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