UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO _____
COMMISSION FILE NUMBER 0-26728
TEL-SAVE HOLDINGS, INC.
-----------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
23-2827736
------------------------------------------
(I.R.S. EMPLOYER IDENTIFICATION NO.)
6805 ROUTE 202, NEW HOPE, PA 18938
-------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES - ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 215 - 862 - 1500
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGES SINCE LAST
REPORT.
INDICATE BY CHECK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12,13, OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT
YES___ NO
APPLICABLE ONLY TO CORPORATE ISSUERS: INDICATE THE NUMBER OF SHARES OUTSTANDING
OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE
DATE.
COMMON STOCK, $.01 PAR VALUE, 64,535,012 SHARES OUTSTANDING AS OF MAY 12, 1998.
<PAGE>
TEL-SAVE HOLDINGS, INC.
FORM 10-Q
MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997 4
Consolidated Statement of Stockholders' Equity for
the three months ended March 31, 1998 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
Items 1-6 13
Signatures 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
ASSETS:
CURRENT:
<S> <C> <C>
Cash and cash equivalents $ 27,107 $316,730
Marketable securities 593,501 212,269
Accounts receivable, trade net of allowance for uncollectible 54,883 44,587
accounts of $2,165 and $2,419, respectively
Advances to partitions and notes receivable 31,665 26,110
Due from broker 27,145 21,087
Prepaid AOL marketing costs 38,644 30,857
Deferred taxes 60,896 30,916
Prepaid expenses and other current assets 37,553 8,495
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 871,394 691,051
Property and equipment, net 57,672 55,835
Intangibles, net 10,694 10,590
Prepaid AOL marketing costs - 32,722
Other assets 34,306 24,693
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $974,066 $814,891
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Margin account indebtedness $161,967 $ -
Accounts payable and accrued expenses:
Trade and other 30,644 16,858
Partitions 6,493 7,740
Interest and other accruals 12,302 10,578
Securities sold short, at cost to purchase 27,145 21,087
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 238,551 56,263
Convertible debt 500,000 500,000
Deferred revenue 33,950 35,800
Other liabilities 3,152 -
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 775,653 592,063
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized; - -
no shares outstanding
Common stock - $.01 par value, 300,000,000 shares authorized; 672 672
67,249,635 issued
Additional paid-in capital 286,805 291,952
Retained earnings (defecit) (38,698) 3,097
Unrealized loss on marketable securities (1,443) -
Treasury stock (48,923) (72,893)
- -------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 198,413 222,828
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $974,066 $814,891
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 91,146 $71,160
COST OF SALES 76,580 58,194
- -------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 14,566 12,966
GENERAL AND ADMINISTRATIVE EXPENSES 9,628 3,293
PROMOTIONAL, MARKETING AND ADVERTISING EXPENSES - AOL RELATED 47,322 3,591
RESEARCH AND DEVELOPMENT COSTS 21,318 -
- -------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (63,702) 6,082
INVESTMENT AND OTHER INCOME (LOSS), NET ( 4,814) 2,819
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (68,516) 8,901
PROVISION (BENEFIT) FOR INCOME TAXES (26,721) 3,471
- -------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(41,795) $ 5,430
=========================================================================================================================
NET INCOME (LOSS) PER SHARE - BASIC $ (.65) $ .09
=========================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 64,153 62,429
=========================================================================================================================
NET INCOME (LOSS) PER SHARE - DILUTED $ (.65) $ .08
=========================================================================================================================
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING - DILUTED 64,153 65,839
=========================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL LOSS ON TREASURY STOCK
-------------------------- PAID-IN RETAINED MARKETABLE ---------------------------
SHARES AMOUNT CAPITAL EARNINGS SECURITIES SHARES AMOUNT TOTAL
----------- ----------- ------------- ---------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1998 67,250 $672 $291,952 $ 3,097 $ -- (3,608) $(72,893) $222,828
Net loss -- -- -- (41,795) -- -- -- (41,795)
Vesting of
AOL warrants -- -- 10,905 -- -- -- -- 10,905
Exercise of
common
stock
options
and warrants -- -- (24,237) -- -- 1,528 30,864 6,627
Purchase of
treasury
shares -- -- -- -- -- (381) (8,850) (8,850)
Common stock
issued
for
compensation -- -- ( 257) -- -- 97 1,956 1,699
Unrealized
loss on
marketable
securities -- -- -- -- (1,443) -- -- (1,443)
Income tax
benefit
related
to
exercise
of common
stock
options
and
warrants -- -- 8,442 -- -- -- 8,442
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 67,250 $672 $286,805 $(38,698) $(1,443) (2,364) $(48,923) $198,413
31, 1998
====================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (41,795) $ 5,430
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Unrealized loss on securities 4,739 220
Provision for bad debts (230) 775
Depreciation and amortization 1,369 1,024
Vested AOL warrants and amortization of prepaid AOL marketing costs 35,839 3,591
Purchased research and development 21,034 --
Deferred revenue (1,850) --
Income tax benefit related to exercise of options and warrants 8,443 4,097
(Increase) decrease in:
Accounts receivable, trade (10,042) (11,562)
Advances to partitions and note receivables (5,554) (1,821)
Prepaid expenses and other current assets (58,115) (6,292)
Prepaid AOL marketing costs -- (100,564)
Other assets 387 789
Increase (decrease) in:
Accounts and partition payables and accrued expenses 14,762 (1,723)
-------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (31,013) (106,036)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of intangibles (285) (3,759)
Acquisition of Symetrics Industries, Inc. (26,707) --
Capital expenditures (3,026) (5,701)
Securities sold short (260) (867)
Due from broker (6,058) 867
Sale (purchase) of securities, net (382,018) 124,559
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (418,354) 115,099
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from margin account indebtedness 161,967 --
Proceeds from exercise of options and warrants 6,627 3,033
Purchase of common stock warrants -- (4,400)
Acquisition of treasury stock (8,850)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 159,744 (1,367)
- -------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (289,623) 7,696
Cash and cash equivalents, at beginning of period 316,730 8,023
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of period $ 27,107 $ 15,719
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basic Presentation The consolidated financial statements include
the accounts of Tel-Save Holdings, Inc. and
its wholly-owned subsidiaries, and have been
prepared as if the entities had operated as a
single consolidated group since their
respective dates of incorporation. All
intercompany balances and transactions have
been eliminated.
The consolidated financial statements and
related notes thereto as of March 31, 1998
and for the three ended March 31, 1998 and
1997 are presented as unaudited but in the
opinion of management include all adjustments
necessary to present fairly the information
set forth therein. These adjustments consist
solely of normal recurring accruals. The
consolidated balance sheet information for
December 31, 1997 was derived from the
audited financial statements included in the
Company's Form 10-K, as amended. These
interim financial statements should be read
in conjunction with that report. The interim
results are not necessarily indicative of the
results for any future periods.
Certain reclassifications of prior period's
data have been made to conform to the current
period's presentation. The promotion,
advertising and marketing expenses related to
the Company's Telecommunications Marketing
Agreement ("AOL Agreement") with America
Online, Inc. ("AOL") have been reclassified
from cost of sales to promotional, marketing
and advertising expenses in the statement of
operations for the three months ended March
31, 1997, in order to conform to the current
period's presentation.
2. Acquisition of
Symetrics Industries, Inc. In January, 1998, the Company acquired all of
the outstanding stock of Symetrics
Industries, Inc., a manufacturer of digital
telephone switching equipment and systems
(the "Telephone Business") and electronic
equipment for the U.S. Department of Defense
(the "Defense Business") for $26.8 million.
The Company is in the process of completing
the sale of the Defense Business for
approximately $10 million (including assumed
liabilities) following the acquisition. The
transaction has been accounted for under the
purchase method.
The Company's purpose for purchasing
Symetrics was to obtain the technology for
the digital switch manufactured by the
Telephone Business. The Company believes that
the digital switch requires substantial
development in order to provide state of the
art features which would make the digital
switch attractive for use by local telephone
companies operating in smaller cities and
rural areas and competitive local exchange
carriers operating in metropolitan areas. The
Company plans to use the digital switch in
its own operations as a competitive local
exchange carrier and in its planned entry
into the college and university
telecommunication business. The net purchase
price of $18.6 million exceeded the book
deficit of the Telephone Business by
approximately $22.8 million. The majority of
this excess has been recorded by the Company
as purchased research and development and
included in research and development expense
in the first quarter of 1998. The Company is
still in the process of valuing the purchased
research and development and the $21 million
is its current estimate. The operations of
the Telephone Business, which resulted in a
loss in 1997 and 1996, are not material.
3. Comprehensive Income As of January 1, 1998, the Company adopted
Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income
("SFAS 130"). The adoption of this Statement
had no impact on the Company's net income or
stockholders' equity. SFAS 130 requires that
<PAGE>
all components of comprehensive income and
total comprehensive income be reported on one
of the following: a statement of income and
comprehensive income, a statement of
comprehensive income or a statement of
stockholders' equity. Comprehensive income is
comprised of net income and all changes to
stockholders' equity, except those due to
investments by owners (changes in paid in
capital) and distributions to owners
(dividends). For interim reporting purposes,
SFAS 130 requires disclosure of total
comprehensive income.
Comprehensive income (loss) and its components consist of the following:
For the Three Months Ended
March 31,
1998 1997
---------- ----------
Net income (loss) $ (41,795) $ 5,430
Other comprehensive income (loss), net of tax:
Unrealized loss on marketable securities
available for sale (1,445) -
---------- ----------
Comprehensive income (loss) $ (43,238) $ 5,430
========== ==========
7
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
financial data as a percentage of sales:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 84.0 81.8
----- -----
Gross profit 16.0 18.2
Selling, general and administrative expenses 10.6 4.6
Promotional, marketing and advertising expenses - AOL related 51.9 5.0
Research and development costs 23.4 -
----- -----
Operating income (loss) (69.9) 8.6
Investment and other income (loss), net (5.3) 3.9
----- -----
Income (loss) before income taxes (75.2) 12.5
Provision (benefit) for income taxes (29.3) 4.9
------ -----
Net income (loss) (45.9)% 7.6%
====== =====
</TABLE>
8
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Sales. Sales increased by 28.1% to $91.1 million in the first quarter
of 1998 from $71.2 million in the first quarter of 1997. The increase in sales
related primarily to the Company's marketing campaign under the AOL Agreement.
