UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission file number 0 - 26728
Tel-Save Holdings, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
23-2827736
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(I.R.S. Employer Identification No.)
6805 Route 202, New Hope, Pa. 18938
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(Address of principal executive offices - Zip code)
Registrant's telephone number, including area code: 215 - 862 - 1500
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Former name, former address and former fiscal year, if changes since last
report.
Indicate by check whether the registrant (1) has filed all 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12,13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $.01 par value, 29,917,446 shares outstanding as of November 7,
1996.
<PAGE>
TEL-SAVE HOLDINGS, INC.
FORM 10-Q
September 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 3
Consolidated Statements of Income for the three
and nine months ended September 30, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity for the
nine months ended September 30, 1996 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
Items 1 - 6 17
Signatures 18
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
CURRENT:
Cash and cash equivalents $160,226 $41,211
Marketable securities 12,737 -
Accounts receivable, trade net of allowance for uncollect
ible accounts of $931 and $804, respectively 21,952 19,088
Advances to partitions and note receivables 14,833 3,563
Due from broker - 1,100
Prepaid expenses and other current assets 2,389 194
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 212,137 65,156
Property and equipment, net of accumulated depreciation of
$398 and $250, respectively 22,527 2,667
Intangibles, net of accumulated amortization of $3,159 and
$1,574, respectively 2,793 1,490
Note receivable from stockholder - 2,075
Other assets 1,921 -
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $239,378 $71,388
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses:
Trade and other $ 19,296 $12,622
Partitions 4,740 3,047
Sales and excise taxes payable 1,211 1,406
Other 996 514
Securities sold short, at cost to purchase - 1,100
Income taxes payable 2,340 2,375
Note payable to stockholder - current - 5,921
- --------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 28,583 26,985
Deferred credits 400 280
Deferred income taxes payable 2,599 2,809
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 31,582 30,074
- --------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 5,000,000 shares autho
rized; no shares outstanding - -
Common stock - $.01 stated value, 100,000,000 autho
rized; 29,049,000 and 19,500,000 issued and outstand
ing, respectively 290 195
Additional paid-in capital 187,710 37,245
Retained earnings 18,341 3,874
Unrealized gain on marketable securities 1,455 -
- --------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 207,796 41,314
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $239,378 $71,388
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- ------------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $60,079 $48,366 $168,159 $129,711
Cost of sales 51,756 42,696 145,617 112,555
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 8,323 5,670 22,542 17,156
Selling, general and adminis
trative 2,452 1,662 7,244 4,080
- -------------------------------------------------------------------------------------------------------------------------------
Operating income 5,871 4,008 15,298 13,076
Other income, net 5,416 191 7,923 210
- -------------------------------------------------------------------------------------------------------------------------------
Income before provision for
income taxes 11,287 4,199 23,221 13,286
Provision for income taxes 4,255 7,145 8,754 7,145
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,032 $ (2,946) $ 14,467 $ 6,141
===============================================================================================================================
PRO FORMA:
Income before provision for
income taxes $ 4,199 $ 13,286
Pro forma provision for in
come taxes 1,680 5,314
- -------------------------------------------------------------------------------------------------------------------------------
PRO FORMA NET INCOME $ 2,519 $ 7,972
===============================================================================================================================
NET INCOME PER SHARE -
PRIMARY $ .22 $ .16 $ .53 $ .51
================================================================================================================================
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING - PRIMARY 31,699 15,928 27,269 15,567
===============================================================================================================================
NET INCOME PER SHARE - FULLY
DILUTED $ .22 $ .16 $ .52 $ .51
===============================================================================================================================
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING - FULLY
DILUTED 32,370 15,937 28,089 15,581
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Common Stock Unrealized
----------------------- Additional Gain on
Paid-in Retained Marketable
Shares Amount Capital Earnings Securities Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 19,500 $195 $ 37,245 $ 3,874 $ - $ 41,314
Net income - - - 14,467 - 14,467
Issuance of warrants to partitions - - 1,077 - - 1,077
Sale of common stock 8,534 85 138,984 - - 139,069
Exercise of common stock options 1,015 10 4,461 - - 4,471
Income tax benefit related to exercise of
common stock options - - 5,943 - - 5,943
Unrealized gain on marketable securities - - - - 1,455 1,455
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 29,049 $290 $187,710 $18,341 $1,455 $207,796
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------------
1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $14,467 $6,141
Adjustment to reconcile net income to net cash provided
by (used in) operating activities:
Unrealized loss (gain) on securities sold short and mar
ketable securities 2 (149)
Provision for bad debts 23 (18)
Depreciation and amortization 1,733 769
Deferred credits 120 120
(Increase) decrease in:
Accounts receivable - trade (2,991) (5,804)
Advances to partitions and note receivables (11,270) (996)
Prepaid expenses and other current assets (2,195) 1,432
Other assets (1,921) -
Increase (decrease) in:
Accounts and partition payables and accrued expenses 8,757 6,605
Income taxes payable 4,914 7,146
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 11,639 15,246
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of intangibles (1,811) (457)
Capital expenditures (20,006) (939)
Securities sold short (1,100) 749
Due from broker 1,100 (600)
Loans to stockholder (3,034) -
Repayments of stockholder loans 5,109 -
Purchase of marketable securities (10,501) -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,243) (1,247)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments to related parties - (1,725)
Loans to stockholder (5,921) (1,042)
Proceeds from sale of common stock 139,069 37,061
Proceeds from exercise of common stock options 4,471 -
Distribution to stockholders - (13,200)
Stock redemption - (4,500)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 137,619 16,594
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 119,015 30,593
Cash and cash equivalents, at beginning of period 41,211 11
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period $160,226 $30,604
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
1.Basis of Presentation The consolidated financial statements include the accounts of Tel-
Save Holdings, Inc. and its two wholly-owned subsidiaries, Tel-Save,
Inc. and TS Investment Corporation, and have been prepared as if the
entities had operated as a single consolidated group since their
respective dates of incorporation. All intercompany balances and
transactions have been eliminated.
The consolidated financial statements and related notes thereto as of
September 30, 1996 and for the three and nine months ended
September 30, 1996 and 1995 are presented as unaudited but in the
opinion of management include all adjustments necessary to present
fairly the information set forth therein. These adjustments consist
solely of normal recurring accruals. The consolidated balance sheet
information for December 31, 1995 was derived from the audited
financial statements included in the Company's Form 10-K. These
interim financial statements should be read in conjunction with that
report. The interim results are not necessarily indicative of the
results for any future periods.
2.Stock Split On February 16, 1996, the Company's Board of Directors approved
a three-for-two split of the common stock in the form of a 50% stock
dividend. The additional shares resulting from the stock split were
distributed on March 15, 1996, to all stockholders of record at the
close of business on February 29, 1996. The consolidated balance
sheet as of December 31, 1995 reflects the recording of the stock
split as if it had occurred on December 31, 1995. Further, all
references in the consolidated financial statements to average number
of shares outstanding and related prices, per share amounts, warrant
and stock option data have been restated for all periods to reflect the
stock split.
3.Income Taxes On June 1, 1991, the Company, with the consent of its stockholders,
elected to be taxed as an S Corporation. As a result of the election,
all earnings of the Company were taxed directly to the stockholders.
On September 19, 1995, the Company terminated its S Corporation
status. Pro forma tax provisions have been calculated as if the
Company's results of operations were taxable as a C Corporation
under the Internal Revenue Code for the three and nine months ended
September 30, 1995.
-7-
<PAGE>
<CAPTION>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.Marketable Securities Marketable securities as of September 30, 1996 consist primarily of
equity securities classified as available-for-sale. Available-for-sale
securities are stated at fair value, and unrealized holding gains and
losses, net of the related deferred tax effect, are reported as a
component of stockholders' equity. Realized gains and losses are
determined on the basis of the specific securities sold.
5.Other Income Other income was $5.4 million in the third quarter of 1996 versus
$191,000 for the third quarter of 1995. Other income for the quarter
includes two nonrecurring gains: a $1.4 million gain on the sale of
securities of another long distance company and a $1.5 million gain
on the sale of short term U.S. Treasury securities. The remainder of
other income consists primarily of interest income earned on the Company's
cash balances resulting primarily from the unapplied proceeds of the
Company's public offering in April 1996 and excess cash from
operations.
-8-
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Company was founded in 1989 as a switchless reseller of AT&T long
distance services to small and medium-sized businesses. The Company is
in the process of completing the deployment of its own nationwide long
distance network, One Better Net ("OBN").
The Company's sales to date have been derived from the resale of long
distance services. The Company's cost of sales consists principally of
charges for bundled long distance services, as charged by AT&T,
partition charges, net of usage and other discounts, which are based
on the usage of partitions, and end user billing and support. The
Company believes that, historically, the competitive terms of its
contract tariffs with AT&T and its ability to manage and distribute
data are the primary reasons for its sales increases. In 1992, the
Company negotiated a contract tariff with AT&T, resulting in lower
rates than its previous contract tariffs. In July 1994, the Company
obtained two new contract tariffs with AT&T, resulting in further
reduced rates for the AT&T-SDN service and competitive terms for AT&T
800 Service, which the Company then began to market actively.
In October 1996, the Company subscribed to a new AT&T contract tariff,
which 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 long distance network, OBN.
The rates that the Company will pay under the new AT&T contract 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 existing end
users from the AT&T network to OBN. The new AT&T contact 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 $240 million of
service from A&T over the next 4 years. 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 of approximately $10 million per month.
Further, the Company can terminate the new contract tariff without
liability to AT&T at the end of the first 18 months if the Company has
purchased $90 million in services from AT&T under the new contract
tariff. The Company can also terminate the new contract tariff without
liability to AT&T in the first 18 months if the Company and AT&T enter
into a new contract tariff or another contract with a revenue
commitment of at least $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 $5 million per month for the months prior to such termination.
-9-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
The Company is continuing the deployment of OBN, which features five
Company-owned, AT&T (now Lucent Technologies, Inc., hereinafter
"Lucent") manufactured 5ESS-2000 switches connected by AT&T digital
transmission facilities. Installation of the transmission facilities
and the five switches -- in Jacksonville, New York City, Chicago,
Dallas and San Francisco -- is substantially complete, and testing of
the network is being performed by the Company and the local exchange
carriers ("LECs") whose local networks interconnect with the Company's
long distance network. The Company is now in the process of activating
access to the local areas that will be served by each switch, and has
begun placing end users on OBN through the Jacksonville switch. OBN
includes echo cancellation equipment purchased from Lucent. The
Company expects OBN to become functional over the next three months.
The Company believes that gross margins for OBN long distance service
will be higher than for AT&T long distance service. AT&T long distance
service is "bundled," which means that the Company pays a single,
all-inclusive price to AT&T for switching, transmission, and LEC
access. OBN long distance service is "unbundled," which means that the
Company provides its own switching, pays AT&T for transmission, and
pays access fees directly to LECs. The "unbundled" charges per call on
OBN are expected to be less than the "bundled" charge paid to AT&T .
In addition, OBN should result in a faster and more reliable
"provisioning" process, in which end users who have requested the
Company's services actually begin to receive those services.
OBN is the focus of the Company's current direct marketing efforts to
end users. The Company is also encouraging OBN sales through its
partitions that purchase the Company's services for resale to end
users. The Company expects that by the end of the fourth quarter of
1996 a significant portion of its new end users will be provisioned to
OBN.
OBN also will provide the local service capabilities needed to support
the Company's planned provision of Competitive Telecommunications
Provider or "CTP" services. The Company intends to begin activities in
planning and marketing CTP services, and purchasing, installing and
testing the switching modules necessary to provide such services,
after OBN becomes fully functional.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a valuation method for
accounting for stock-based compensation plans either through
recognition or disclosure. The Company intends to adopt the employee
stock- based compensation provisions of SFAS No. 123 by disclosing the
pro forma net income and pro forma net income per share amounts
assuming the fair value method was adopted January 1, 1995. While the
adoption of this standard will not impact the Company's consolidated
results of operations, financial position or cash flows, the
implementation of this disclosure requirement could have an impact on
the stock valuations of public companies with options or warrants.
