount Milestone 1. * * * $7 mil Issuance of Press Release 2. * * * $10 mil Execution of Agreement 3. * * * $20 mil Execution of Agreement 4. * * * $9 mil Execution of Agreement 5. * * * $3 mil Certification by AOL of Completion 6. * * * $1.5 mil Certification by AOL of Completion 7. * * * $1 mil Certification by AOL of Completion 8. * * * $1 mil Certification by AOL of Completion 9. * * * $2 mil Certification by AOL of Completion 10. * * * $2 mil Certification by AOL of Completion 11. * * * $0.5 mil Delivery of list of test customers -----END PRIVACY-ENHANCED MESSAGE-----