Although the Company expects sales to increase by virtue of the AOL
Agreement, in view of the intense competition in this industry, there can be no
assurance that the Company will increase sales on a quarter-to-quarter or
year-to-year basis. In addition, the Company's sales under the AOL Agreement
have continued to be adversely affected by the PIC freezes imposed by the
regional Bell operating companies.
Cost of Sales. Cost of sales increased by 31.6% to $76.6 million in the
first quarter of 1998 from $58.2 million in the first quarter of 1997 primarily
as a result of increased sales.
Prior to 1997, network usage costs consisted solely of "bundled"
charges from AT&T. Beginning in 1997, the Company also incurred "unbundled"
charges, including local access fees, associated with the operation of OBN. Both
"bundled" and "unbundled" charges are directly related to calls made by the
Company's end users.
Until April 30, 1998, the Company acquired most of the services
purchased from AT&T for resale or use in OBN pursuant to AT&T Contract Tariff
No. 5776. The Company has signed a new three-year contract with AT&T that
supersedes Contract Tariff No. 5776 and provides a wide variety of services
supporting the Company's nationwide telecommunications network and resale
operations. The contract included a new offering that the Company has
successfully used on a trial basis in recent months (AT&T Network Connection
Services, formerly known as AT&T's Carrier Solutions Platform) that enables the
Company to accommodate large numbers of additional customers on OBN by handling
their peak load or overflow traffic. The new contract also provides most of the
other services the Company acquires from AT&T. The new contract includes certain
financial commitments by the Company, both in terms of minimum revenue
commitments and a minimum percentage of certain services which must be purchased
from AT&T if purchased from any other carrier. These commitments expire at any
time after the first year that total charges from services purchased from AT&T
during the term have reached $110 million. The new contract also specifies
various options for satisfying the financial commitments in the event of a
change in control of the Company. The Company and AT&T agreed to guidelines for
describing the Company's relationship with AT&T and, specifically, how the
Company may refer to that relationship in the marketplace.
OBN and the operation of the Company's own switches and network have to
date and will in the future require the Company to incur systems and equipment
maintenance, lease and network personnel expenses significantly above the levels
historically experienced by the Company as a switchless reseller of AT&T
services. However, these per call costs, in combination with "unbundled" charges
paid to LECs and AT&T, were, in 1997 and the first quarter of 1998, and are
expected in the future to be, less than the per call cost currently incurred by
the Company as a switchless reseller paying "bundled" charges to AT&T.
Gross Margin. Gross margin decreased to 16.0% in the first quarter of
1998 from 18.2% in the first quarter of 1997. The decrease in gross margin was
primarily due to credits for long distance services the Company received in the
first quarter of 1997. Price competition continues to intensify for the
Company's products and this trend can be expected to continue to put downward
pressure on gross margins.
General and administrative expenses. General and administrative
expenses increased by 192.4% to $9.6 million in the first quarter of 1998 from
$3.3 million in the first quarter of 1997. The increase in general and
administrative expenses was due primarily to the costs associated with hiring
additional personnel to support the Company's continuing growth, the general
administrative expense incurred by Compco, Inc. and Symetrics which were
acquired in November 1997 and January 1998, respectively, and increased fees for
professional services.
9
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
In December 1997, the Company granted options to purchase 810,000
shares of Company Common Stock at an exercise price of $17.50 per share to an
executive officer and two outside directors. The options granted are subject to
the approval of the stockholders and are being submitted for approval at the
Company's 1998 stockholder meeting. Approval of the option grants will result in
compensation expense equal to the amount by which the market value of the
Company Common Stock subject to these options on the date of such approval
exceeds the exercise price.
Promotional, Marketing and Advertising Expenses - AOL Related. During
the first quarter of 1998, the Company expensed approximately $24.9 million
related to the AOL Agreement based on the value of advertising and promotion
provided by AOL and approximately $10.9 million for the performance warrants
issued to AOL on March 31, 1998. The remaining portion of AOL marketing and
advertising expenses primarily represents other AOL related marketing and
advertising efforts. During the first quarter of 1997, the Company expensed
approximately $3.6 million for certain exclusivity rights.
The Company made an initial payment of $100 million to AOL at the
signing of the AOL Agreement and 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. Of the prepaid AOL marketing costs,
approximately $57.0 million was charged to expense in 1997 and approximately
$24.9 million was charged to expense in the first quarter of 1998. The remaining
portion of the prepaid AOL marketing costs (approximately $38.6 million at March
31, 1998) will be recognized over the balance of the term of the AOL Agreement,
the initial term of which expires on June 30, 2000 (extended as to long distance
services to June 30, 2001 by amendment as described below), as advertising
services are received. The AOL warrant for up to 7 million shares vests at the
rate of 2 shares for each new user of the Company's services that subscribes
through AOL and will be valued and charged to expense as and when subscribers to
the Company's services under the AOL Agreement sign-up and the shares under such
warrant vest. The amount of such charges, which could be significant, will be
based on the extent to which such AOL warrants vest and the market prices of the
Company's Common Stock at the time of vesting and therefore such charges are not
currently determinable. Generally, the higher the market price of the Company's
Common Stock at the time of vesting, the larger the amount of the charge will
be. Under an amendment of the AOL Agreement dated as of May 14, 1998, among
other things, the term of the AOL Agreement with respect to the Company's long
distance telecommunications services was extended by one year to June 30, 2001,
the Company's flexibility to engage for 90 days in certain acquisition
transactions that may otherwise have triggered a right of termination by AOL
under the AOL Agreement was increased and the Company issued to AOL an
additional, fully exercisable warrant to purchase up to 1 million Company shares
at an exercise price of $22.25. The approximate $10 million value of the new AOL
warrant will be amortized over the remaining, extended term of the AOL
Agreement. The Company also anticipates that it may incur up to $100 million
additional AOL marketing expenses in 1998 for such marketing efforts as direct
mail, media campaigns and special pricing and other promotions.
Research and Development Costs. Research and development costs are
associated with the acquisition of Symetrics Industries, Inc. and include
purchased research and development costs of approximately $ 21.0 million (Note
2).
Investment and Other Income (Loss), Net. Investment and other income,
net was $(4.8) million in the first quarter of 1998 versus $2.8 million in the
first quarter of 1997. During the first quarter of 1998, the Company incurred a
loss of 3.0 million on the sale of its investment in US Wats, Inc., which was
originally acquired in connection with the Company's proposed acquisition of
another telecommunications company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has since September 1995 raised capital primarily through
public and private distributions of its securities. In fall 1995 and spring
1996, the Company consummated public offerings of shares of the Company's Common
Stock and received net proceeds of $42.8 million and $139.1 million,
respectively.
10
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
In September 1997, the Company privately sold $300 million of 4 1/2%
Convertible Subordinated Notes which mature on September 15, 2002 (the "2002
Convertible Notes"). Interest on the 2002 Convertible Notes is due and payable
semiannually on March 15 and September 15 of each year. The 2002 Convertible
Notes are convertible, at the option of the holder thereof, at any time after
December 9, 1997 and prior to maturity, unless previously redeemed, into shares
of the Company's Common Stock at a conversion price of $24.61875 per share. The
2002 Convertible Notes are redeemable, in whole or in part, at the Company's
option, at any time on or after September 15, 2000 at 101.80% of par prior to
September 14, 2001 and 100.90% of par thereafter.
In December 1997, the Company privately sold $200 million of 5%
Convertible Subordinated Notes which mature on December 15, 2004 (the "2004
Convertible Notes"). Interest on the 2004 Convertible Notes is due and payable
semiannually on June 15 and December 15 of each year. The 2004 Convertible Notes
are convertible, at the option of the holder thereof, at any time after March 5,
1998 and prior to maturity, unless previously redeemed, into shares of the
Company's Common Stock at a conversion price of $25.47 per share. The 2004
Convertible Notes are redeemable, in whole or in part at the Company's option,
at any time on or after December 15, 2002 at 101.43% of par prior to December
14, 2003 and 100.71% of par thereafter.
During 1996, certain options and warrants to purchase shares of the
Company's Common Stock were exercised and the Company repurchased approximately
428,000 shares, which are held as treasury shares, yielding to the Company net
proceeds of $7.7 million. During 1997, certain options and warrants to purchase
shares of the Company's Common Stock were exercised and the Company repurchased
certain Common Stock Warrants, yielding to the Company net proceeds of $16.9
million. In addition, during 1997 the Company repurchased approximately 3.5
million shares of the Company's Common Stock, which are held as treasury shares,
for approximately $72.0 million. The tax benefit realized from the options and
warrants was approximately $21.3 million in 1996 and $25.7 million in 1997 and
is reflected as an adjustment to additional paid-in capital.
During the first quarter of 1998, certain options and warrants to
purchase shares of the Company's Common Stock were exercised yielding to the
Company proceeds of $6.6 million. Also, the Company repurchased approximately
381,000 shares of the Company's Common Stock, which are held as treasury shares,
for approximately $8.9 million. The tax benefit realized from the options and
warrants was approximately $8.4 million in the first quarter of 1998 and is
reflected as an adjustment to additional paid-in capital.
The Company's working capital was $632.8 million and $634.8 million at
March 31, 1998 and December 31, 1997, respectively. The significant increase in
working capital when compared to historical amounts is primarily a result of the
sale of the 2002 and 2004 Convertibles Notes, discussed above. In the first
quarter of 1998, the Company invested $300 million in a tax exempt bond fund,
$245 million in government bond funds and incurred approximately $160 million of
margin account indebtedness in connection with these investments. The value of
such investments may be affected by interest rate fluctuations and other general
economic factors. In addition, the Company's investment policy with respect to
these funds may result in a less favorable return for such investments in
comparison to other investments.