-10-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following tables sets forth for the periods indicated certain financial data
as a percentage of sales:
<TABLE>
<CAPTION>
Percentage of Sales
--------------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------------------------------------------------------
1996 1995(A) 1996 1995(A)
---- ------- ---- -------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 86.1 88.3 86.6 86.8
------- ----- ----- -----
Gross profit 13.9 11.7 13.4 13.2
Selling, general and administrative 4.1 3.4 4.3 3.1
------- ---- ----- -----
Operating income 9.8 8.3 9.1 10.1
Other income, net 9.0 0.4 4.7 0.1
------- ---- ---- -----
Income before provision for
income taxes 18.8 8.7 13.8 10.2
Provision for income taxes 7.1 3.5 5.2 4.0
------- ---- ---- -----
Net income 11.7% 5.2% 8.6% 6.2%
=====================================================================================================================
</TABLE>
(A) Pro forma tax provisions have been calculated as if the Company's results of
operations were taxable as a C corporation (the Company's current tax status)
for the three and nine months ended September 30, 1995. Prior to September 20,
1995, the Company was an S corporation with all earnings taxed directly to its
shareholders.
-11-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THE THREE MONTHS ENDED SEPTEMBER 30,
1995
Sales. Sales increased by 24.2% to $60.1 million in the third quarter of
1996 from $48.4 million in the third quarter of 1995. The increase in sales
related primarily to the continued expansion of the Company's distribution
network of partitions, as well as increases in the number of orders submitted by
the Company's existing partitions. One partition, The Furst Group, Inc.
accounted for approximately 13% of the Company's sales for the third quarter of
1996 versus zero in the third quarter of 1995. In addition, significant
partition marketing efforts focused on inbound 800 service resulted in sales of
$22.6 million for the three month period ended September 30, 1996 versus $14.0
million for the three month period ended September 30, 1995.
Cost of Sales. The Company's costs of sales increased by 21.1% to $51.8 million
in the third quarter of 1996 from $42.7 million in the third quarter of 1995.
The increase in cost of sales resulted primarily from the increase in sales of
AT&T- SDN and inbound 800 services and the initiation of direct marketing
activities in 1996.
Gross Margin. Gross margin increased to 13.9% in the third quarter of 1996 from
11.7% during the third quarter of 1995. The increase in gross margin was due to
lower network costs offset by direct marketing expenses and higher volume
discounts to certain partitions.
Although, the basic rates of the three largest long distance carriers AT&T, MCI
and Sprint have consistently increased over the past three years, AT&T and other
carriers have announced new price plans aimed at residential customers 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 is expected to make the Company
more price competitive, a reduction in long distance prices still may have a
material adverse impact on the Company's gross margin in future periods.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 47.5% to $2.5 million in the third quarter
of 1996 from $1.7 million in the third quarter of 1995. The increase in selling,
general and administrative expenses was due primarily to the costs associated
with hiring additional management personnel to support the Company's continuing
growth, and increased fees for professional services.
Other Income. Other income was $5.4 million in the third quarter of 1996 versus
$191,000 for the third quarter of 1995. Other income for the quarter includes
two nonrecurring gains : a $1.4 million gain on the sale of securities of
another long distance company and a $1.5 million gain on the sale of short term
U.S. Treasury securities. The remainder of other income consists primarily of
interest income earned on the Company's cash balances resulting primarily from
the unapplied proceeds of the Company's public offering in April 1996 and excess
cash from operations.
Provision for income taxes. The Company's effective tax rate declined to 37.7%
for the three months ended September 30, 1996 from the pro forma effective tax
rate of 40.0% for the three months ended September 30, 1995 due to an
anticipated lower effective state tax rate in 1996.
-12-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1996 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
Sales. Sales increased by 29.6% to $168.2 million in the first nine months of
1996 from $129.7 million in the first nine months of 1995. The increase in sales
related primarily to the continued expansion of the Company's distribution
network of partitions, as well as increases in the number of orders submitted by
the Company's existing partitions. In addition, significant partition marketing
efforts focused on inbound 800 service resulted in sales of $58.8 million for
the nine month period ended September 30, 1996 versus $35.1 million for the nine
month period ended September 30, 1995.
Cost of Sales. The Company's costs of sales increased by 29.4% to $145.6 million
in the first nine months of 1996 from $112.6 million in the first nine months of
1995. The increase in cost of sales resulted primarily from the increase in
sales of AT&T-SDN and inbound 800 services and the initiation of direct
marketing activities in 1996.
Gross Margin. Gross margin increased to 13.4% in the first nine months of 1996
from 13.2% during the first nine months of 1995. The increase in gross margin
was due to lower network costs offset by direct marketing expenses and higher
volume discounts to certain partitions.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 77.5% to $7.2 million in the first nine
months of 1996 from $4.1 million in the first nine months of 1995. The increase
in selling, general and administrative expenses was due primarily to the costs
(including bonus plan accruals) associated with hiring additional management
personnel to support the Company's continuing growth, and increased fees for
professional services.
Other Income. Other income for the first nine months of 1996 was $7.9 million
versus $210,000 for the first nine months a year ago. Other income for the
quarter includes two nonrecurring gains : a $1.4 million gain on the sale of
securities of another long distance company and a $1.5 million gain on the sale
of short term U.S. Treasury securities. The remainder of other income consists
primarily of interest income earned on the Company's cash balances resulting
primarily from the unapplied proceeds of the Company's public offering in April
1996 and excess cash from operations.
Provision for income taxes. The Company's effective tax rate declined to 37.7%
for the nine months ended September 30, 1996 from the pro forma effective tax
rate of 40.0% for the nine months ended September 30, 1995 due to an anticipated
lower effective state tax rate in 1996.
-13-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company consummated its initial public offering of 5,175,000 shares of
Common Stock in September and October of 1995. The Company received net proceeds
from such offering of $42.8 million, of which $4.5 million was used to pay the
minority stockholder. The Company consummated a public offering of 8,534,000
shares of Common Stock in April and May, 1996. The Company received net proceeds
from such offering of approximately $139.1 million. In addition, in June 1996,
certain options to purchase shares of the Company's Common Stock were exercised
and the Company received net proceeds of approximately $4.5 million. The tax
benefit realized from the exercise of stock options was approximately $5.9
million and is reflected as an adjustment to additional paid-in capital and
taxes payable. As of September 30, 1996, the Company had cash, cash equivalents
and marketable securities of approximately $173.0 million.
Since its inception, the Company has funded its operations primarily from cash
generated by operations and, to a lesser extent, advances from stockholders and
bank borrowings. The Company's cash flow provided by operations was $11.6
million and $15.2 million for the nine months ended September 30, 1996 and 1995,
respectively.
The Company's working capital was $183.6 million and $35.7 million at September
30, 1996 and 1995, respectively. The significant increase in working capital is
primarily a result of the completion of the Company's public offering in April
and May, 1996.
The Company invested $20.0 million in capital equipment during the nine months
ended September 30, 1996, of which $16.5 million was used for the acquisition of
capital equipment and installation costs relating to the deployment of OBN. In
June 1996, the Company purchased a new headquarters building in New Hope,
Pennsylvania for approximately $1.5 million. In July 1996, the Company also
purchased a building in Clearwater, Florida which will be used for direct
marketing for approximately $900,000.
In March 1996, the Company negotiated an unsecured, committed line of credit
with PNC Bank, N.A. ("Credit Facility") under which borrowings of up to $50.0
million are available. The Company is required to pay an availability fee of
$62,500 per annum, or 0.125% of the total available borrowings. Interest on
borrowings is payable monthly at PNC Bank's prime rate less 0.5% or LIBOR plus
0.875%, at the Company's option. Principal is payable upon demand by PNC Bank.
Under the terms of the Credit Facility, the Company must maintain certain
financial covenants and adhere to certain restrictions. At September 30, 1996,
the Company had no borrowings outstanding under the Credit Facility.
-14-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
The Company has used a portion of the proceeds from its 1996 stock offering for:
(i) advances to new and existing partitions to support their marketing efforts,
(ii) procurement of additional hardware and software for OBN, (iii) direct
marketing efforts, including the purchase of a direct marketing center in
Clearwater, Florida, and (iv) the purchase of a new headquarters building in New
Hope, Pennsylvania. The Company intends to use the remaining proceeds: (i) to
further fund new and existing partitions, (ii) to expand direct marketing
efforts, including the build out of the direct marketing center, and (iii) to
take advantage of growth opportunities, including but not limited to, possible
acquisitions and development of CTP Services. Excess cash is invested primarily
in short term government securities and cash equivalents consisting of money
market accounts with major international brokerage firms. The Company expects to
spend less of the proceeds of the 1996 stock offering to start up OBN than
originally planned because of the new AT&T contract tariff, which will allow the
Company to avoid some of the costs associated with moving existing end users to
OBN and permit the Company to phase in OBN more cost effectively by not leasing
transmission facilities before traffic levels are sufficient to fill them. There
can be no assurance that the Company's financial performance will meet analyst
expectations in the future.
The Company does not have a significant concentration of credit risk with
respect to accounts receivable due to the large number of end users comprising
the Company's customer base and their dispersion across different geographic
regions. The Company maintains reserves for potential credit losses and, to
date, such losses have been within the Company's expectations.
The Company believes that its current cash position, marketable securities, the
Credit Facility and the cash flow expected to be generated from operations, will
be sufficient to fund its capital expenditures, working capital and other cash
requirements for at least the next twelve months.
-15-
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) Not applicable;
(b) Not applicable;
(c) Not applicable.
Item 5. Other Information
As discussed above in Part I, Item 2, the Company has subscribed
to a new contract tariff with AT&T a copy of which is filed
herewith on Exhibit 10.29 and incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.29 AT&T Contract Tariff No. 5776
Exhibit 11 Computation of Net Income Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date: November 7, 1996 TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
By: /s/ Daniel Borislow
--------------------------------
Daniel Borislow
Chairman of the Board,
Chief Executive Officer and Director
By: /s/ Joseph A. Schenk
--------------------------------
Joseph A. Schenk
Chief Financial Officer, Treasurer
and Director
By: /s/ Kevin R. Kelly
--------------------------------
Kevin R. Kelly
Controller
-17-
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Title Page
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
CONTRACT TARIFF NO. 5776
TITLE PAGE
This Contract Tariff applies to AT&T Software Defined Network Services
consisting of: AT&T Custom Software Defined Network Service and Global Software
Defined Network Service; AT&T MEGACOM Service, AT&T 800 Services consisting of:
AT&T 800 Service-Domestic, AT&T 800 Service-Canada, AT&T MEGACOM 800
Service-Domestic, AT&T MEGACOM 800 Service-Canada, AT&T MEGACOM 800
Service-Mexico, AT&T MEGACOM 800 Service-Overseas, AT&T 800 READYLINE
Service-Domestic, AT&T 800 READYLINE Service-Canada, AT&T 800 READYLINE
Service-Mexico, AT&T 800 READYLINE Service-Overseas, AT&T 800 READYLINE
Service-Puerto Rico and the U.S. Virgin Islands; AT&T ACCUNET T1.5 Service
Access Connections; AT&T Primary Rate Interface Office Functions and AT&T
Terrestrial 1.544 Mbps Local Channel Services for interstate or foreign
communications in accordance with the Communications Act of 1934, as amended.
Telecommunication services provided under this Contract Tariff are furnished by
means of wire, radio, satellite, fiber optics or any suitable technology or
combination of technologies.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 1
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
CONTRACT TARIFF NO. 5776
CHECK SHEET
The Title Page and Pages 1 through 26 inclusive of this tariff are effective as
of the date shown.
TABLE OF CONTENTS
Page
Check Sheet.......................................................... 1
List of Concurring, Connecting and Other Participating Carriers...... 1
Explanation of Symbols - Coding of Tariff Revisions.................. 1
Trademarks and Service Marks......................................... 2
Explanation of Abbreviations......................................... 2
Contract Summary.................................................... 3
LIST OF CONCURRING, CONNECTING AND OTHER PARTICIPATING CARRIERS
Concurring Carriers - NONE
Connecting Carriers - NONE
Other Participating Carriers - NONE
EXPLANATION OF SYMBOLS - Coding of Tariff Revision
Revisions to this tariff are coded through the use of symbols. These symbols
appear in the right margin of the page. The symbols and their meanings are:
R - to signify reduction.
I - to signify increase.
C - to signify changed regulation.
T - to signify a change in text but no change in rate or regulation.
S - to signify reissued matter.
M - to signify matter relocated without change.
N - to signify new rate or regulation.
D - to signify discontinued rate or regulation.
Z - to signify a correction.
Other marginal codes are used to direct the tariff reader to a footnote for
specific information. Codes used for this purpose are lower case letters of the
alphabet, e.g., x, y and z. These codes may appear beside the page revision
number in the header or in the right margin opposite specific text.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 2
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
TRADEMARKS AND SERVICE MARKS - The following marks, to the extent, if any, used
throughout this tariff, are trademarks and service marks of AT&T Corp.
Trademarks Service Marks
None ACCUNET
MEGACOM
READYLINE
EXPLANATION OF ABBREVIATIONS
Adm. - Administrator
Mbps - Megabits per second
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 3
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
CONTRACT TARIFF NO. 5776
1. Services Provided:
A. AT&T Software Network (SDN) Services (AT&T Tariff F.C.C. No.1)
consisting of:
1. Custom SDN
2. Global Software Defined Network (GSDN) Service
B. AT&T MEGACOM Service (AT&T Tariff F.C.C. No. 1)
C. AT&T 800 Services (AT&T Tariff F.C.C. Nos. 2 and 14)
consisting of:
1. AT&T 800 Service-Domestic
2. AT&T 800 Service-Canada
3. AT&T MEGACOM 800 Service-Domestic
4. AT&T MEGACOM 800 Service-Canada
5. AT&T MEGACOM 800 Service-Mexico
6. AT&T MEGACOM 800 Service-Overseas
7. AT&T 800 READYLINE Service-Domestic
8. AT&T 800 READYLINE Service-Canada
9. AT&T 800 READYLINE Service-Mexico
10. AT&T 800 READYLINE Service-Overseas
11. AT&T 800 READYLINE Service-Puerto Rico and the U.S.
Virgin Islands
D. AT&T ACCUNET T1.5 Service Access Connections and the AT&T
Primary Rate Interface
Office Functions (AT&T Tariff F.C.C. No. 9)
E. AT&T Terrestrial 1.544 Mbps Local Channel Services
(AT&T Tariff F.C.C. No. 11)
2. Contract Term; Renewal Options - For the AT&T SDN Services and associated
AT&T ACCUNET T1.5 Service Access Connections and AT&T Terrestrial 1.544 Mbps
Local Channel Services, the AT&T MEGACOM Services and the AT&T 800 Services and
associated AT&T ACCUNET T1.5 Service Access Connections, AT&T Primary Rate
Interface Office Functions and AT&T Terrestrial 1.544 Mbps Local Channel
Services provided under this Contract Tariff, the date on which the term of this
Contract Tariff begins is referred to as the Customer's Initial Service Date
(CISD). For the AT&T SDN Services and associated AT&T ACCUNET T1.5 Service
Access Connections, and AT&T Terrestrial 1.544 Mbps Local Channel Services
provided under this Contract Tariff, the term is 18 months and the CISD is the
first day of the Customer's first full billing month under this Contract Tariff.
For the AT&T MEGACOM Services and associated AT&T ACCUNET T1.5 Service Access
Connections and AT&T Terrestrial 1.544 Mbps Local Channel Services, the term is
4 years and the CISD is the first day of the Customer's first full billing month
under this Contract Tariff. For the AT&T 800 Services and associated AT&T
ACCUNET T1.5 Service Access Connections, the AT&T Primary Rate Interface Office
Functions and AT&T Terrestrial 1.544 Mbps Local Channel Services, the term is 4
years and the CISD is the first day of the Customer's first full billing month
under this Contract Tariff. No renewal option is available for this Contract
Tariff.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 4
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
3. Minimum Commitments/Charges
A. Minimum Revenue Commitments - The Minimum Revenue Commitments (MRCS)
for the AT&T SDN Services, AT&T MEGACOM Service including the
International Calling Capability and the AT&T 800 Services provided
under this Contract Tariff, after the application of the Discounts as
specified in Section 5., following, have been applied, are as follows.
The Domestic/International MRC will be satisfied by the usage charges
for the AT&T SDN Services, AT&T MEGACOM Service including the
International Calling Capability and the AT&T 800 Services. Of the
Domestic/International MRC, a portion, the International MRC, must be
satisfied by usage charges for the combined total of AT&T 800
Service-Canada, AT&T MEGACOM 800 Service-Canada, AT&T MEGACOM 800
Service- Mexico, AT&T MEGACOM 800 Service-Overseas, AT&T 800 READYLINE
Service-Canada, AT&T 800 READYLINE Service-Mexico, AT&T 800 READYLINE
Service-Overseas, AT&T 800 READYLINE Service-Puerto Rico and the U.S.
Virgin Islands, AT&T MEGACOM Service International Calling Capability,
AT&T SDN International Calling Capability and AT&T GSDN Service.
1. International MRC
Commitment Period MRC
Each Month $ 1,000,000
If in any month, the Customer has failed to satisfy the International MRC the
Customer will be billed a shortfall charge equal to the difference of the MRC
and the actual usage charges for that month for the combined total of AT&T 800
Service-Canada, AT&T MEGACOM 800 Service-Canada, AT&T MEGACOM 800
Service-Mexico, AT&T MEGACOM 800 Service-Overseas, AT&T 800 READYLINE
Service-Canada, AT&T 800 READYLINE Service-Mexico, AT&T 800 READYLINE
Service-Overseas, AT&T 800 READYLINE Service-Puerto Rico and the U.S. Virgin
Islands, AT&T MEGACOM Service International Calling Capability, AT&T SDN
International Calling Capability and AT&T GSDN Service after the application of
all discounts as specified in Section 5., following.
2. Domestic/International MRC
Commitment Period MRC
Months 1-18 $90,000,000
Months 19-24 $30,000,000
Months 25-36 $60,000,000
Months 37-48 $60,000,000
If, at the end of any Commitment Period, the Customer has failed to satisfy the
Domestic/lnternational MRC applicable for that Commitment Period, the Customer
will be billed a shortfall charge equal to the difference between the
Domestic/International MRC for that Commitment Period and the actual usage
charges, for that Commitment Period, for the combined total of AT&T SDN
Services, AT&T MEGACOM Service including the International Calling Capability
and the AT&T 800 Services provided under this Contract Tariff, after the
application of the Discounts as specified in Section 5., following, including
any shortfall charge(s) paid by the Customer pursuant to Section 3.A.1.,
preceding during the same months of such Commitment Period. The shortfall charge
shall be calculated after the completion of each Commitment Period and billed
the following month.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 5
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
4. Contract Price - AT&T reserves the right to increase from time to time the
rates for the Services Provided under this Contract Tariff, regardless of any
provisions in this Contract Tariff that would otherwise stabilize rates or limit
rate increases, as a result of charges imposed on AT&T stemming from an order,
rule or regulation of the Federal Communications Commission or a court having
competent jurisdiction relating to compensation of payphone service providers.
If necessary, revisions will be filed in this Contract Tariff to reflect the
actual rates.
A. AT&T SDN Services - The Contract Price for the AT&T SDN Services
provided under this Contract Tariff is the same as the undiscounted
Recurring and Nonrecurring Rates and Charges specified in AT&T Tariff
F.C.C. No. 1, as amended from time to time, except for those Usage Rates as
specified in Section 7., following
B. AT&T MEGACOM Service - The Contract Price for the AT&T MEGACOM
Service provided under this Contract Tariff is the same as the undiscounted
Recurring and Nonrecurring Rates and Charges specified in AT&T Tariff
F.C.C. No. 1, as amended from time to time, except for those Usage Rates as
specified in Section 7., following, which apply for AT&T MEGACOM Service
calls that originate at no more than 15 Customer Switches, and at no more
than 2 Customer Premises (not a Customer Switch) designated by the Customer
prior to the CISD. A Customer Switch is a telecommunications switch
(including all remote switching modules under common control of the same
central switch) with the following characteristics: (a) it is owned and
operated by the Customer or an Affiliate of the Customer, or by an entity
in which the Customer or an Affiliate of the Customer holds an ownership
interest of at least 33%, or by an entity that holds an ownership interest
in Customer or Affiliate of the Customer of at least 33%: (b) it is used
for the transmission of calls that are routed by a Local Exchange Carrier
to the Customer Switch using Feature Group D Access or a functional
equivalent, (c) it is capable of interconnecting circuits or transferring
calling between circuits; (d) it has a maximum capacity of at least 100,000
access lines and 16,000 trunk lines; (e) it is predominantly used to
provide switched telecommunications service on a Common Carrier basis; and
(f) it has the capability to provide signaling interfaces at CCITT
standards of SS7 signaling. Provided the Customer Switch meets the
foregoing definition, it is not necessary that all calls routed through
Customer Switch satisfy characteristic (b).
C. AT&T 800 Services - The Contract Price for the AT&T 800 Services
provided under this Contract Tariff is the same as the undiscounted
Recurring and Nonrecurring Rates and Charges specified in AT&T Tariff
F.C.C. Nos. 2 and 14, as amended from time to time, except for those Usage
Rates as specified in Section 7., following.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 6
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
4. Contract Price (continued)
D. AT&T ACCUNET T1.5 Service Access Connections and the AT&T Primary
Rate Interface - The Contract Price for the AT&T ACCUNET T1.5 Service
Access Connections and the AT&T Primary Rate Interface provided under this
Contract Tariff is the same as the undiscounted Recurring and Nonrecurring
Rates and Charges specified in AT&T Tariff F.C.C. No. 9, as amended from
time to time, except for those Rates for the AT&T Primary Rate Interface as
specified in Section 7., following.
E. AT&T Terrestrial 1.544 Mbps Local Channel Services - The Contract
Price for the AT&T Terrestrial 1.544 Mbps Local Channel Services provided
under this Contract Tariff is the same as the undiscounted Recurring and
Nonrecurring Rates and Charges specified in AT&T Tariff F.C.C. No. 11, as
amended from time to time.
5. Discounts - The following discounts are the only discounts that apply
to the Services Provided under this Contract Tariff. No other discounts apply.
A. AT&T SDN Services
1. Base Discounts - The Customer will receive the following discounts, each
month, in lieu of those specified for the SDN Term and Volume Plan (TVP) in AT&T
Tariff F.C.C. No. 1. These discounts will be applied in the same manner as the
SDN TVP as specified in AT&T Tariff F.C.C. No. 1, as amended from time to time.
For Gross Monthly
Domestic SDN Services
Usage on Amounts: Discount
Between $0 up to $13,000,000 46.5%
No discount will apply for any Gross Monthly Domestic SDN Services Usage in
excess of $13,000,000.
For Gross Monthly
International SDN Services
Usage on Amounts: Discount
Between $0 up to $2,400,000 32.0%
No discount will apply for any Gross Monthly International SDN Services Usage in
excess of $2,400,000.
2. Additional discounts - None.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 7
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
5. Discounts (continued)
B. AT&T MEGACOM Service
1. Base Discounts
(a) The Customer will receive a 35.1% discount, each month, on
domestic AT&T MEGACOM Service usage.