While the Investment Company Act of 1940, as amended (the "Investment
Company Act"), principally regulates vehicles for pooled investments in
securities, such as mutual funds, it also may be deemed to be applicable to
companies that are not organized for the purpose of investing or trading in
securities but nonetheless have more than a specified percentage of their assets
in investment securities. The Company is engaged in the telecommunications
business, and the availability of cash and liquid securities is important to the
Company's ability to take advantage of opportunities to acquire other
telecommunications businesses, assets and technologies from time to time. The
Company believes, therefore, that its activities do not and will not subject the
Company to regulation under the Investment Company Act. However, if the Company
were to be deemed to be an investment company within the meaning of the
Investment Company Act, the Company would become subject to certain restrictions
relating to the Company's activities, including, but not limited to,
restrictions on the conduct of its business, the nature of its investments, the
issuance of securities and transactions with affiliates. Therefore, the
characterization of the Company as an investment company would have a material
adverse effect on the Company. In the Indenture governing the 2002 Convertible
Notes, the Company has covenanted that it will not become an investment company
within the meaning of the Investment Company Act and that it will take all such
actions as are necessary in order to continue not to be deemed an investment
company.
11
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
The Company invested $3.0 million in capital equipment during the first
quarter of 1998.
During the first quarter of 1998, the Company purchased the outstanding
shares of Symetrics for $26.8 million.
The Company generally does not have a significant concentration of
credit risk with respect to accounts receivable due to the large number of
partitions and end users comprising the Company's customer base and their
dispersion across different geographic regions. The Company maintains reserves
for potential credit losses and, to date, such losses have been within the
Company's expectations.
The Company has announced that its Board has authorized the repurchase
of up to eight million shares of its Common Stock. It is anticipated that the
repurchased shares will be held in treasury for issuance upon exercise of
outstanding options and warrants and upon conversion, if any, of convertible
notes, and for other general corporate purposes. As noted above, when it entered
into the AOL Agreement, the Company issued two warrants to AOL to purchase
shares of the Company's Common Stock, including a warrant to purchase 5 million
shares at an exercise price of $15.50 per share, which warrant became fully
exercisable on February 22, 1998. On March 31, 1998, AOL exercised this warrant
as to 1,000,000 shares of the Company's Common Stock on a net issuance basis and
the Company repurchased from AOL all of the 380,624 shares issued upon such net
issuance exercise for $23 1/4 per share. In connection with such purchases, AOL
agreed not to dispose of any shares of the Company's Common Stock acquired by
AOL under any of the warrants issued in connection with the AOL Agreement until
March 30, 1999.
The Company believes that its current cash position, marketable
securities and the cash flow expected to be generated from operations, will be
sufficient to fund its capital expenditures, working capital and other cash
requirements for at least the next twelve months.
The "Year 2000" issue refers to the potential harm from computer
programs that identify dates by the last two digits of the year rather than
using the full four digits. As such, dates after January 1, 2000 could be
misidentified, and such programs could fail. The Company has examined its
computer-based systems and believes that the "Year 2000" problem is not present
on such systems. However, the Company is dependent upon computer systems
operated by third parties, such as LECs, AT&T, AOL and other vendors. If those
systems were to malfunction due to the "Year 2000" problem, the Company's
services could fail, as well. Such failures could have a material adverse effect
upon the Company's business, results of operations and financial condition. The
Company is inquiring of such third parties to determine the effect, if any, of
the "Year 2000" problem on the systems upon which the Company is dependent, and
to obtain appropriate assurance that no such problem exists.
* * * * *
Certain of the statements contained herein may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
statements are identified by the use of forward-looking words or phrases,
including, but not limited to, "estimates," "expects," "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
the Company's current expectations. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, there
can be no assurance that such expectations will prove to have been correct.
Forward-looking statements involve risks and uncertainties and the Company's
actual results could differ materially from the Company's expectations.
Important factors that could cause such actual results to differ materially
include, among others, adverse developments in the Company's relationship with
AT&T or AOL, increased price competition for long distance services, failure of
the marketing of long distance services under the AOL Agreement, attrition in
the number of end users, and changes in government policy, regulation and
enforcement. The Company undertakes no obligations to update its forward-looking
statements.
12
<PAGE>
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is a party to certain legal actions arising in the
ordinary course of business. The Company believes that the
ultimate outcome of these actions will not result in any liability
that would have a material adverse effect on the Company's
financial condition or results of operations.
Item 2. Changes in Securities
---------------------
In connection with the Company's agreement with America Online,
Inc. ("AOL") the Company granted a warrant to AOL to purchase
5,000,000 shares of the Company's Common Stock at an exercise
price of $15.50 per share, which warrant became fully vested on
February 22, 1998. On March 31, 1998, AOL exercised this warrant
as to 1,000,000 shares of Company Common Stock on a net issuance
basis and the Company repurchased from AOL all of the 380,624
shares issued upon such net issuance exercise.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 10.1 Master Carrier Agreement dated April
22, 1998 between Tel-Save, Inc. and
AT&T Corp.*
Exhibit 11 Computation of Net Income Per Share
Exhibit 27 Financial Data Schedule
-------------------
* Confidential treatment has been requested for portions
of this Exhibit.
(b) Reports on Form 8-K
-------------------
Since December 31, 1997, the following Current Reports on Form
8-K have been filed by the Company:
Current Report on Form 8-K, dated February 6, 1998, which
reported the Company's press releases of February 6, 1998 and
February 20, 1998 which announced the Company's financial
results for the year ended December 31, 1997 and the
engagement of an investment banker with respect to the
possible sale of the Company, respectively.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 1998 TEL-SAVE HOLDINGS, INC.
----------------------------------------------------
(Registrant)
By: /s/ Daniel Borislow
------------------------------------------------
Daniel Borislow
Chairman of the Board,
Chief Executive Officer and Director
By: /s/ George P. Farley
------------------------------------------------
George P. Farley
Chief Financial Officer, Treasurer and Director
By: /s/ Kevin R. Kelly
------------------------------------------------
Kevin R. Kelly
Controller
14
EXHIBIT 10.1
THE SYMBOL "***" DENOTES PLACES WHERE PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. SUCH MATERIAL
HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
MASTER CARRIER AGREEMENT
BETWEEN
TEL-SAVE, INC.
AND
AT&T CORP.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. SERVICES DESCRIPTIONS AND RATES.............................................
1.1. Services Provided..................................................
1.2. Ancillary Support..................................................
1.3. Rates and Charges..................................................
1.4. Payphone Compensation..............................................
1.5. Tel-Save IXC Switch................................................
1.6. Discontinuance of Contract Tariff 1715.............................
2. TERM OF AGREEMENT AND RELATED PROVISIONS....................................
2.1. Effective Date; Commencement Date..................................
2.2. Term of Agreement..................................................
3. COMMITMENTS.................................................................
3.1. Minimum Annual Revenue Commitment..................................
3.2. Minimum Annual Percentage..........................................
3.3. MAP Audits.........................................................
3.4. Shortfall Charges Not Cumulative...................................
4. USE OF SERVICES.............................................................
4.1. Resale of Services.................................................
4.2. Relationship and Communication with End Users......................
i
<PAGE>
TABLE OF CONTENTS
-----------------
Page
4.3 Abuse of the Services..............................................
4.4. Fraudulent Use of the Services.....................................
4.5. Interference, Impairment or Improper Use of the Services...........
5. DEFAULT AND TERMINATION.....................................................
5.1. Events of Default..................................................
5.2. Termination Without Liability by Tel-Save..........................
5.3. Termination Without Liability by AT&T..............................
6. BILLING ...................................................................
6.1. Billings and Payment...............................................
6.2. Bill Disputes......................................................
6.3. Deposits...........................................................
7. LIMITATIONS OF LIABILITY; INDEMNIFICATION...................................
7.1. Limitations of Liability...........................................
7.2. Indemnification....................................................
7.3. Force Majeure......................................................
7.4. Limitation of Actions..............................................
7.5. Disclaimer of Warranties...........................................
7.6. Exclusive Remedies.................................................
ii
<PAGE>
TABLE OF CONTENTS
-----------------
Page
8. INTELLECTUAL PROPERTY.......................................................
8.1. Restrictions Against Use of Name and Brand Identification..........
8.2. Inconsistent Use...................................................
8.3. No Patent or Software License......................................
9. TAXES ...................................................................
9.1. Taxes to be Billed by AT&T.........................................
9.2. Taxes Not To Billed by AT&T........................................
9.3. Gross Receipts Tax.................................................
10. ACCESS CHARGES AND RELATED SURCHARGES.......................................
10.1. Access Charges.....................................................
10.2. Special Access Surcharges..........................................
10.3. Other Surcharges...................................................
11. CONFIDENTIALITY.............................................................
11.1. Confidential Information...........................................
11.2. Protection of Confidentiality......................................
11.3. Disclosure to or by Affiliates or Subcontractors...................
11.4. Return or Destruction of Confidential Information..................
11.5. Disclosure to Consultants..........................................
11.6. Required Disclosure................................................
iii
<PAGE>
TABLE OF CONTENTS
-----------------
Page
11.7. Injunctive Remedy..................................................
12. DISPUTE RESOLUTION..........................................................
12.1. Mediation..........................................................
12.2. Arbitration........................................................
12.3. Injunctive Relief..................................................
12.4. Court Proceedings..................................................
13. GENERAL TERMS AND CONDITIONS................................................
13.1. Tel-Save Certification.............................................
13.2. Service Forecasting................................................
13.3. Assignment.........................................................
13.4. Third-Party Beneficiaries; Affiliates..............................
13.5. Relationship of the Parties........................................
13.6. Ackowledgement of Right to Compete.................................
13.7. Network Equipment..................................................
13.8. Removal of Property................................................
13.9. Notices............................................................
13.10. Detariffing........................................................
13.11. Compliance with Laws...............................................
iv
<PAGE>
13.12. Export Regulation Compliance.......................................
TABLE OF CONTENTS
-----------------
Page
13.13. Choice of Law......................................................
13.14. Severability.......................................................
13.15. Attachments Govern.................................................
13.16. Construction.......................................................
13.17 Descriptive Headings...............................................
13.18. Survival of Terms..................................................
13.19. Modification And Waiver............................................
13.20 Entire Agreement...................................................
13.21. Execution in Counterparts..........................................
13.22. Index of Defined Terms.............................................
ATTACHMENTS
- -----------
A AT&T Network Connection Platform
B Fraud Notification and Blocking
C Implementation Planning
D Pricing
v
<PAGE>
MASTER CARRIER AGREEMENT
------------------------
THIS MASTER CARRIER AGREEMENT is made and entered into by and between
Tel-Save, Inc., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania and having an office at 6805 Route 202, New Hope,
Pennsylvania 18938 ("Tel-Save"), and AT&T Corp., a corporation organized and
existing under the laws of the State of New York and having an office at 295
North Maple Avenue, Basking Ridge, New Jersey 07920 ("AT&T")
1. SERVICES DESCRIPTIONS AND RATES
-------------------------------
AT&T shall provide, and Tel-Save shall purchase, certain services (the
Services") pursuant to the terms of this Master Carrier Agreement including the
Attachments hereto (collectively, the "Agreement"), and, to the extent necessary
to comply with applicable laws and regulations, pursuant to the terms of AT&T's
tariffs governing the Services.