(b) The Customer will receive one of the following discounts,
each month, on all AT&T MEGACOM Service International Calling Capability usage
charges for that month, based on the total Gross Monthly Usage Charges for AT&T
MEGACOM Service International Calling Capability, AT&T 800 Service- Canada, AT&T
MEGACOM 800 Service-Canada, AT&T MEGACOM 800 Service-Mexico, AT&T MEGACOM 800
Service-Overseas, AT&T 800 READYLINE Service-Canada, AT&T 800 READYLINE
Service-Mexico, AT&T 800 READYLINE Service-Overseas, AT&T SDN International
Calling Capability, and AT&T GSDN Service.
Gross Monthly Usage Charges Discount
At least $0 up to $1,500,000 5.0%
At least $1,500,000 up to $2,000,000 7.5%
At least $2,000,000 up to $3,000,000 10.0%
No discount will apply to any Gross Monthly Usage Charges in excess of
$3,000.00.
2. Additional discounts - None.
C. AT&T 800 Services
1. Base Discounts - The Customer will receive the following discounts as
specified below, each month, in lieu of those specified for the Customer
Specific Term Plan II (CSTP II) and the Revenue Volume Pricing Plan (RVPP) in
AT&T Tariff F.C.C. No. 2. These discounts will be applied in the same manner as
the CSTP II as specified in AT&T Tariff F.C.C. No. 2, as amended from time to
time.
(a) The Customer will receive one of the following discounts, each
month, on all AT&T 800 Services usage charges.
Gross Monthly AT&T MEGACOM 800 Service-Domestic, AT&T 800
READYLINE Service-Domestic, and AT&T 800 Service-Domestic
Usage Charges Discount
At least $O up to $2,000,000 0.0%
At least S2,000,000 up to $ 15,000,000 45.0%
No discount will apply to any Gross Monthly AT&T MEGACOM 800 Service-Domestic,
AT&T 800 READYLINE Service-Domestic and AT&T 800 Service-Domestic Usage Charges
in excess of $15,000,000.
2. Additional Discounts - None.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 8
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
6. Classifications, Practices and Regulations
A. Except as otherwise provided in this Contract Tariff, the rates and
regulations that apply to the Services Provided specified in Section
1., preceding, are as set forth in the AT&T tariffs that are referenced
in Section 1., preceding, as such tariffs are amended from time to
time.
B. Monitoring Conditions - The Customer must satisfy the following
Service Requirements. The Service Requirement in 6.B.1.(e), 6.B.1.(f)
and 6.B.1.(g) will be monitored on each monthly anniversary of the CISD
and the Monitoring Period is the billing month immediately preceding
each monthly anniversary of the CISD. The Service Requirements in
6.B.1.(a), 6.B.1.(b), 6.B.1.(c) and 6.B.1.(d) will be monitored at each
six-month anniversary of the CISD, and the Monitoring Period is the six
billing months immediately preceding each six month anniversary of the
CISD. The Service Requirement in 6.B.1.(h) will be monitored at the
six-month anniversary of the CISD, and the Monitoring Period is the
first six months of the Contract Tariff term.
1. AT&T SDN, AT&T MEGACOM and AT&T 800 Services
(a) At least 95% of the total inbound and outbound interLATA
services obtained by the Customer and its Affiliates from common carriers (not
including Customer or its Affiliates) must be obtained by the Customer directly
from AT&T, including any future inbound and outbound interLATA services the
Customer obtains as a result of a merger or acquisition for which the Customer
directly or indirectly controls the choice of Interexchange Carrier. Services
under commitment to another lnterexchange Carrier at the time of such merger or
acquisition shall not be subject to this provision for the term of such
commitment, unless the charges the Customer would incur to terminate such
commitment would be less than $10,000.
(b) No more than 40% of the Customer's total AT&T MEGACOM
Service-International Calling Capability minutes of use provided under this
Contract Tariff may terminate in Argentina.
(c) At least 60% of the Customer's AT&T MEGACOM Service
minutes of use from Customer Switches and Customer Premises at which AT&T
MEGACOM Service is provided under this Contract Tariff must be interstate.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 9
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
6.B.1. AT&T SDN, AT&T MEGACOM and AT&T 800 Services (continued)
(d) At least 50% of the Customer's AT&T SDN Services minutes
of use from Customer Switches and Customer Premises at which AT&T SDN Service is
provided under this Contract Tariff must be interstate.
(e) No more than 20% of the Customer's total Instrastate AT&T
SDN Services minutes of use from Customer Switches and Customer Premises at
which AT&T SDN Services are provided under this Contract Tariff may be generated
in any one state.
(f) No more than 13% of the Customer's total Intrastate AT&T
SDN Services minutes of use from Customer Switches and Customer Premises at
which AT&T SDN Services are provided under this Contract Tariff may be from the
following group of state: Colorado, Idaho, Maine, Minnesota, Nebraska, New
Mexico, North Dakota, Rhode Island, South Dakota, Utah and Vermont.
(g) At least 20% of the Customer's total Intrastate AT&T SDN
Services minutes of use from Customer Switches and Customer Premises at which
AT&T SDN Services are provided under this Contract Tariff must be from the
following group of states: California, Illinois, Michigan, Massachusetts and New
Jersey.
(h) By the end of the sixth month of the Contract Tariff term,
the Customer must have placed service orders for the installation of service
under this Contract Tariff at locations not currently served by AT&T that the
Customer demonstrates will generate monthly charges under this Contract Tariff
of at least $333,333.
If the Customer, during the Monitoring Period, has failed to satisfy the Service
Requirement in 6.B.1.(a), the Customer will be billed an amount equal to 15% of
the Customer's total billed usage charges for the AT&T SDN, AT&T MEGACOM and
AT&T 800 Services, after the application of the Discounts in Section 5.,
preceding, for that Monitoring Period. If the Customer, during the Monitoring
Period, has failed to satisfy the Service Requirement in 6.B.1.(b), the Customer
will be billed an amount equal to $0.08 per minute for each minute of such use
above the 40%. If the Customer, during the Monitoring Period, has failed to
satisfy the Service Requirement in 6.B.1.(c), the Customer will be billed an
amount equal to .351 multiplied by the total undiscounted usage charges for AT&T
MEGACOM service for that Monitoring Period in excess of the 60% threshold. If
the Customer, during the Monitoring Period has failed to satisfy the Service
Requirement in 6.B.1.(d), the Customer will be billed an amount equal to .465
multiplied by the total undiscounted usage charges for AT&T SDN services for
that Monitoring Period in excess of the 50% threshold. If the Customer has
failed to satisfy the Service Requirement in 6.B.1(e) for any two consecutive
Monitoring Periods, the Customer will be billed, for each state
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 10
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
6.B.1. AT&T SDN, AT&T MEGACOM and AT&T 800 Services (continued)
for which the 20% threshold is exceeded, an amount equal to $0.20 multiplied by
the Customer's total Intrastate AT&T SDN Services minutes of use from Customer
Switches and Customer Premises at which AT&T SDN Services are provided under
this Contract Tariff generated in that state in excess of the 20% threshold. If
the Customer has failed to satisfy the Service Requirement in 6.B.1.(f) for any
two consecutive Monitoring Periods, the Customer will be billed an amount equal
to $0.20 multiplied by the Customer's total Intrastate AT&T SDN Services minutes
of use from Customer Switches and Customer Premises at which AT&T SDN Services
are provided under this Contract Tariff from the specified group of states in
excess of the 13% threshold. If the Customer has failed to satisfy the Service
Requirement in 6.B.1.(g) for any two consecutive Monitoring Periods, the
Customer will be billed an amount equal to $0.20 multiplied by the Customer's
total Intrastate AT&T SDN Services minutes of use from Customer Switches and
Customer Premises at which AT&T SDN Services are provided under this Contract
Tariff from the specified group of states by which the Customer failed to meet
the 20% minimum requirement. In calculating any charges due for failure to meet
the Service Requirements 6.B.1.(e), 6.B.1.(f), and 6.B.1.(g), the Customer will
not be required to pay more than once for a failure to meet any one such Service
Requirement in a given Monitoring Period (i.e, if the Customer fails to meet a
Service Requirement for three consecutive Monitoring Periods, the Customer will
be billed only once with respect to the failure to meet the Service Requirement
in the second month). If the Customer, during the Monitoring Period, has failed
to satisfy the Service Requirement in 6.B.1.(h), the AT&T MEGACOM 800 Service
and AT&T 800 READYLINE Service base discount pursuant to section 5.C.1.(a),
preceding, for Gross Monthly AT&T MEGACOM 800 Service-Domestic and AT&T 800
READYLINE Service-Domestic usage on amounts of at least $2,000,000 up to
$15,000,000 will be decreased from 45% to 42% for the remainder of the Contract
Tariff Term. Any charge for amounts billed under this section must be paid by
the Customer within 30 days.
C. Promotions, Credits and Waivers
The Customer is ineligible for any promotions, credits or waivers for the
Services Provided under this Contract Tariff, which are filed or which may be
filed in the AT&T tariffs specified in Section 1., preceding.
The following credits and waivers will be applied to the Customer's bill for the
Services Provided under this Contract Tariff. If the sum of all credits applied
in the final month of service under this Contract Tariff exceeds the amount of
the Customer's final bill, the amount in excess will be refunded to the
Customer. If at the end of the Contract Tariff Term the Customer has not fully
used any or all of the waiver(s) specified in this Section, the residual value
of any such waiver(s) will be set to zero and will not be applied to any other
AT&T services.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 11
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
6.C. Promotions, Credits and Waivers (continued)
1. AT&T MEGACOM Service and AT&T 800 Services
(a) AT&T will waive the Nonrecurring Installation Charges for AT&T
Primary Rate Interface (PRI) Office Functions; AT&T Terrestrial 1.544 Mbps Local
Channels, associated AT&T ACCUNET T1.5 Service Access Connections, and Access
Coordination Functions (ACF). Also, AT&T will reimburse the Customer for any
other vendor's Nonrecurring Charges for obtaining access comparable to
Terrestrial 1.544 Mbps Local Channels (not to exceed charges specified in AT&T
Tariff F.C.C. No. 11), and waive the Nonrecurring Charge for the ACF and the
AT&T Tariff F.C.C. No. 9 Access Connection Charge. Such Local Channels and AT&T
PRI must: (1) be used with the AT&T MEGACOM Service and/or the AT&T MEGACOM 800
Service-Domestic provided under this Contract Tariff, (2) for the Local
Channels, not be connected to an Office Function (except for AT&T PRI Office
Functions). If any of these Local Channels are connected to an Office Function,
AT&T will bill the Customer for the amount of the Installation Charges that had
been waived under this section for each Local Channel connected to an Office
Function (except for AT&T PRI Office Functions). The maximum amount of waived
Nonrecurring Installation Charges shall not exceed $200,000.
(b) AT&T will provide a monthly credit in the amount of $200 per AT&T
PRI Office Function utilized by the Customer. The maximum amount of the monthly
credit will be $10,000.
(c) AT&T will waive the Service Establishment Charge, not to exceed a
total of $10,000 for the Contract Tariff Term for the AT&T MEGACOM Service
provided under this Contract Tariff and AT&T will waive the Service
Establishment Charges for new AT&T MEGACOM 800 Service-Domestic Routing
Arrangements.
2. AT&T MEGACOM Service
(a) For the first through eighteenth months of the term, AT&T will
apply a monthly credit, not to exceed $250,000 per month, equal to: (1) the
total billed usage charges for AT&T MEGACOM Service International Calling
Capability which terminates in Mexico, after the application of the Discounts in
Section 5.B., preceding, in the month for which the credit is to be applied,
minus (2) $0.475 multiplied by the Customer's total minutes of use for AT&T
MEGACOM Service International Calling Capability which terminates in Mexico for
that same month.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 12
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
6. Classifications, Practices and Regulations (continued)
D. Discontinuance - In lieu of any Discontinuance With or Without
Liability provisions that are specified in AT&T Tariff F.C.C. Nos. 1 and 2, the
following provisions shall apply.
1. The Customer may discontinue this Contract Tariff:
(a) effective at the end of the 18th month following the CISD, provided
the Customer provides at least 30 days prior written notice of discontinuance;
is current in payment to AT&T for all telecommunication services; and has
generated at least $90,000,000 in usage charges, after the application of the
Discounts as specified in Section 5., preceding, for the AT&T SDN Services, AT&T
MEGACOM Service including the International Calling Capability and the AT&T 800
Services provided under this Contract Tariff (including at least $15,000,000 in
usage charges for the AT&T 800 Service-Canada, AT&T MEGACOM 800 Service-Canada,
AT&T MEGACOM 800 Service-Mexico, AT&T MEGACOM 800 Service-Overseas, AT&T 800
READYLINE Service-Canada, AT&T 800 READYLINE Service-Mexico, AT&T 800 READYLINE
Service-Overseas, AT&T 800 READYLINE Service-Puerto Rico and the U.S. Virgin
Islands, AT&T MEGACOM Service International Calling Capability, AT&T SDN
International Calling Capability, and AT&T GSDN Service provided under this
Contract Tariff); or
(b) prior to the 18th month following the CISD, provided the Customer
replaces the Services Provided under this Contract Tariff:
I. with service under a new AT&T Contract Tariff having all of
the following characteristics: (i) revenue commitment(s) equal to or greater
than an average of at least $5,600,000 per month; (ii) a new term of at least
the difference between 18 months and the number of months the Customer was in
this Contract Tariff; and (iii) having the same Service Requirement as specified
in Section 6.B.1.(a), preceding, or
II. with service under a new contract entered into between
AT&T and the Customer for the provision of telecommunications service by AT&T to
the Customer having all of the following characteristics: (i) revenue
commitment(s) equal to or greater than an average of at least $5,600,000 per
month; (ii) a new term of at least the difference between 18 months and the
number of months the Customer was in this Contract Tariff; and (iii) having the
same Service Requirement as specified in Section 6.B.1.(a), preceding.
If the Customer discontinues this Contract Tariff pursuant to this Section
6.D.1.(b), the Customer will also be billed an amount equal to the difference
between: (i) the MRC for the Commitment Period in which the Customer
discontinues divided by the number of months in the Commitment Period, times the
number of months the Customer was in this Contract Tariff for the Commitment
Period and (ii) the actual usage charges, after the application of the Discounts
as specified in Section 5., preceding, incurred in that Commitment Period for
the AT&T SDN Services, AT&T MEGACOM Service including the International Calling
Capability and the AT&T 800 Services, provided the amount in (ii) is less than
the amount in (i).
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 13
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
6.D. Discontinuance (continued)
If the Customer discontinues this Contract Tariff for any reason other than
specified above, prior to the expiration of the Contract Tariff Term,
Termination Charges will apply. The Termination Charge for the AT&T SDN
Services, AT&T MEGACOM Service including the International Calling Capability
and the AT&T 800 Services will be an amount equal to: (1) the MRC for the
Commitment Period in which the Customer discontinues minus the actual usage
charges, after the application of the Discounts as specified in Section 5.,
preceding, incurred in that Commitment Period for the AT&T SDN Services, AT&T
MEGACOM Service including the International Calling Capability and the AT&T 800
Services, provided the actual usage charges, are less than the MRC for that
Commitment Period and (2) 100% of the MRCs for each remaining year of the
Contract Tariff Term.
E. Other Requirements
1. Use of Services Provided for Resale or Shared Use - When the Services
Provided under this Contract Tariff are resold or shared, the Customer may
advise its User that a portion of the Customer's service is provided by AT&T.
However, the Customer shall not publish or use any advertising, sales
promotions, press releases or other publicity matters which use AT&T's corporate
or trade names, logos, trademarks, service marks, trade dress, or other symbols
that serve to identify and distinguish AT&T from its competitors (or which use
confusingly similar corporate or trade names, logos, trademarks, service marks,
trade dress or other symbols), and the Customer may not conduct business under
AT&T's corporate or trade names, logos, trademarks, service marks, trade dress,
or other symbols that serve to identify and distinguish AT&T from its
competitors (or under any confusingly similar corporate or trade names, logos,
trademarks, service marks, trade dress or other symbols), except to the limited
extent as is permissible under contract or applicable law.
If AT&T finds that the Customer, in connection with its resale of the Services
Provided under this Contract Tariff, is using AT&T's corporate or trade names,
logos, trademarks, service marks, trade dress or other symbols that serve to
identify and distinguish AT&T from its competitors, in a manner inconsistent
with the provisions specified above, AT&T shall provide reasonable notice of
such inconsistent use to the Customer. If the Customer fails, within 30 days
after the receipt of such notice, to substantiate to AT&T that such inconsistent
use has ended or has been corrected, the Discounts specified in Section 5.,
preceding, will not apply until such time as the inconsistent use has ended or
has been corrected and substantiated to AT&T. Any such suspension of the
Discounts specified in Section 5., preceding, shall not relieve the Customer
from its obligations to comply with any other conditions contained in this
Contract Tariff, including the Minimum Revenue Commitments. If it is finally
determined by adjudication (or, if agreed by AT&T and the Customer, by
arbitration) that AT&T's initial finding of an inconsistent use was in error,
then the Customer shall receive a credit equal to the amount of the discounts
that were not applied as a result of AT&T's initial finding, and AT&T's initial
finding will have no further effect.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 14
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
6.E.1. Use of Services Provided for Resale or Shared Use (continued)
The Customer shall take such steps as are reasonably possible to ensure that no
other Carrier to which the Customer directly or indirectly resells the Services
Provided under this Contract Tariff, takes any action that, if done directly by
Customer, would violate this Section 6.E.1., and if such other Carrier does take
such action, the Customer shall take such steps as are reasonably possible to
cause the inconsistent use by such other Carrier to be ended or corrected, to
AT&T's reasonable satisfaction.
If AT&T finds that the Customer has failed to take such action as is required
pursuant to the preceding paragraph, AT&T shall provide reasonable notice of
such failure to the Customer. If the Customer fails, within 30 days after the
receipt of such notice, to substantiate to AT&T that the inconsistent use by the
other Carrier has ended or has been corrected or the Customer has taken the
steps required under the preceding paragraph. The Discounts specified in Section
5., preceding, will not apply, with respect to the billing partition that
includes such other Carrier, until such time as the Customer has substantiated
to AT&T that it has taken the required steps. Any such suspension of the
Discounts specified in Section 5., preceding, shall not relieve the Customer
from its obligations to comply with any other conditions contained in this
Contract Tariff, including the Minimum Revenue Commitments. If it is finally
determined by adjudication (or, if agreed by AT&T and the Customer, by
arbitration) that AT&T's initial finding of a failure by Customer to take
required steps was in error, then the Customer shall receive a credit equal to
the amount of the discounts that were not applied as a result of AT&T's initial
finding, and AT&T's initial finding will have no further effect.
2. The Vertical Features of AT&T Tariff F.C.C. No. 2, Section 3.3.2.L. are
not available for use with the Services Provided under this Contract Tariff when
an entity other than AT&T is the Resp Org.
3. Beginning February 1, 1997, the bills for the Services Provided under
this Contract Tariff will be sent to one Customer Premises designated by the
Customer.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 15
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
6. Classifications, Practices and Regulations (continued)
F. Availability - This Contract Tariff was developed pursuant to a contract with
an Interexchange Carrier Customer who: (1) will order this Contract Tariff only
once, either by the Customer or any Affiliate of the Customer, which is any
entity that owns a controlling interest in either the Customer or an Affiliate
of the Customer, or any entity in which a controlling interest is owned by
either the Customer or an Affiliate of the Customer; (2) as of the time the
Customer orders service, has obtained required operating authority in the states
in which it conducts business and files tariffs, when required by law, with
state and federal authorities; (3) as of the time the Customer orders service,
has been assigned its own Carrier Identification Code by the code administrator,
which code is used by one or more Local Exchange Carriers to route calls
originated by an end user on a 1+ basis to each Customer Switch as defined in
Section 4.B., preceding; (4) has incurred at least $10,000,000 in AT&T Private
Line Services, applicable to Contract Tariffs, during the 12-months immediately
preceding the date the Customer orders this Contract Tariff; (5) has incurred at
least $55,000,000 in AT&T SDN Services and AT&T 800 Services, applicable to
Contract Tariffs, during the 12-months immediately preceding the date the
Customer orders this Contract Tariff; and (6) provides service as a Common
Carrier to at least 300,000 locations. This Contract Tariff is available to any
similarly situated Customer who orders service within 30 days after the
effective date of this Contract Tariff for initial installation of the Services
Provided under this Contract Tariff within 30 days after the date ordered.
G. Abuse of the Services - Willfully using the Services to carry calls that
originate on the network of a facilities-based Interexchange carrier other than
AT&T or the Customer or an Affiliate of the Customer and terminate
disproportionately to locations for which the incumbent Local Exchange Carrier's
rate for terminating switched access is higher than $0.049 per minute
constitutes abuse of service. In the event that AT&T believes in good faith that
such abuse is occurring, AT&T will provide written notice of such abuse to
Customer, including as much detail as is reasonably sufficient to enable
Customer to investigate the matter. If, within five (5) business days after its
receipt of such notice, the abuse has not ended, or Customer has not
demonstrated to AT&T's reasonable satisfaction that the abuse is not in fact
occurring, AT&T may terminate, restrict, or suspend Service to the location(s),
and only the location(s) at which such abuse is occurring. This section applies
in addition to any other provision of the tariffs referenced in Section 1.,
preceding, that may apply with respect to abuse of service.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 16
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
7. Rates
A. Domestic Interstate AT&T SDN Service
1. The following AT&T SDN Rates apply throughout the 18 month AT&T SDN Services
Contract Tariff Term.
(a) SDN Rate Schedules A and A-PV
<TABLE>
<CAPTION>
Rates
Initial 18 Seconds Each Additional 6 seconds
or Fraction of Fraction
All Mileage Day Evening Night Day Evening Night
- ----------- --- ------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Rate Bands $0.0522 $0.0522 $0.0522 $0.0174 $0.0174 $0.0174
</TABLE>
(b) SDN Rate Schedules B(a) and B-PV(a)
<TABLE>
<CAPTION>
Rates
Initial 18 Seconds Each Additional 6 seconds
or Fraction of Fraction
All Mileage Day Evening Night Day Evening Night
- ----------- --- ------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Rate Bands $0.0381 $0.0381 $0.0381 $0.0127 $0.0127 $0.0127
</TABLE>
(c) SDN Rate Schedules C(a), C(b) and C-PV
<TABLE>
<CAPTION>
Rates
Initial 18 Seconds Each Additional 6 seconds
or Fraction of Fraction
All Mileage Day Evening Night Day Evening Night
- ----------- --- ------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Rate Bands $0.0240 $0.0240 $0.0240 $0.0080 $0.0080 $0.0080
</TABLE>
2. International Calling Capacity - Following are the AT&T SDN International
Calling Capability Usage Rates to the Countries listed below, applicable under
this Contract Tariff. These rates are stabilized for the Contract Tariff Term.
(a) U.S. Mainland Usage Rates - The following schedules are used to rate calls
between stations in the U.S. Mainland and stations in the country/area specified
below. Rates apply for all days of the week including holidays. Unless otherwise
specified, the Initial Period (IP) is 18 seconds, or fraction thereof, and the
Additional Period (AP) is 6 seconds, or fraction thereof.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 17
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
7.A.2(a) U.S. Mainland Usage Rates (continued)
I. Canada Rate Schedule - This schedule applies to Customer Dialed call to
stations in Canada.