1.1. SERVICES PROVIDED.
AT&T shall provide, and Tel-Save shall purchase, the following AT&T carrier
services:
(a) AT&T Network Connection Services, as described and,
defined in Attachment A to this Agreement.
(b) AT&T Software Defined Network (SDN) Services, consisting
of Custom SDN and Global Software Defined Network (GSDN) Services, as
described and defined in AT&T Tariff F.C.C. No. 1, as amended from time to
time.
(c) AT&T Distributed Network Service (DNS), as described and
defined in AT&T Tariff F.C.C. No. 1, as amended from time to time.
<PAGE>
(d) AT&T MEGACOM(R) Service, as described and defined in AT&T
Tariff F.C.C. No 1, as amended from time to time.
(e) AT&T 800 Services, as described and defined in AT&T Tariff
F.C.C. Nos. 2 and 14, as amended from time to time, consisting of: basic
AT&T 800 Service-Domestic; basic AT&T 800 Service-Canada; AT&T MEGACOM 800
Service-Domestic; AT&T MEGACOM 800 Service-Canada, AT&T MEGACOM 800
Service-Mexico, AT&T MEGACOM 800 Service-Overseas; AT&T 800 READYLINE(R)
Service-Domestic, AT&T 800 READYLINE Service-Canada, AT&T 800 READYLINE
Service-Mexico, AT&T 800 READYLINE Service-Overseas, and AT&T 800 READYLINE
Service-Puerto Rico and the U.S. Virgin Islands.
(f) AT&T Private Line Services (AT&T ACCUNET T1.5 Service and
AT&T ACCUNET T45 Service), as defined and described in AT&T Tariff F.C.C.
No. 9, as amended from time to time.
(g) AT&T 1.544 Mbps Echo Cancellation. AT&T 1.544 Mbps Echo
Cancellation is an Office Function providing non-frequency selective echo
cancellation in AT&T's central office to improve the quality of an AT&T
T1.5 Inter Office Channel used for voice transmissions. Echo cancellation
is disruptive to data transmissions at speeds of 64 kbps and higher, and is
only available on an AT&T T1.5 Inter Office Channel that is designated by
Tel-Save for use for voice transmissions, provided that the Local Channel
associated with the IOC terminates at a Tel-Save IXC Switch. If data
transmissions at speeds below 64 kbps over an IOC conditioned with Echo
Cancellation are disrupted,
2
<PAGE>
AT&T will work with Tel-Save in an effort to determine the cause of the
disruption. No credit will be provided to Tel-Save as a result of any such
disruption if it would not have occurred if the IOC was not conditioned
with Echo Cancellation.
1.2. ANCILLARY SUPPORT.
AT&T will furnish the following ancillary support in connection with the
Services:
(a) Fraud Notification and Blocking as described in Attachment B to
this Agreement.
(b) Implementation Planning pursuant to an Implementation Plan that is
developed as described in Attachment C to this Agreement.
1.3. RATES AND CHARGES.
(a) Tel-Save shall pay the rates and charges as set forth in this
Agreement for all Services provided under this Agreement.
(b) The Recurring and Nonrecurring Rates and Charges for the Services
described in Section 1.1 are the same as the undiscounted Recurring and
Nonrecurring Rates and Charges under the applicable Tariffs, as amended
from time to time, except as specified in Attachment D to this Agreement.
(c) The rates and charges set forth in this Agreement may not be
combined in any manner with rates, charges, credits or discounts offered
with respect to the Services provided under this Agreement under any AT&T
general tariff (except as specifically set forth in this Agreement),
contract tariff, tariffed promotion or other offering. As described in
Section 3.2, services that Tel-Save obtains from AT&T under other serving
3
<PAGE>
arrangements will be included in the MAP calculations; such services will
not be counted in the MARC calculations, except as provided in Section
3.l(a) with respect to AT&T Contract Tariff No 2039.
1.4. PAYPHONE COMPENSATION.
AT&T reserves the right to increase from time to time the rates for the
Services provided under this Agreement, as a result of charges imposed on AT&T
stemming from an order, rule or regulation of the Federal Communications
Commission or a court having competent jurisdiction relating to compensation of
payphone service providers. This provision is not intended to require Tel-Save
to pay the same charge twice for the same call (once to AT&T and once to the
payphone service provider). This provision is intended to allow AT&T to recover
its costs of the Services under this Agreement, including any charges and
additional costs, relating to the compensation of payphone service providers, so
long as AT&T provides Tel-Save with the option of blocking payphone-originated
calls, to the same extent made available to other AT&T customers for the same
service(s). It is not expected that AT&T will offer blocking for calling card
calls.
1.5. TEL-SAVE IXC SWITCH.
As used in this Agreement, the term "Tel-Save IXC Switch" means a
telecommunications switch (including all remote switching modules under common
control of the same central switch) with the following characteristics:
(a) it is owned and operated by Tel-Save or an Affiliate of Tel-Save,
or by an entity in which Tel-Save or an Affiliate of Tel-Save holds an
ownership interest of at least
4
<PAGE>
33%, or by an entity that holds an ownership interest in Tel-Save or an
Affiliate of Tel-Save of at least 33% (it is agreed for purposes of this
Agreement that Tel-Save or an Affiliate of Tel-Save shall be deemed to own
any switch that is the subject of a lease transaction under which (1)
Tel-Save or its Affiliate is the lessee, (2) the equipment vendor or a
financing company is the lessor, (3) the lease term is at least two years,
and (4) the entire switch is under the exclusive possession and control of
Tel-Save or its Affiliate);
(b) it is used for the transmission of calls that are routed by a Local
Exchange Carrier to the Tel-Save IXC Switch using Feature Group D Access or
a functional equivalent (a LEC access facility protocol is the "functional
equivalent" of Feature Group D Access if it is used by a LEC as an
alternative to Feature Group D Access for routing calls from the LEC end
office or access tandem to the IXC point of presence based on the CIC
associated with the line on which the call originated, provided that the
protocol is compatible with AT&T's network requirements);
(c) It is capable of interconnecting circuits or transferring calling
between circuits;
(d) it has a maximum capacity of at least 100,000 access lines and
16,000 trunk lines;
(e) it is predominantly used to provide switched telecommunications
service on a Common Carrier basis; and
5
<PAGE>
(f) it has the capability to provide signaling interfaces at CCITT
standards of SS7 signaling.
Provided the Tel-Save IXC Switch meets the foregoing definition, it is not
necessary that all calls routed through the Tel-Save IXC Switch satisfy
characteristic (b).
1.6. DISCONTINUANCE OF CONTRACT TARIFF 1715
(a) Effective as of the Commencement Date, Tel-Save
discontinues its subscription to AT&T Contract Tariff 1715 ("CT 1715"),
pursuant to CT 1715, Section 6 E. A Termination Charge will apply as
provided in that Section. AT&T will provide a limited-purpose credit
under this Agreement in an amount equal to the amount of such
Termination Charge. The credit will be applied to offset the amount of
such Termination Charge, and cannot be applied against any other
charges.
(b) Except as specified in this Section 1.6, Tel-Save shall
not seek to discontinue without liability any AT&T term plans, Contract
Tariffs, or other serving arrangements in connection with its order for
service under this Agreement.
2. TERM OF AGREEMENT AND RELATED PROVISIONS
----------------------------------------
2.1. EFFECTIVE DATE; COMMENCEMENT DATE.
The "Effective Date" of this Agreement shall be the date on which it is
executed by each party. The "Commencement Date" shall be May 1, 1998. The rates.
terms and conditions provided under this Agreement will not apply until the
Commencement Date.
6
<PAGE>
2.2. TERM OF AGREEMENT.
The "Term" of this Agreement begins on the Commencement Date and ends
on the day before the third-year anniversary of the Commencement Date.
3. COMMITMENTS
-----------
3.1. MINIMUM ANNUAL REVENUE COMMITMENT.
(a) The Minimum Annual Revenue Commitment ("MARC") is fifty million
dollars ($50,000,000) for the first and second years of the Term, and
thirty-five million dollars ($35,000,000) for the third year of the Term.
Each such year is sometimes referred to as a "MARC Period". The total
charges for the Services set forth in Sections 1.1 and 1.2(a), together
with the total charges incurred by Tel-Save for service under AT&T Contract
Tariff No. 2039, net of all discounts and credits other than credit
allowances for interruptions and outages, ("Total Qualified Charges") shall
be applied to satisfy the MARC for the year in which the charges are
incurred.
(b) If, at the end of any month in the second or third years of the
Term, the Total Qualified Charges incurred by Tel-Save during the Term is
least one hundred and ten million dollars ($110,000,000) and Tel-Save is
current in payment to AT&T for all telecommunications services, Tel-Save
may, for the remainder of the Term, continue to purchase Services under
this Agreement, without any MARC or MAP obligations. Tel-Save will be
considered current in payment to AT&T under this Agreement if all billed
and outstanding charges are paid, except for any amount for which the date
for timely payment under Section 6.1(e) has not yet occurred.
7
<PAGE>
(c) In the event that Tel-Save exercises its right to terminate
affected service components under Section 5.2(b), the MARC will be reduced
(for the then-current MARC Period) by the average monthly charges
associated with such service components during the three full billing
months prior to the event giving rise to the right to terminate, times the
number of full or partial months remaining in the MARC Period during which
the service components were terminated, and (for each remaining full MARC
Period) by the average monthly charges associated with such service
components during the three full billing months prior to the event giving
rise to the right to terminate, times twelve.
(d) If, at the end of any MARC Period, the Total Qualified Charges
incurred by Tel-Save for that period have not exceeded the MARC, Tel-Save
shall pay a MARC Shortfall Charge. The MARC Shortfall Charge will vary as
follows:
<TABLE>
<CAPTION>
-------------------------------------- -----------------------------------------
IF THE TOTAL QUALIFIED CHARGES ARE... THE MARC SHORTFALL CHARGE IS...
-------------------------------------- -----------------------------------------
<S> <C>
More than 80% of the MARC 3% of the Total Qualified Charges
-------------------------------------- -----------------------------------------
More than 60%, but not more than 5% of the Total Qualified Charges
80%, of the MARC
-------------------------------------- -----------------------------------------
More than 40%, but not more than 8% of the Total Qualified Charges
60%, of the MARC
-------------------------------------- -----------------------------------------
More than 20%, but not more than 10% of the Total Qualified Charges
40%, of the MARC
-------------------------------------- -----------------------------------------
10 or less of the MARC Two million five hundred thousand
dollars
-------------------------------------- -----------------------------------------
</TABLE>
(e) In the event that this Agreement is terminated during a MARC Period
for any reason for which a Termination Charge does not apply, the MARC for
that partial
8
<PAGE>
period will be adjusted by multiplying the MARC by the number of full
months of service in the MARC Period prior to the date of termination, and
dividing by 12. For purposes of determining the amount of any MARC
Shortfall Charge, the adjusted MARC will apply for an adjusted MARC Period,
consisting of the same months counted in Calculating the adjusted MARC. For
example, if this Agreement is terminated during month ten of the second
year of the Term, adjusted MARC would be $50 million x 9 / 12, or $37.5
million. If the Total Qualified Charges incurred by Tel-Save during the
first nine full months of the MARC Period were only $28 million (75% of the
adjusted MARC), the MARC Shortfall Charge would be 5% of $28 million, or
$1.4 million.
3.2. MINIMUM ANNUAL PERCENTAGE.
(a) Except as provided in Section 3.l(b), the Minimum Annual Percentage
("MAP") shall apply for each year of the Term, each of which is sometimes
referred to as a "MAP Period."
(b) In the event that this Agreement is terminated for any reason in
the middle of a MAP Period, the MAP shall apply for the portion of that
period ending as of the date of such termination
(c) The MAP applies to Tel-Save and its Affiliates, collectively. (An
entity is an "Affiliate" of a party if the entity owns a controlling
interest in the party or an Affiliate of the party; or if the party or an
Affiliate of the party owns a controlling interest in the entity.) An
entity that ceases to be an Affiliate of Tel-Save will continue to be
subject to
9
<PAGE>
the MAP requirements of this Agreement until AT&T receives notice from
Tel-Save advising that such entity is no longer a Tel-Save Affiliate.
(d) The MAP shall be ninety percent (90%) for all domestic outbound and
inbound voice InterLATA services ("MAP Services").
(e) Within sixty (60) days after the end of any period for which the
MAP applies, Tel-Save shall certify to AT&T in writing:
(1) the total amount of all charges (net of all discounts,
credits, taxes and surcharges) incurred during that same period by
Tel-Save and its Affiliates for all MAP Services, and
(2) the specific amounts of such charges (net of all discounts,
credits, taxes and surcharges) that are claimed to be Exempt Charges
pursuant to Section 3.2(e)(2).
(f) The amounts certified by Tel-Save pursuant to Section 3.2(e) are
subject to audit as described in Section 3.3. Tel-Save has secured or shall
secure the agreement of each Tel-Save Affiliate to permit AT&T to audit its
expenditures for telecommunications services pursuant to Section 3.3 for
the period during which it is an Affiliate of Tel-Save.
(g) The difference between the total amount of all charges incurred for
MAP Services (the total amount properly certified in Section 3 2(e)(1)) and
the total amount of any Exempt Charges (the total amount properly certified
in Section 3.2(e)(2)) shall
10
<PAGE>
constitute the "Total Tel-Save Charges". The "MAP Attainment Amount" shall
be equal to the product of the MAP times the Total Tel-Save Charges:
- --------------------------------------------------------------------------------
MAP Attainment Amount = MAP x (Total Changes for MAP Services - Exempt Charges)
- --------------------------------------------------------------------------------
(h) In the event of a Change in Control of Tel-Save, Tel-Save (or its
successor-in-interest) may elect to either (1) convert the MAP commitment
to a fixed revenue commitment or (2) eliminate the MAP and become subject
to a modified MARC Shortfall Charge, by providing notice to AT&T of such
election within thirty (30) days after such Change in Control occurs. A
"Change in Control" occurs in the event that either a single third party,
or a consortium of third parties acting in concert, acquires possession,
directly or indirectly, of (1) more than one-half of the outstanding voting
securities of Tel-Save or its direct or indirect corporate parent, or (2)
the power to direct the management or operational policies of Tel-Save,
whether by voting securities or otherwise.
(1) If Tel-Save elects to convert the MAP commitment to a fixed
revenue commitment, the MAP Attainment Amount will become a fixed
amount, equal to ninety percent (90%) of the difference between the
Total Charges for MAP Services and the Exempt Charges (each determined
by the certification and audit process set forth in Sections 3.2(e) and
3 2(f)) for the three full months immediately prior to the Change in
Control. Section 3.2(g) and 3.2(k) will no longer apply.
11
<PAGE>
(2) If Tel-Save elects to eliminate the MAP and become subject to
a modified MARC Shortfall Charge, Section 3.2 will no longer apply,
except that the following MARC Shortfall Charge provision shall apply
in lieu of Section 3.1(d): If, at the end of any MARC Period, the Total
Qualified Charges incurred by Tel-Save for that period have not
exceeded the MARC, Tel-Save shall pay a MARC Shortfall Charge equal to
the difference between the MARC and the Total Qualified Charges for
that period.
(i) The total charges (net of all discounts, credits, taxes and
surcharges) for MAP Services provided by AT&T to Tel-Save and its
Affiliates shall constitute the "Tel-Save's AT&T Charges." In the event
that Tel-Save's AT&T Charges do not exceed the MAP Attainment Amount for
any MAP Period, Tel-Save shall pay a Shortfall Charge equal to the
difference between the MAP Attainment Amount and Tel-Save's AT&T Charges
for that period.
(j) If Tel-Save obtains MAP Services from another carrier as a result
of capacity constraints specifically identified by AT&T in advance,
Tel-Save may request that the parties engage in a joint MAP assessment. In
the course of any such assessment, the parties will review the nature and
extent of the capacity constraints and the level of traffic to be obtained
from another carrier, and will jointly determine whether any adjustment in
the MAP Attainment Amount is appropriate under the circumstances.
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(k) For purposes of determining whether Tel-Save has attained the
Attainment Amount, any charges falling within the following categories
shall be considered Exempt Charges:
(1) charges for substitute services obtained by Tel-Save or an
Affiliate of Tel-Save as a result of a force majeure condition pursuant
to Section 7 3;
(2) charges for services provided to Tel-Save or an Affiliate of
Tel-Save solely using interexchange facilities owned or leased and
operated by Tel-Save or an Affiliate of Tel-Save together with network
equipment (such as switches) owned or leased and operated by Tel-Save
or an Affiliate of Tel-Save;
(3) charges for services installed as a replacement for services
that are subject to partial discontinuance, pursuant to Section 5.2(b);
(4) charges for services under commitment to another Interexchange
Carrier if the commitment was entered into by an entity that becomes a
Tel-Save Affiliate after the Effective Date (and such commitment was
entered into before the entity becomes a Tel-Save Affiliate), unless
the charges Tel-Save would incur to terminate such commitment would be
less than $10,000; provided that such charges will be considered Exempt
Charges only to the extent (A) they do not exceed one hundred and ten
percent (110%) of the charges necessary to avoid incurring liability
for shortfall charges and (B) they are incurred during the term
commitment that applied as of the date the entity became a Tel-Save
Affiliate;
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(5) With respect to any entity which becomes a Tel-Save Affiliate
after the Effective Date, charges for services obtained by that entity
from another Interexchange Carrier under an arrangement that was in
effect before the entity became a Tel-Save Affiliate, provided that (A)
Tel-Save submits complete service orders to AT&T to convert such
services to AT&T Service under this Agreement within thirty (30) days
after the entity becomes a Tel-Save Affiliate, and (B) this exemption
shall cease to apply when AT&T is able to provide such service (except
that this exemption shall remain in effect if, within 30 days after
AT&T's receipt of a complete service order from Tel-Save for conversion
of the service to AT&T, AT&T fails to provide to Tel-Save an
installation date for that service that is within 180 days after AT&T's
receipt of the complete service order); and
(6) such other charges as an officer of AT&T agrees in writing are
to be considered Exempt Charges under Section 3.2(k) of this Agreement.
3.3. MAP AUDITS.
(a) Not more than once each twelve months, AT&T may audit the books and
records of Tel-Save and its Affiliates directly relating to their
expenditures for telecommunications services (hereinafter "Tel-Save
Records"), solely for the purposes of verifying the accuracy of the
certifications submitted by Tel-Save pursuant to Section 3.2(e) and
determining the MAP Attainment Amount. Any information obtained by AT&T
pursuant to this audit may be used only for purposes of this Section 3.3,
and
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may not be provided to or used by any AT&T personnel not involved in
carrying out Section 3.3.