RATES
PEAK OFF-PEAK
8AM-6PM 6PM-8AM
Initial Each Add'l Initial Each Add'l
18 Seconds 6 Seconds 18 Seconds 6 Seconds
Rate Mileage or Fraction or Fraction or Fraction or Fraction
- ------------ ----------- ----------- ----------- -----------
1-18 $0.0795 $0.0265 $0.0795 $0.0265
19-80 $0.0795 $0.0265 $0.0795 $0.0265
81-140 $0.0795 $0.0265 $0.0795 $0.0265
141-220 $0.0795 $0.0265 $0.0795 $0.0265
221-345 $0.0795 $0.0265 $0.0795 $0.0265
346-630 $0.0795 $0.0265 $0.0795 $0.0265
631-1200 $0.0795 $0.0265 $0.0795 $0.0265
1201-1610 $0.0795 $0.0265 $0.0795 $0.0265
1611-4000 $0.0795 $0.0265 $0.0795 $0.0265
B. Domestic Interstate AT&T MEGACOM Service
1. The following AT&T MEGACOM Services rates apply for AT&T MEGACOM
Services calls that originate at no more than 15 Customer Switches, as defined
in Section 4.B., preceding.
Rates
Initial 18 Seconds Each Additional 6 Seconds
or Fraction or Fraction
All Mileage Day Evening Night Day Evening Night
Rate Bands $0.0231 $0.0231 $0.0231 $0.0077 $0.0077 $0.0077
2. The following AT&T MEGACOM Services rates apply for AT&T MEGACOM Services
calls that originate at no more than 2 Customer Premises that are not Customer
Switches and are designated by the Customer prior to the CISD.
Rates
Initial 18 Seconds Each Additional 6 Seconds
or Fraction or Fraction
All Mileage Day Evening Night Day Evening Night
Rate Bands $0.0267 $0.0267 $0.0267 $0.0089 $0.0089 $0.0089
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 18
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
7. Rates (continued)
C. AT&T MEGACOM Service - International Usage Rates
1. U.S. Mainland Usage Rates - This schedule applies to Customer dialed calls
between stations in the U.S. Mainland and stations in the country/area specified
below, in lieu of the rates specified in Section 6.5.4.E.3.(a), (b)III and (c)
of AT&T Tariff F.C.C. No. 1.
(a) Canada Rate Schedule
<TABLE>
<CAPTION>
RATES
DAY RATE EVENING RATE NIGHT RATE
Mon-Fri Mon-Fri/Sat-Sun Mon-Sun
8AM-6PM 6PM-12Mid/8AM-12Mid 12Mid-8AM
Initial Each Add'l Initial Each Add'l Initial Each Add'l
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rate 18 Secs. 6 Secs. 18 Secs. 6 Secs. 18 Secs. 6 Secs.
Mileage or Frac't or Frac't or Frac't or Frac't or Frac't or Frac't
- ------- --------- --------- --------- --------- --------- ---------
0-4000 $0.0379 $0.0126 $0.0379 $0.0126 $0.0379 $0.0126
</TABLE>
(b) Mexico Rate Schedules - These schedules apply to Customer dialed calls to
stations in Mexico from the U.S. Mainland.
Distance Measurement - Rates for calls between the U.S. Mainland and the
international boundary are based on the distance in airline mileage between the
V&H coordinates of an AT&T Central Office and a point of connection at the
U.S.-Mexico international boundary.
I. The following rates for calls between the U.S. Mainland and the point of
connection at the international boundary apply for all days of the week
including holidays.
<TABLE>
<CAPTION>
Standard Economy
-------- -------
Mon-Fri Sat/Sun Mon-Fri Sat/Sun
7:00AM-7:00PM 5PM-Mid 7:00 PM-7:00AM All day and
Mid-5PM
Initial Each Add'l Initial Each Add'l
Period 6 Seconds Period 6 Seconds
------ --------- ------ ---------
Rate Mileage 18 seconds or Fraction 18 seconds or Fraction
- ------------ ---------- ----------- ---------- -----------
<C> <C> <C> <C> <C>
0-10 $0.0258 $0.0086 $0.0219 $0.0073
11-22 $0.0342 $0.0114 $0.0291 $0.0097
23-55 $0.0426 $0.0142 $0.0354 $0.0118
56-124 $0.0510 $0.0170 $0.0420 $0.0140
125-292 $0.0594 $0.0198 $0.0486 $0.0162
293-430 $0.0678 $0.0226 $0.0549 $0.0183
431-925 $0.0768 $0.0256 $0.0612 $0.0204
926-3000 $0.0846 $0.0282 $0.0669 $0.0223
</TABLE>
II. The rates for calls between the point of connection at the international
boundary and Mexico are as specified in AT&T F.C.C. Tariff No. 1, Section
3.2.4.L.5.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 19
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
7.C.1 AT&T MEGACOM Service - International Usage Rates (continued)
(c) All Other Countries - The length of each Initial Period
will be 18 seconds and the length of each Additional Period
will be 6 seconds or fraction thereof. Standard, Discount and
Economy Rate Periods are as specified in Section 6.5.4.E.3.(c)
of AT&T Tariff F.C.C. No.
1.
<TABLE>
<CAPTION>
INITIAL PERIOD ADDITIONAL PERIOD
-------------- -----------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
- --------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ALBANIA, SOCIALIST $0.3795 $0.3795 $0.3795 $0.1265 $0.1265 $0.1265
REPUBLIC OF ALGERIA $0.2895 $0.2895 $0.2895 $0.0965 $0.0965 $0.0965
AMERICAN SAMOA $0.2430 $0.2430 $0.2430 $0.0810 $0.0810 $0.0810
ANDORRA $0.1485 $0.1485 $0.1485 $0.0495 $0.0495 $0.0495
ANGOLA $0.4050 $0.4050 $0.4050 $0.1350 $0.1350 $0.1350
ANGUILLA $0.1890 $0.1890 $0.1890 $0.0630 $0.0630 $0.0630
ANTARCTICA (CASEY) $0.3750 $0.3750 $0.3750 $0.1250 $0.1250 $0.1250
ANTARCTICA (SCOTT) $0.4590 $0.4590 $0.4590 $0.1530 $0.1530 $0.1530
ANTIGUA (Barbuda) $0.1860 $0.1860 $0.1860 $0.0620 $0.0620 $0.0620
ARGENTINA $0.2432 $0.2432 $0.2432 $0.0811 $0.0811 $0.0811
ARMENIA $0.3069 $0.3069 $0.3069 $0.1023 $0.0123 $0.0123
ARUBA $0.1788 $0.1788 $0.1788 $0.0596 $0.0596 $0.0596
ASCENSION ISLAND $0.4042 $0.4042 $0.4042 $0.1347 $0.1347 $0.1347
AUSTRALIA $0.0789 $0.0789 $0.0789 $0.0263 $0.0263 $0.0263
AUSTRIA $0.1579 $0.1579 $0.1579 $0.0526 $0.0526 $0.0526
AZERBAIJAN $0.4050 $0.4050 $0.4050 $0.1350 $0.1350 $0.1350
BAHAMAS $0.0879 $0.0879 $0.0879 $0.0293 $0.0293 $0.0293
BAHRAIN $0.2656 $0.2656 $0.2656 $0.0885 $0.0885 $0.0885
BANGLADESH, $0.3885 $0.3885 $0.3885 $0.1295 $0.1295 $0.1295
PEOPLE'S REPUBLIC OF
BARBADOS $0.1583 $0.1583 $0.1583 $0.0528 $0.0528 $0.0528
BELARUS $0.3054 $0.3054 $0.3054 $0.1018 $0.1018 $0.1018
BELGIUM $0.1232 $0.1232 $0.1232 $0.0411 $0.0411 $0.0411
BELIZE $0.2490 $0.2490 $0.2490 $0.0830 $0.0830 $0.0830
BENIN, PEOPLE'S $0.2679 $0.2679 $0.2679 $0.0893 $0.0893 $0.0893
REPUBLIC OF
BERMUDA $0.1358 $0.1358 $0.1358 $0.0453 $0.0453 $0.0453
BHUTAN $0.8550 $0.8550 $0.8550 $0.2850 $0.2850 $0.2850
BOLIVIA $0.2530 $0.2530 $0.2530 $0.0843 $0.0843 $0.0843
BOSNIA-HERCEGOVINA $0.2839 $0.2839 $0.2839 $0.0946 $0.0946 $0.0946
BOTSWANA $0.2396 $0.2396 $0.2396 $0.0799 $0.0799 $0.0799
</TABLE>
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 20
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
7.C.1.(c) All Other Countries (continued)
<TABLE>
<CAPTION>
INITIAL PERIOD ADDITIONAL PERIOD
-------------- -----------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
- --------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
BRAZIL $0.1421 $0.1421 $0.1421 $0.0474 $0.0474 $0.0474
BRITISH VIRGIN $0.1847 $0.1847 $0.1847 $0.0616 $0.0616 $0.0616
ISLANDS
BRUNEI $0.3914 $0.3914 $0.3914 $0.1305 $0.1305 $0.1305
BULGARIA $0.2430 $0.2430 $0.2430 $0.0810 $0.0810 $0.0810
BURKINA FASO $0.1916 $0.1916 $0.1916 $0.0639 $0.0639 $0.0639
BURMA $1.0050 $1.0050 $1.0050 $0.3350 $0.3350 $0.3350
BURUNDI $0.8609 $0.8609 $0.8609 $0.2870 $0.2870 $0.2870
CAMBODIA $0.5826 $0.5826 $0.5826 $0.1942 $0.1942 $0.1942
CAMEROON, $0.3467 $0.3467 $0.3467 $0.1156 $0.1156 $0.1156
UNITED
REPUBLIC OF
CAPE VERDE $0.4005 $0.4005 $0.4005 $0.1335 $0.1335 $0.1335
ISLANDS
CAYMAN $0.1640 $0.1640 $0.1640 $0.0547 $0.0547 $0.0547
ISLANDS
CENTRAL $0.6360 $0.6360 $0.6360 $0.2120 $0.2120 $0.2120
AFRICAN
REPUBLIC
CHAD REPUBLIC $1.0710 $1.0710 $1.0710 $0.3570 $0.3570 $0.3570
CHILE $0.1215 $0.1215 $0.1215 $0.0405 $0.0405 $0.0405
CHINA, $0.3379 $0.3379 $0.3379 $0.1126 $0.1126 $0.1126
PEOPLE'S
REPUBLIC OF
CHRISTMAS & $0.3750 $0.3750 $0.3750 $0.1250 $0.1250 $0.1250
COCOS ISLANDS
COLOMBIA $0.2148 $0.2148 $0.2148 $0.0716 $0.0716 $0.0716
COMOROS, $0.6647 $0.6647 $0.6647 $0.2216 $0.2216 $0.2216
FEDERAL & ISLAMIC
REPUBLIC OF
CONGO, $0.3224 $0.3224 $0.3224 $0.1075 $0.1075 $0.1075
REPUBLIC OF
COOK ISLANDS $0.7078 $0.7078 $0.7078 $0.2359 $0.2359 $0.2359
COSTA RICA $0.1832 $0.1832 $0.1832 $0.0611 $0.0611 $0.0611
CROATIA $0.2180 $0.2180 $0.2180 $0.0727 $0.0727 $0.0727
CUBA $0.2976 $0.2976 $0.2976 $0.0992 $0.0992 $0.0992
CYPRUS $0.2180 $0.2180 $0.2180 $0.0727 $0.0727 $0.0727
CZECH $0.2180 $0.2180 $0.2180 $0.0727 $0.0727 $0.0727
REPUBLIC
DENMARK $0.1579 $0.1579 $0.1579 $0.0526 $0.0526 $0.0526
DIEGO GARCIA $0.4378 $0.4378 $0.4378 $0.1459 $0.1459 $0.1459
DJIBOUTI, $0.4569 $0.4569 $0.4569 $0.1523 $0.1523 $0.1523