(b) Tel-Save and its Affiliates shall cooperate reasonably in any AT&T
audit, providing reasonable access to any and all Tel-Save Records
necessary to verify the accuracy of the certifications submitted by
Tel-Save pursuant to Section 3.2(e) and determining the MAP Attainment
Amount.
(c) If any audit reveals that the certifications submitted by Tel-Save
pursuant to Section 3.2(e) resulted in an error in the calculation of the
MAP Attainment Amount in favor of Tel-Save totaling three percent (3%) or
more and results in Tel-Save owing AT&T a greater MAP Shortfall Charge than
otherwise would have been assessed, Tel-Save shall reimburse AT&T for the
reasonable cost of the audit, including out-of-pocket costs and internal
costs attributable to the conduct of the audit, not to exceed $50,000.00.
(d) Tel-Save may satisfy any audit request under this Section 3.3 by
permitting an audit of Tel-Save Records by an external auditor selected by
the parties and paid by AT&T in lieu of permitting an audit by AT&T
personnel. The auditor must keep any information it obtains from Tel-Save
confidential, and provide AT&T only with information verifying (or
refuting) the certification and determining the MAP Attainment Amount.
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3.4. SHORTFALL CHARGES NOT CUMULATIVE.
If for the same period there is a MARC Shortfall Charge and a MAP
Shortfall Charge, Tel-Save shall be liable only for the larger Shortfall Charge.
4. USE OF SERVICES
---------------
4.1. RESALE OF SERVICES.
(a) Tel-Save may use the services provided under this Agreement for any
lawful purpose consistent with the transmission and switching parameters of
the telecommunications network, and may resell its use (or the use of any
part thereof) to a third party in the normal course of Tel-Save's business,
except as specifically prohibited or limited by law or this Agreement.
Tel-Save may use the AT&T Network Connection Services provided under this
Agreement as a component of its own end to end service to be provided
either to entities that will use Tel-Save's services for purposes other
than resale (such entities are referred to in this Agreement as "End
Users") or to other carriers that will use Tel-Save's services for purposes
of resale by such other carriers either to End Users or to other
intermediaries for ultimate resale to End Users (such other carriers, and
any other intermediaries in the sales chain between Tel-Save and an End
User are referred to in this Agreement as "Intermediate Carriers").
(b) The AT&T Network Connection Services provided under this Agreement
have been designed based on the specific capacity estimates provided by
Tel-Save. AT&T Network Connection - Outbound Service is available under
this Agreement only for use in
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connection with the following Tel-Save Carrier Identification Codes (the
"Authorized Tel-Save CICs"): 6746, 5453, 6060, and 6678.
4.2. RELATIONSHIP AND COMMUNICATION WITH END-USERS.
AT&T has no relationship under this Agreement with the End Users or
Intermediate Carriers to which Tel-Save may provide service. AT&T has no
obligation under this Agreement to communicate with, support, or otherwise
interact with such End Users or Intermediate Carriers, except (a) where
communications between AT&T and End Users is necessary for call processing,
including (to the extent provided by AT&T) operator services, directory
assistance, and calling cards, and (b) as specifically provided in this
Agreement or in AT&T Tariff F.C.C. No. I or AT&T Tariff F.C C. No 2, as those
tariffs may be amended from time to time AT&T has No. 1 or AT&T Tariff F.C.C.
No. 2, as those tariffs may be amended from time to time. AT&T has no obligation
under this Agreement to communicate with, support, or otherwise interact with
such Intermediate Carriers, except that AT&T will accept orders from an agent
appointed by Tel-Save, limited to one Intermediate Carrier for SDN Service and
to one Intermediate Carrier for DNS Service. Tel-Save retains responsibility for
the acts or omissions of its agents. Other than as provided herein communicating
with, supporting, and otherwise interacting with such End-Users and Intermediate
Carriers shall be the sole responsibility of Tel-Save.
4.3. ABUSE OF THE SERVICES.
Abuse of the Services is prohibited. The following activities constitute
abuse:
(a) Using the Services to make calls that might reasonably be expected
to frighten, abuse, torment, or harass another,
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(b) Using the Services in such a way that it interferes unreasonably
with the use of AT&T's network by others,
(c) Willfully using AT&T MEGACOM Service to carry domestic calls that
originate on the Tel-Save network or network of another facilities-based
Interexchange carrier other than AT&T and terminate disproportionately to
locations for which the incumbent Local Exchange Carrier's rate for
terminating switched access is higher than $0.03 per minute constitutes
abuse of service.
In the event that AT&T believes in good faith that such abuse is occurring, AT&T
will provide written notice of such abuse to Tel-Save, including as much detail
as is reasonably sufficient to enable Tel-Save to investigate the matter. If,
within five (5) business days after its receipt of such notice, the abuse has
not ended, or Tel-Save has not demonstrated to AT&T's reasonable satisfaction
that the abuse is not in fact occurring, AT&T may terminate, restrict, or
suspend Service to the location(s), and only the location(s) at which such abuse
is occurring.
4.4. FRAUDULENT USE OF THE SERVICES.
The fraudulent use of, or the intended or attempted fraudulent use of,
Service is prohibited. The Following activities constitute fraudulent use:
(a) Using the Services to transmit any message or code, locate a
person, or otherwise give or obtain information, without payment for the
Services, or
(b) Using or attempting to use the Services with the intent to avoid
the payment, either in whole or in part, of any charges by any means or
device. Fraudulent use of AT&T Private Line Services shall not include
designing, redesigning or
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reconfiguring Tel-Save's network or facilities, or those of any of its
customers, to improve their efficiency, including the use of multiplexing
equipment, store and forward devices, traffic concentrators, and data or
voice compression equipment.
4.5. INTERFERENCE, IMPAIRMENT OR IMPROPER USE OF THE SERVICES.
Tel-Save may not use the Services in any manner that results in immediate
harm, or the risk of immediate harm, to the AT&T network or other AT&T services.
Harm to the AT&T network or other AT&T services as used herein does not include
economic harm to AT&T that may result from Tel-Save's use or resale of the
Services as part of competitive offerings of Tel-Save.
5. DEFAULT AND TERMINATION
-----------------------
5.1. EVENTS OF DEFAULT.
(a) Tel-Save may declare AT&T to be in default if:
(1) AT&T breaches any material warranty, term,
condition or obligation of this Agreement and fails to cure
such breach within ninety (90) days after Tel-Save provides
notice to AT&T of prospective default under this provision;
(2) either (A) any license, permit, consent or
approval of any governmental body, authority, agency or
instrumentality is revoked, withdrawn, withheld, materially
modified or otherwise fails to remain in full force and
effect, or (B) a foreign, federal, state or local statute,
regulation or order is enacted,
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adopted or otherwise promulgated, with the result that AT&T is
unable to perform its obligations under this Agreement and
AT&T does not remedy or negate the effects of the revocation,
withdrawal, modification, order, adoption or promulgation
within one hundred eighty (180) days after Tel-Save provides
notice to AT&T of prospective default under this provision
(b) AT&T may declare Tel-Save to be in default if:
(1) Tel-Save fails to pay make timely payment of any
invoice and fails to cure its breach by making the required
payment within five (5) days after AT&T provides notice to
Tel-Save of prospective default under this provision, having
made its best efforts to ensure that an officer of Tel-Save
receives actual timely notice of such prospective default
under this provision;
(2) Tel-Save fails to cure a breach of the provisions
of Section 8.1 or 8.1(f)(3) regarding the use of AT&T's name
or Marks within thirty (30) days after AT&T provides notice to
Tel-Save of prospective default under this provision;
(3) Tel-Save breaches any material warranty, term,
condition or obligation of this Agreement and fails to cure
such breach within ninety (90) days after AT&T provides notice
to Tel-Save of prospective default under this provision;
(4) either (A) any license, permit, consent or
approval of any governmental body, authority, agency or
instrumentality is revoked, withdrawn, withheld, materially
modified or otherwise fails to remain in full force and
effect,
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or (B) a foreign, federal, state or local statute, regulation
or order is enacted, adopted or otherwise promulgated, with
the result that Tel-Save is unable to perform its obligations
under this Agreement and, notwithstanding its best efforts to
do so, Tel-Save does not remedy or negate the effects of the
revocation, withdrawal, modification, order, adoption or
promulgation within one hundred and eighty (180) days after
AT&T provides notice to Tel-Save of prospective default under
this provision.
(c) For the purposes of this Agreement either party to
this Agreement shall be in default if such party:
(1) ceases to do business as a going concern;
(2) makes a general assignment for the benefit of, or
enters into any arrangement with creditors in lieu thereof;
(3) is unable or admits in writing its inability
to pay its debts as they become due;
(4) is insolvent, bankrupt or the subject of a
receivership;
(5) authorizes, applies for, or consents to the
appointment of a trustee or liquidator of all, or a
substantial part, of its assets, or has proceedings seeking
such appointment commenced against it which are not terminated
within ninety (90) days of such commencement;
(6) files a voluntary petition under any bankruptcy
or insolvency law or files a voluntary petition under the
reorganization of arrangement provisions of the
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laws of the United States pertaining to bankruptcy or any
similar law of any jurisdiction or has proceedings under any
such law instituted against it which are not terminated within
sixty (60) days of such commencement; or
(7) has any substantial part of its property
subjected to any levy, seizure, assignment or sale for or by
any creditor or governmental agency without such levy,
seizure, assignment or sale being released, lifted, reversed
or satisfied within ten (10) days.
(d) The periods provided under this Section 5.1 for a party to
cure a breach of this Agreement do not affect any rights (other than
the right to terminate) or causes of action that may arise out of such
breach.
5.2. TERMINATION WITHOUT LIABILITY BY TEL-SAVE.
(a) Tel-Save shall have the right, upon notice to AT&T, to
terminate this Agreement with no termination liability on the part of
Tel-Save if AT&T defaults as described in Section 5.1(a) or (c) and
does not cure the default prior to Tel-Save providing notice of it
exercising its night to terminate. Tel-Save must exercise its right to
terminate by providing AT&T written notice of termination. Such
termination is effective 60 days after written notice is provided to
AT&T. All provisions of this Agreement will continue to apply during
such 60-day period, except that the MARC and MAP shall not apply.
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(b) Where less than a material portion of the Services is
affected by the event of default, Tel-Save's right to terminate is
limited to the affected service components or geographical area, and
the MARC shall be reduced as provided in Section 3.1(c).
5.3. TERMINATION WITHOUT LIABILITY BY AT&T.
(a) AT&T shall have the right, upon notice to Tel-Save, to
terminate this Agreement with no termination liability on the part of
AT&T if Tel-Save defaults as described in Section 5.1(b) or (c) and
does not cure the default within the time allowed. In the event of a
default under Sections 5.l(b)(1) or 5.l(b)(2), AT&T may cease to
provide service under this Agreement immediately upon expiration of the
cure period (provided that Tel-Save has not cured at the time AT&T
ceases to provide service), without further notice to Tel-Save,
termination of the Agreement shall be effective immediately upon AT&T's
giving written notice of termination to Tel-Save. In the event of a
default under Sections 5.1(b)(3), 5.l(b)(4) (if legally permitted), or
5.1(c), the termination shall be effective 60 days after written notice
is provided to Tel-Save. All provisions of this Agreement will continue
to apply during such 60-day period, except that the MARC and MAP shall
not apply.
(b) Where less than a material portion of the Services is
affected by the event of default, AT&T's right to terminate is limited
to the affected service components or geographical area.
(c) In the event that AT&T terminates this Agreement as
provided in this Section, Tel-Save shall pay a Termination Charge equal
to (1) if the termination occurs in
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the first year of the Term, thirty-five percent of the difference
between $110,000,000 and the Total Qualified Charges incurred by
Tel-Save during the Term, or (2) if the termination occurs in the
second year of the Term, twenty-five percent of the difference between
$110,000,000 and the Total Qualified Charges incurred by Tel-Save
during the Term; except that no Termination Charge will apply if the
sole reason for termination is a default by Tel-Save under Section
5.1(b)(4).
6. BILLING
6.1. BILLING AND PAYMENT.
(a) For AT&T Network Connection Services, AT&T shall provide
consolidated summary invoices and call detail records to Tel-Save as
provided in Attachment A. For other AT&T services, AT&T shall provide
monthly invoices to a single Tel-Save location.
(b) AT&T is not obligated to issue any bills under this
Agreement to End User or Intermediate Reseller locations. Tel-Save may
request that AT&T deliver bills to locations designated by Tel-Save for
AT&T 800 Services provided to Tel-Save under this Agreement, for up to
14,000 billing accounts. All or a majority of such accounts will be
converted to a network billing arrangement as described in Section
6.l(c). For any accounts (such as AT&T MasterLine(R) Service accounts)
that are unable to be converted pursuant to Section 6.1(c), Tel-Save
may request that AT&T deliver bills without any AT&T Marks on them to
locations designated by Tel-Save. Tel-Save may request that
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AT&T deliver bills to locations designated by Tel-Save for AT&T SDN
Service, for up to 10,000 billing accounts. If AT&T issues bills to any
Tel-Save End Users, AT&T may issue bills without any AT&T Marks on
them. All other bills for Service provided under this Agreement will be
sent to one Tel-Save location.
(c) The parties will work together to convert the
(approximately) 14,000 AT&T 800 billing accounts referred to in Section
6.1(b) from a location billed arrangement to a network billed
arrangement (i.e., an arrangement under which the billing information
is sent directly to Tel-Save) as described below. On or prior to May 7,
1998, AT&T shall provide to Tel-Save one or more computer-generated
files with billing and account information for these accounts, to the
extent such information is available to AT&T from existing databases.
Such files will be (1) provided on magnetic or electronic media, (2)
formatted in a non-proprietary database or flat file format, and (3)
arranged using a mutually agreed upon record layout. The parties will
exercise best efforts to determine in writing, within seven days or
less after the Effective Date, mutually agreeable parameters for such
files (i.e., the media, format and record layout) and for all other
information in AT&T's possession reasonably required by Tel-Save for
purposes of effective billing and/or service conversion. If information
in AT&T's possession is reasonably required by Tel-Save for purposes of
effective billing and/or service conversion, but is not available to
AT&T from existing databases by May 7, 1998, AT&T will exercise best
efforts to obtain such information from existing databases as quickly
as possible. AT&T will not parse or manipulate the information
available from existing
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databases so it will be more useful to Tel-Save, except to the extent
mutually agreed by the parties. All bills for which all timely-billed
usage occurs more than thirty days after all such information as is
necessary to effectively bill and/or convert the accounts (other than
aged trial balance information, which will be provided as described
below) is provided to Tel-Save will be sent to one Tel-Save location
(provided any additional facilities needed to accommodate the
conversion have been provisioned and tested, and are available for use
prior to the conversion date). AT&T will provide aged trial balance
information to Tel-Save on a three-, four- or five-business day a week
basis beginning at least ten days prior to the first scheduled
conversion date. The parties will exercise best efforts to implement
this conversion by May 15, 1998, for Tel-Save End Users located in the
states of Florida, North Carolina, New York, South Carolina, Georgia,
and Connecticut. Notwithstanding the provisions of Section 8.1 and 8.2,
the first bill issued by Tel-Save to the locations being converted
pursuant to this Section may include the phrase. "Your service
continues to be provided by Network Services utilizing the AT&T
network". AT&T shall not use or make available for its own marketing
efforts any proprietary information that is or has been provided by
Tel-Save, or otherwise obtained by AT&T in connection with the
provision of service to Tel-Save, with respect to the accounts being
converted pursuant to this Section.
(d) Tel-Save acknowledges that any such bills rendered by AT&T
are for services provided by AT&T to Tel-Save, and that by rendering
such bills to the locations designated by Tel-Save, AT&T is not
providing a billing service to Tel-Save. Tel-Save
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understands that the amounts stated on the bills will be calculated by
AT&T to reflect AT&T's rates and charges to Tel-Save, and (as
applicable) the taxes due on such amounts. Tel-Save is entirely
responsible for its own compliance with any tax and regulatory
obligations that may arise in connection with its provision of service
to its customers.
(e) Payment of charges under this Agreement is due, and
Tel-Save's obligation to pay such charges is enforceable, upon
presentation of a bill to Tel-Save. Payment shall be considered timely
if made within one month after the date of the bill, except if Tel-Save
provides to AT&T, within one month after the date of the bill on which
a charge first appears, a written explanation of the basis for a Bill
Dispute with respect to that charge, payment shall be considered timely
if made within the later of (1) two months after the date of the bill,
(2) ten (10) days after the date of receipt of the written explanation
required by Section 6.2(b), or (3) such later date as AT&T may specify
in writing.
(f) Tel-Save shall be solely responsible for rendering bills
to and collecting charges from its own customers. Failure of Tel-Save
to bill or collect charges shall not excuse in whole or in part
Tel-Save's responsibilities to AT&T under this Agreement, including but
not limited to the responsibility to render to AT&T timely payment of
charges.
(g) If Tel-Save does not make payment of any charge(s) within
45 days after the bill date, AT&T may apply a late payment charge equal
to one percent (1%) of such charge(s) for each whole or partial month
between such forty-fifth day and the date on
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which the payment is made to AT&T, except that if such charge is found
to be in excess of the maximum amount allowed by applicable law, the
late payment charge shall be the maximum amount allowed by applicable
law.
(h) Tel-Save is responsible for safeguarding the Services from
use by unauthorized persons, and to pay all charges for use of the
Services by any persons whether or not authorized by Tel-Save.
6.2. BILL DISPUTES.
A "Bill Dispute" is a bona fide dispute of a billed charge that has
been identified to AT&T in writing by Tel-Save. A pending Bill Dispute does not
relieve Tel-Save of the obligation to pay the disputed charge, except as
provided in Section 6.1(e). The following process shall apply for resolution of
Bill Disputes:
(a) When Tel-Save provides a written explanation of the basis
for a Bill Dispute, AT&T shall promptly commence an investigation of
the Bill Dispute in an effort to complete its investigation of the Bill
Dispute within sixty (60) days after the date on which Tel-Save
provides such written explanation.
(b) If, as a result of its investigation, AT&T concludes that
the disputed charge is correct (in whole or in part), AT&T shall
promptly provide to Tel-Save a written explanation of the basis for its
conclusion. If, as a result of its investigation, AT&T concludes that a
disputed charge is incorrect (in whole or in part), AT&T shall promptly
process an appropriate billing credit.
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(c) If Tel-Save disagrees with AT&T's resolution of a Billing
Dispute, Tel-Save may initiate the dispute resolution procedures of
Section 12, including specifically proceedings for injunctive relief
pursuant to Section 12.3.
6.3. DEPOSITS
No initial deposit is required of Tel-Save. In the event of a change in
circumstances that increases AT&T's risk of non-payment under this Agreement,
AT&T may require Tel-Save, during the term of this Agreement, to tender a
deposit in an amount to be determined by AT&T in its reasonable discretion. Any
deposit will be held by AT&T as a guarantee for the payment of charges
(including but not limited to potential shortfall charges). A deposit does not
relieve Tel-Save of the responsibility for the prompt payment of bills. Interest
(at the rate of 6% per year) will be paid to Tel-Save for any period that a cash
deposit is held by AT&T. A failure of Tel-Save to post a deposit as required by
AT&T pursuant to this Section shall constitute a material breach of this
Agreement by Tel-Save.