REPUBLIC OF
DOMINICA $0.1971 $0.1971 $0.1971 $0.0657 $0.0657 $0.0657
DOMINICAN $0.1170 $0.1170 $0.1170 $0.0390 $0.0390 $0.0390
REPUBLIC
ECUADOR $0.2492 $0.2492 $0.2492 $0.0831 $0.0831 $0.0831
</TABLE>
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 21
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
7.C.1 All Other Countries (continued)
<TABLE>
<CAPTION>
INITIAL PERIOD ADDITIONAL PERIOD
-------------- -----------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
- --------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
EGYPT, ARAB $0.2767 $0.2767 $0.2767 $0.0922 $0.0922 $0.0922
REPUBLIC OF
EL SALVADOR $0.2235 $0.2235 $0.2235 $0.0745 $0.0745 $0.0745
EQUATORIAL $0.6338 $0.6338 $0.6338 $0.2113 $0.2113 $0.2113
GUINEA, REPUBLIC
OF
ERITREA $0.4389 $0.4389 $0.4389 $0.1463 $0.1463 $0.1463
ESTONIA $0.3047 $0.3047 $0.3047 $0.1016 $0.1016 $0.1016
ETHIOPIA $0.3887 $0.3887 $0.3887 $0.1296 $0.1296 $0.1296
FAEROE ISLANDS $0.1792 $0.1792 $0.1792 $0.0597 $0.0597 $0.0597
FALKLAND ISLANDS $0.5022 $0.5022 $0.5022 $0.1674 $0.1674 $0.1674
FEDERATED STATES $0.3847 $0.3847 $0.3847 $0.1282 $0.1282 $0.1282
OF MICRONESIA
FIJI ISLANDS $0.3783 $0.3783 $0.3783 $0.1261 $0.1261 $0.1261
FINLAND $0.1211 $0.1211 $0.1211 $0.0404 $0.0404 $0.0404
FRANCE $0.0632 $0.0632 $0.0632 $0.0211 $0.0211 $0.0211
FRENCH ANTILLES $0.2175 $0.2175 $0.2175 $0.0725 $0.0725 $0.0725
FRENCH GUIANA $0.2386 $0.2386 $0.2386 $0.0795 $0.0795 $0.0795
FRENCH POLYNESIA $0.4040 $0.4040 $0.4040 $0.1347 $0.1347 $0.1347
GABON REPUBLIC $0.2526 $0.2526 $0.2526 $0.0842 $0.0842 $0.0842
GAMBIA $0.2482 $0.2482 $0.2482 $0.0827 $0.0827 $0.0827
GEORGIA $0.5100 $0.5100 $0.5100 $0.1700 $0.1700 $0.1700
GERMANY, FEDERAL $0.0632 $0.0632 $0.0632 $0.0211 $0.0211 $0.0211
REPUBLIC OF
GHANA $0.2718 $0.2718 $0.2718 $0.0906 $0.0906 $0.0906
GIBRALTAR $0.2386 $0.2386 $0.2386 $0.0795 $0.0795 $0.0795
GREECE $0.2053 $0.2053 $0.2053 $0.0684 $0.0684 $0.0684
GREENLAND $0.2087 $0.2087 $0.2087 $0.0696 $0.0696 $0.0696
GRENADA $0.2037 $0.2037 $0.2037 $0.0679 $0.0679 $0.0679
GUADELOUPE $0.2961 $0.2961 $0.2961 $0.0987 $0.0987 $0.0987
GUAM $0.1976 $0.1976 $0.1976 $0.0659 $0.0659 $0.0659
GUANTANAMO $0.2121 $0.2121 $0.2121 $0.0707 $0.0707 $0.0707
GUATEMALA $0.2136 $0.2136 $0.2136 $0.0712 $0.0712 $0.0712
GUINEA BISSAU $0.5976 $0.5976 $0.5976 $0.1992 $0.1992 $0.1992
GUINEA, PEOPLE'S $0.3981 $0.3981 $0.3981 $0.1327 $0.1327 $0.1327
REVOLUTIONARY
REPUBLIC
GUYANA $0.3030 $0.3030 $0.3030 $0.1010 $0.1010 $0.1010
HAITI $0.2251 $0.2251 $0.2251 $0.0750 $0.0750 $0.0750
HONDURAS $0.2716 $0.2716 $0.2716 $0.0905 $0.0905 $0.0905
</TABLE>
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 22
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
7.C.1(c) All Other Countries (continued)
<TABLE>
<CAPTION>
INITIAL PERIOD ADDITIONAL PERIOD
-------------- -----------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
- --------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
HONG KONG $0.1283 $0.1283 $0.1283 $0.0428 $0.0428 $0.0428
HUNGARY $0.2180 $0.2180 $0.2180 $0.0727 $0.0727 $0.0727
ICELAND $0.2507 $0.2507 $0.2507 $0.0836 $0.0836 $0.0836
INDIA $0.2905 $0.2905 $0.2905 $0.0968 $0.0968 $0.0968
INDONESIA $0.3388 $0.3388 $0.3388 $0.1129 $0.1129 $0.1129
IRAN $0.2866 $0.2866 $0.2866 $0.0955 $0.0955 $0.0955
IRAQ $0.4955 $0.4955 $0.4955 $0.1652 $0.1652 $0.1652
IRELAND $0.1225 $0.1225 $0.1225 $0.0408 $0.0408 $0.0408
ISRAEL $0.2433 $0.2433 $0.2433 $0.0811 $0.0811 $0.0811
ITALY $0.1263 $0.1263 $0.1263 $0.0421 $0.0421 $0.0421
IVORY COAST $0.3628 $0.3628 $0.3628 $0.1209 $0.1209 $0.1209
JAMAICA $0.2069 $0.2069 $0.2069 $0.0690 $0.0690 $0.0690
JAPAN $0.0915 $0.0915 $0.0915 $0.0305 $0.0305 $0.0305
JORDAN $0.2526 $0.2526 $0.2526 $0.0842 $0.0842 $0.0842
KAZAKHSTAN $0.5069 $0.5069 $0.5069 $0.1690 $0.1690 $0.1690
KENYA $0.2494 $0.2494 $0.2494 $0.0831 $0.0831 $0.0831
KIRIBATI $0.8058 $0.8058 $0.8058 $0.2686 $0.2686 $0.2686
KOREA, PEOP DEM $0.3069 $0.3069 $0.3069 $0.1023 $0.1023 $0.1023
REP
KOREA, REPUBLIC OF $0.1688 $0.1688 $0.1688 $0.0563 $0.0563 $0.0563
KUWAIT $0.2818 $0.2818 $0.2818 $0.0939 $0.0939 $0.0939
KYRGYZSTAN $0.5285 $0.5285 $0.5285 $0.1762 $0.1762 $0.1762
LAOS $0.8230 $0.8230 $0.8230 $0.2743 $0.2743 $0.2743
LATVIA $0.2985 $0.2985 $0.2985 $0.0995 $0.0995 $0.0995
LEBANON $0.4143 $0.4143 $0.4143 $0.1381 $0.1381 $0.1381
LESOTHO $0.2977 $0.2977 $0.2977 $0.0992 $0.0992 $0.0992
LIBERIA $0.1860 $0.1860 $0.1860 $0.0620 $0.0620 $0.0620
LIBYAN A P S J $0.3041 $0.3041 $0.3041 $0.1014 $0.1014 $0.1014
LIECHTENSTEIN $0.2022 $0.2022 $0.2022 $0.0674 $0.0674 $0.0674
LITHUANIA $0.3050 $0.3050 $0.3050 $0.1017 $0.1017 $0.1017
LUXEMBOURG $0.1832 $0.1832 $0.1832 $0.0611 $0.0611 $0.0611
MACAO $0.4232 $0.4232 $0.4232 $0.1411 $0.1411 $0.1411
MACEDONIA $0.2431 $0.2431 $0.2431 $0.0810 $0.0810 $0.0810
MADAGASCAR, $1.0933 $1.0933 $1.0933 $0.3644 $0.3644 $0.3644
</TABLE>
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 23
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
7.C.1(c) All Other Countries (continued)
<TABLE>
<CAPTION>
INITIAL PERIOD ADDITIONAL PERIOD
-------------- -----------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
- --------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
DEMOCRATIC
REPUBLIC OF
MALAWI $0.2884 $0.2884 $0.2884 $0.0961 $0.0961 $0.0961
MALAYSIA $0.2223 $0.2223 $0.2223 $0.0741 $0.0741 $0.0741
MALDIVES, $0.6290 $0.6290 $0.6290 $0.2097 $0.2097 $0.2097
REPUBLIC OF
MALI REPUBLIC $0.4443 $0.4443 $0.4443 $0.1481 $0.1481 $0.1481
MALTA, REPUBLIC $0.3050 $0.3050 $0.3050 $0.1017 $0.1017 $0.1017
OF
MARSHALL ISLAND $0.4175 $0.4175 $0.4175 $0.1392 $0.1392 $0.1392
MAURITANIA, $0.3847 $0.3847 $0.3847 $0.1282 $0.1282 $0.1282
ISLAMIC REPUBLIC
OF
MAURITIUS $0.5220 $0.5220 $0.5220 $0.1740 $0.1740 $0.1740
MAYOTTE ISLAND $0.5188 $0.5188 $0.5188 $0.1729 $0.1729 $0.1729
MOLDOVA $0.4200 $0.4200 $0.4200 $0.1400 $0.1400 $0.1400
MONACO $0.1305 $0.1305 $0.1305 $0.0435 $0.0435 $0.0435
MONGOLIAN $0.9599 $0.9599 $0.9599 $0.3200 $0.3200 $0.3200
PEOPLE'S REPUBLIC
MONTSERRAT $0.1988 $0.1988 $0.1988 $0.0663 $0.0663 $0.0663
MOROCCO, KINGDOM $0.3333 $0.3333 $0.3333 $0.1111 $0.1111 $0.1111
OF
MOZAMBIQUE $0.4969 $0.4969 $0.4969 $0.1656 $0.1656 $0.1656
NAMIBIA $0.2778 $0.2778 $0.2778 $0.0926 $0.0926 $0.0926
NAURU $1.1330 $1.1330 $1.1330 $0.3777 $0.3777 $0.3777
NEPAL $O.3422 $0.3422 $0.3422 $0.1141 $0.1141 $0.1141
NETHERLANDS $0.1010 $0.1010 $0.1010 $0.0337 $0.0337 $0.0337
NETHERLANDS, $0.1924 $0.1924 $0.1924 $0.0641 $0.0641 $0.0641
ANTILLES
NEVIS $0.1924 $0.1924 $0.1924 $0.0641 $0.0641 $0.0641
NEW CALEDONIA $0.4143 $0.4143 $0.4143 $0.1381 $0.1381 $0.1381
NEW ZEALAND $0.1672 $0.1672 $0.1672 $0.0557 $0.0557 $0.0557
NICARAGUA $0.2445 $0.2445 $0.2445 $0.0815 $0.0815 $0.0815
NIGER REPUBLIC $0.4580 $0.4580 $0.4580 $0.1527 $0.1527 $0.1527
NIGERIA, FEDERAL $0.1947 $0.1947 $0.1947 $0.1947 $0.0649 $0.0649
REPUBLIC OF
NIUE $0.6296 $0.6296 $0.6296 $0.2099 $0.2099 $0.2099
NORFOLK ISLAND $0.6293 $0.6293 $0.6293 $0.2098 $0.2098 $0.2098
NORWAY $0.1195 $0.1195 $0.1195 $0.0398 $0.0398 $0.0398
OMAN $0.2896 $0.2896 $0.2896 $0.0965 $0.0965 $0.0965
PAKISTAN $0.3969 $0.3969 $0.3969 $0.1323 $0.1323 $0.1323
PALAU, REPUBLIC OF $0.4791 $0.4791 $0.4791 $0.1597 $0.1597 $0.1597
</TABLE>
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 24
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
7.C.1.(c) All Other Countries (continued)
<TABLE>
<CAPTION>
INITIAL PERIOD ADDITIONAL PERIOD
-------------- -----------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
- --------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
PANAMA, REPUBLIC $0.1947 $0.1947 $0.1947 $0.0649 $0.0649 $0.0649
OF
PAPUA NEW GUINEA $0.3225 $0.3225 $0.3225 $0.1075 $0.1075 $0.1075
PARAGUAY $0.3057 $0.3057 $0.3057 $0.1019 $0.1019 $0.1019
PERU $0.2142 $0.2142 $0.2142 $0.0714 $0.0714 $0.0714
PHILIPPINES $0.1926 $0.1926 $0.1926 $0.0642 $0.0642 $0.0642
POLAND, PEOPLE'S $0.2175 $0.2175 $0.2175 $0.0725 $0.0725 $0.0725
REPUBLIC OF
PORTUGAL $0.1986 $0.1986 $0.1986 $0.0662 $0.0662 $0.0662
QATAR $0.2559 $0.2559 $0.2559 $0.0853 $0.0853 $0.0853
REUNION ISLAND $0.4564 $0.4564 $0.4564 $0.1521 $0.1521 $0.1521
ROMANIA, SOCIALIST
REPUBLIC OF $0.3116 $0.3116 $0.3116 $0.1039 $0.1039 $0.1039
RUSSIA $0.3632 $0.3632 $0.3632 $0.1211 $0.1211 $0.1211
RWANDA $0.5018 $0.5018 $0.5018 $0.1673 $0.1673 $0.1673
SAIPAN $0.1891 $0.1891 $0.1891 $0.0630 $0.0630 $0.0630
SAN MARINO $0.4168 $0.4168 $0.4168 $0.1389 $0.1389 $0.1389
SAO TOME $0.5893 $0.5893 $0.5893 $0.1964 $0.1964 $0.1964
SAUDI ARABIA $0.3510 $0.3510 $0.3510 $0.1170 $0.1170 $0.1170
SENEGAL REPUBLIC $0.4137 $0.4137 $0.4137 $0.1379 $0.1379 $0.1379
SEYCHELLES ISLAND $0.5099 $0.5099 $0.5099 $0.1700 $0.1700 $0.1700
SIERRA LEONE $0.3187 $0.3187 $0.3187 $0.1062 $0.1062 $0.1062
SINGAPORE REPUBLIC $0.1105 $0.1105 $0.1105 $0.0368 $0.0368 $0.O368
OF
SLOVAKIA $0.2180 $0.2180 $0.2180 $0.0727 $0.O727 $0.0727
SLOVENIA $0.2180 $0.2180 $0.2180 $0.0727 $0.O727 $0.0727
SOLOMON ISLANDS $0.4791 $0.4791 $0.4791 $0.1597 $0.1597 $0.1597
SOMALIA $0.5761 $0.5761 $0.5761 $0.1920 $0.1920 $0.1920
SOUTH AFRICA, $0.1704 $0.1704 $0.1704 $0.0568 $0.0568 $0.0568
REPUBLIC OF
SPAIN $0.1579 $0.1579 $0.1579 $0.0526 $0.0526 $0.0526
SRI LANKA, $0.3757 $0.3757 $0.3757 $0.1252 $0.1252 $0.1252
DEMOCRATIC
SOCIALIST
REPUBLIC OF
ST. HELENA $0.5504 $0.5504 $0.5504 $0.1835 $0.1835 $0.1835
ST. KITTS $0.1924 $0.1924 $0.1924 $0.0641 $0.0641 $0.0641
ST. LUCIA $0.2159 $0.2159 $0.2159 $0.0720 $0.0720 $0.0720
ST. PIERRE & $0.2121 $0.2121 $0.2121 $0.0707 $0.0707 $0.0707
MIQUELON
</TABLE>
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 25
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new. **
7.C.1.(c) All Other Countries (continued)
<TABLE>
<CAPTION>
INITIAL PERIOD ADDITIONAL PERIOD
-------------- -----------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
- --------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ST. VINCENT & THE $0.2102 $0.2102 $0.2102 $0.0701 $0.0701 $0.0701
GRENADINES
SUDAN $0.4994 $0.4994 $0.4994 $0.1665 $0.1665 $0.1665
SURINAME, REPUBLIC $0.3353 $0.3353 $0.3353 $0.1118 $0.1118 $0.1118
OF
SWAZILAND $0.2985 $0.2985 $0.2985 $0.995 $0.995 $0.995
SWEDEN $0.0773 $0.0773 $0.0773 $0.0258 $0.0258 $0.0258
SWITZERLAND $0.0899 $0.0899 $0.0899 $0.0300 $0.0300 $0.0300
SYRIAN ARAB REPUBLIC $0.4192 $0.4192 $0.4192 $0.1397 $0.1397 $0.1397
TAIWAN $0.1559 $0.1559 $0.1559 $0.0520 $0.0520 $0.0520
TAJIKISTAN $0.9308 $0.9308 $0.9308 $0.3103 $0.3103 $0.3103
TANZANIA $0.2646 $0.2646 $0.2646 $0.0882 $0.0882 $0.0882
THAILAND $0.2522 $0.2522 $0.2522 $0.0841 $0.0841 $0.0841
TOGO, REPUBLIC OF $0.2510 $0.2510 $0.2510 $0.0837 $0.0837 $0.0837
TONGA ISLAND $0.3546 $0.3546 $0.3546 $0.1182 $0.1182 $0.1182
TRINIDAD & TOBAGO, $0.1990 $0.1990 $0.1990 $0.0663 $0.0663 $0.0663
DEMOCRATIC
REPUBLIC OF
TUNISIA $0.3090 $0.3090 $0.3090 $0.1030 $0.1030 $0.1030
TURKEY $0.2451 $0.2451 $0.2451 $0.0817 $0.0817 $0.0817
TURKMENISTAN $0.7652 $0.7652 $0.7652 $0.2551 $0.2551 $0.2551
TURKS & CAICOS $0.2037 $0.2037 $0.2037 $0.0679 $0.0679 $0.0679
ISLANDS
TUVALU $0.7780 $0.7780 $0.7780 $0.2593 $0.2593 $0.2593
UGANDA $0.2745 $0.2745 $0.2745 $0.0915 $0.0915 $0.0915
UKRAINE $0.3050 $0.3050 $0.3050 $0.1017 $0.1017 $0.1017
UNITED ARAB $0.2212 $0.2212 $0.2212 $0.0737 $0.0737 $0.0737
EMIRATES
UNITED KINGDOM $0.0455 $0.0455 $0.0455 $0.0152 $0.0152 $0.0152
URUGUAY $0.2342 $0.2342 $0.2342 $0.0781 $0.0781 $0.0781
UZBEKISTAN $0.3050 $0.3050 $0.3050 $0.1017 $0.1017 $0.1017
VANUATU REPUBLIC $0.8124 $0.8124 $0.8124 $0.2708 $0.2708 $0.2708
VATICAN CITY $0.1266 $0.1266 $0.1266 $0.0422 $0.0422 $0.0422
VENEZUELA $0.1233 $0.1233 $0.1233 $0.0411 $0.0411 $0.0411
VIETNAM, SOCIALIST $0.4216 $0.4216 $0.4216 $0.1405 $0.1405 $0.1405
REPUBLIC OF
WALLIS & FORTUNA $0.5696 $0.5696 $0.5696 $0.1899 $0.1899 $0.1899
ISLANDS
WESTERN SAMOA $0.2515 $0.2515 $0.2515 $0.0838 $0.0838 $0.0838
YEMEN, REPUBLIC OF $0.2959 $0.2959 $0.2959 $0.0986 $0.0986 $0.0986
</TABLE>
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 5776
Adm. Rates and Tariffs Original Page 26
Bridgewater, NJ 08807
Issued: October 31, 1996 Effective: November 1, 1996
** All material on this page is new.**
7.C.1.(c) All Other Countries (continued)
<TABLE>
<CAPTION>
INITIAL PERIOD ADDITIONAL PERIOD
-------------- -----------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
- --------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
YUGOSLAVIA $0.2180 $0.2180 $0.2180 $0.0727 $0.0727 $0.0727
ZAIRE, REPUBLIC OF $0.3326 $0.3326 $0.3326 $0.1109 $0.1109 $0.1109
ZAMBIA $0.2920 $0.2920 $0.2920 $0.0973 $0.0973 $0.0973
ZIMBABWE $0.2077 $0.2077 $0.2077 $0.0692 $0.0692 $0.0692
</TABLE>
D. AT&T 800 Service-Domestic
Per Hour of Use
---------------
Service Areas Business Day Evening Night/Weekend
- ------------- -------- ---- -------- -------------
1-6 $11.45 $11.45 $11.45
E. AT&T MEGACOM 800 Service-Domestic
1. The following AT&T MEGACOM 800 Service rates apply for AT&T MEGACOM 800
Services calls that terminate at no more than 15 Customer Switches owned and
operated by the Customer, as defined in Section 4.B., preceding.
Per Hour of Use
---------------
Service Areas Business Day Evening Night/Weekend
- ------------- -------- ---- -------- -------------
1-6 $5.72 $5.72 $5.72
2. The following AT&T MEGACOM 800 Services rates apply for AT&T MEGACOM 800
Services calls that terminate at no more than 2 Customer Premises that are not
Customer Switches and are designated by the Customer prior to the CISD.
Per Hour of Use
---------------
Service Areas Business Day Evening Night/Weekend
- ------------- -------- ---- -------- -------------
1-6 $7.09 $7.09 $7.09
3. The following AT&T MEGACOM 800 Services rates apply for AT&T MEGACOM 800
Services calls that terminate at all other Customer Switches and/or Customer
Premises.
Per Hour of Use
---------------
Service Areas Business Day Evening Night/Weekend
- ------------- -------- ---- -------- -------------
1-6 $7.75 $7.75 $7.75
F. AT&T 800 READYLINE Service-Domestic
Per Hour of Use
---------------
Service Areas Business Day Evening Night/Weekend
- ------------- -------- ---- -------- -------------
1-6 $11.45 $11.45 $11.45
G. AT&T Primary Rate Interface
USOC MONTHLY
---- -------
- - per Primary Rate Interface BHC $200.00
Exhibit 11
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(In thousands)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-----------------------------------------------------------------------
1996 1995(A) 1996 1995(A)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 7,032 $ 2,519 $14,467 $ 7,972
======= ======= ======= =======
PRIMARY
Weighted average common and common equivalent
shares outstanding - Primary:
Weighted average shares 29,049 14,825 25,098 14,490
Weighted average equivalent shares 2,650 1,103 2,171 1,077
-------- -------- ------- --------
Weighted average common and common
equivalent shares - Primary $ 31,699 15,928 27,269 15,567
======== ======== ======= ========
Net income per share - Primary $ .22 $ .16 .53 .51
======== ======== ========= ========
FULLY DILUTED
Weighted average common and common
equivalent shares outstanding -
Fully Diluted:
Weighted average shares 29,049 14,825 25,098 14,490
Weighted average equivalent shares 3,321 1,112 2,991 1,091
-------- ------- -------- --------
Weighted average common and common
equivalent shares - Fully Diluted 32,370 15,937 28,089 15,581
======== ======= ======= =======
Net income per share - Fully Diluted $ .22 $ .16 $ .52 $ .51
======== ======== ======== ========
</TABLE>
(A) Pro forma tax provisions have been calculated as if the Company's results of
operations were taxable as a C corporation (the Company's current tax status)
for the three and nine months ended September 30, 1995. Prior to September 20,
1995, the Company was an S corporation with all earnings taxed directly to its
shareholders.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE UNAUDITED
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 OF
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> $160,226,000
<SECURITIES> 12,737,000
<RECEIVABLES> 22,883,000
<ALLOWANCES> 931,000
<INVENTORY> 0
<CURRENT-ASSETS> 212,137,000
<PP&E> 22,925,000
<DEPRECIATION> 398,000
<TOTAL-ASSETS> 239,378,000
<CURRENT-LIABILITIES> 28,583,000
<BONDS> 0
290,000
0
<COMMON> 0
<OTHER-SE> 207,506,000
<TOTAL-LIABILITY-AND-EQUITY> 239,378,000
<SALES> 0
<TOTAL-REVENUES> 168,159,000
<CGS> 0
<TOTAL-COSTS> 145,617,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,221,000
<INCOME-TAX> 8,754,000
<INCOME-CONTINUING> 14,467,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,467,000
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.52
</TABLE>