7. LIMITATIONS OF LIABILITY: INDEMNIFICATION
-----------------------------------------
7.1. LIMITATIONS OF LIABILITY.
(a) AT&T's liability, if any, for any claim or suit by
Tel-Save or its Affiliates for damages associated with the
installation, provision, termination, maintenance, repair or
restoration of any of the Services shall not exceed an amount equal to:
(1) for Services subject to measured usage charges,
the initial period charge for the call for the period during
which the call was affected;
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(2) for all other Services, the proportionate charge
under this Agreement for the Service for the period during
which the service was affected.
Any liability for damages shall be in addition to any credit allowance
that may otherwise be due to Tel-Save.
(b) AT&T shall not be liable for damages to a premises
resulting from the furnishing of the Services, including the
installation and removal of equipment and associated wiring, unless the
damage is caused by its negligence.
(c) IN NO EVENT SHALL AT&T OR TEL-SAVE BE LIABLE IN CONNECTION
WITH THE PROVISION, USE OR RESALE OF THE SERVICES FOR INDIRECT,
INCIDENTAL, CONSEQUENTIAL, RELIANCE OR SPECIAL DAMAGES, INCLUDING
WITHOUT LMTATION DAMAGES FOR LOST PROFITS OR DIMINISHED BUSINESS VALUE,
REGARDLESS OF THE FORM OF ACTION WHETHER IN CONTRACT, INDEMNITY
WARRANTY, STRICT LIABILITY OR TORT, INCLUDING WITHOUT LMTATION
NEGLIGENCE OF ANY KIND WHETHER ACTIVE OR PASSIVE, PROVIDED THAT:
(1) NOTHING IN THIS SECTION 7.1 SHALL LIMIT THE
PARTIES' RESPECTIVE RIGHTS AND OBLIGATIONS UNDER SECTION 7.2;
AND
(2) THE LMTATIONS OF LIABILITY DESCRIBED IN THIS
SECTION 7.1 SHALL NOT RENDER INAPPLICABLE ANY CHARGES OR OTHER
LIABILITIES FOR WHICH A PARTICULAR AMOUNT, FORMULA
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OR OTHER METHOD OF CALCULATION IS SPECIFICALLY PROVIDED IN
THIS AGREEMENT.
(d) NOTHING IN THIS AGREENIENT SHALL LIMIT EITHER PARTY'S
LIABILITY IN TORT FOR (1) THAT PARTY'S WILLFUL OR INTENTIONAL
MISCONDUCT OR (2) DAMAGES TO INDIVIDUALS OR THEIR ESTATES FOR BODILY
INJURY OR DEATH PROXIMATELY CAUSED BY THAT PARTY'S NEGLIGENCE. NOTHING
IN THIS SECTON 7.1 SHALL LIMIT THE PARTIES' RESPECTIVE RIGHTS AND
OBLIGATIONS UNDER SECTION 7.2.
(e) The limitations of liability and other limited or
exclusive remedies set forth in this Agreement shall survive any
frustration of the essential purpose of the remedy.
7 2. INDEMNIFICATION.
(a) AT&T shall be indemnified, defended, and held harmless by
Tel-Save against all claims, losses, or damages awarded, to the extent
that they arise from the use of the Services, regardless of the form of
action, whether in contract, tort, warranty, or strict liability,
involving:
(1) Claims for libel, slander, invasion of privacy,
or infringement of copyright arising from any communication
not made by AT&T or its agent;
(2) Claims for patent infringement arising from
combining or using the Services in connection with facilities
or equipment furnished by others, provided that such claim
would not have arisen if the Services had not been combined or
used in connection with facilities or equipment furnished by
others;
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(3) Claims, including claims based on AT&T's active
or passive negligence, brought against AT&T by any of
Tel-Save's customers, Affiliates, customers of Tel-Save
Affiliates, Intermediate Carriers or End Users, related to the
Services provided to Tel-Save under this Agreement;
(b) Tel-Save shall be indemnified, defended and held harmless
by AT&T against all claims, losses or damages awarded, to the extent
that they arise from use of the Services involving claims of patent,
copyright, trademark or trade secret infringements arising solely from
the use of the Services.
(c) If, in connection with any claim, lawsuit, or demand
brought by a third party against either party (the "Indemnified
Party"), the Indemnified Party asserts it is entitled to
indemnification and defense from the other party (the "Indemnified
Party asserts it is entitled to indemnification and defense from the
other party (the "Indemnified Party") pursuant to this Agreement, the
Indemnified Party shall provide prompt written notice to the
Indemnifying Party of such claim, lawsuit or demand, and shall tender
the defense of such claim, lawsuit, or demand to the Indemnifying
Party. The Indemnified Party shall cooperate in every reasonable manner
with the defense or settlement of such claim, lawsuit, or demand. The
Indemnifying Party shall not be liable for settlements by the
Indemnified party of any such claim, demand, or lawsuit unless the
Indemnifying Party has approved the settlement in advance or unless the
defense of the claim, demand, or lawsuit has been tendered to the
Indemnifying Party, in writing, and the Indemnifying Party has failed
promptly to undertake the defense. Indemnified party of any such claim,
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demand, or lawsuit unless the Indemnif3inc, Party has approved the
settlement in advance or urdess the defense of the claim, demand, or
lawsuit has been tendered to the Indemnifying Party, in writing, and
the Indemnifying Party has failed promptly to undertake the defense.
7.3. FORCE MAJEURE.
Neither party nor its Affiliates or subcontractors shall be liable in
any way for delay, failure performance, loss or damage related to this Agreement
due to any of the following: fire, strike, embargo, explosion, power blackout,
lightning, power surges or failures, fuel or energy shortages, earthquake,
volcanic action, flood, war, water, the elements, labor disputes, acts of civil
or military authorities, acts of God, acts of the public enemy, inability to
secure raw materials, inability to secure products, acts or omissions of other
carriers (except, for Tel-Save, the acts or omissions of its Intermediate
Carriers), preemption of existing services to restore service in compliance with
Part 64, Subpart D, Appendix A, of the FCC's Rules and Regulations, or other
causes beyond its reasonable control, whether or not similar to the foregoing (a
"Force Majeure Condition"); provided, however, that any failure or inability by
Tel-Save to resell Services provided under this Agreement or to collect payment
from its Intermediate Carriers or End-Users shall not be considered a Force
Majeure Condition. Tel-Save may suspend a MARC Period for any whole months in
which Tel-Save's use of the Services is substantially affected by a Force
Majeure Condition. Tel-Save must notify AT&T within thirty (30) days after the
onset of a Force Majeure Condition of its election to suspend the MARC Period,
and must notify AT&T of the whole months for which its use of the Services was
substantially affected within thirty (30) days
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after the cessation of the Force Majeure Condition. Any disputes regarding the
suspension of the MARC Period will be subject to arbitration pursuant to Section
12.2. If a MARC Period is suspended under this provision, the whole months
during which the suspension is in effect will be excluded from the MARC Period,
and the affected MARC Period and the Term will be extended by the same number of
months. All charges incurred by Tel-Save during such months will be excluded
from all calculations under Section 3.1. (The MAP Period will be extended to be
coterminous with the MARC Period and will continue to apply for the months
during which the MARC Period is suspended, subject to all applicable MAP
provisions, including the exemption described in Section 3.2(k)(1).) The party
experiencing any experiencing any Force Majeure Condition shall cooperate with
the reasonable requests of the other party in such party's efforts to minimize
the impact of such circumstances.
7.4. LIMITATION OF ACTIONS.
Neither party may bring a claim or action arising out of or related to
this Agreement or the Services provided hereunder, excluding any claim of fraud
or misrepresentation, more than two (2) years after the cause of action arises.
The parties hereby waive the right to invoke any different limitation on the
bringing of actions provided under state or federal law.
7.5. DISCLAIMER OF WARRANTIES.
AT&T (INCLUDING ITS SUBSIDIARIES, AFFILIATES, PREDECESSORS, SUCCESSORS
AND ASSIGNS) MAKES NO WARRANTIES, EXPRESS OR IMPLIED, EXCEPT AS MAY BE
SPECIFICALLY SET FORTH IN THIS AGREEMEENT, AND
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SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE SERVICES.
7.6. EXCLUSIVE REMEDIES.
The remedies available to either party for any breach of this Agreement
by the other or for any other claim against the other arising out of or in
connection with the provision, use or resale of the Services shall be solely and
exclusively limited to: (a) monetary damages (including unpaid charges and
damages pursuant to Section 8.2), subject to the limitations of liability set
forth in Section 7.1 of this Agreement, (b) indemnification, as provided in
Section 7.2 of this Agreement; (c) full or partial termination of this
Agreement, as provided under Sections 5.2 or 5.3 of this Agreement, and (d)
temporary and/or permanent injunctive relief, as provided under Section 12.3 or
12 4 of this Agreement.
8. INTELLECTUAL PROPERTY
---------------------
8.1. RESTRICTIONS AGAINST USE OF NAME AND BRAND IDENTIFICATION.
(a) Neither Tel-Save nor AT&T shall use the other's corporate
or trade names, trademarks, service marks, trade dress or other symbols
that serve to identify and distinguish such party from its competitors,
("Marks"), nor permit them to be displayed or used by third parties, in
connection with the advertising, promotion, marketing, sale,
provisioning, or billing of telecommunications services, or associated
customer care activities, except as provided in Section 8.1(d) (with
respect to a legally required use of name), 8.1 (e) * * * , or 8.1(f) *
* * , or except with the prior written approval of the
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other party (which approval may be withdrawn by such party at any time
upon reasonable notice to the other party). Either party may make fair
use of the other's corporate or trade names, trademarks or service
marks in comparative commercial advertising solely to identify the
other party or its competing services, provided such use is made in a
manner that is not likely to cause confusion.
(b) Neither Tel-Save nor AT&T will (1) use the other party's
corporate logos, trade dress, or other symbols that serve to identify
and distinguish such other party from its competitors (or use
confusingly similar corporate logos, trade dress or such other
symbols), or (2) conduct business under the other party's Marks (or
under any confusingly similar corporate or trade names, logos,
trademarks, service marks, trade dress or such other symbols).
(c) Except as provided in Section 8.1(d) (with respect to a
legally required use of name), 8.1(e) * * * , or 8.1(f) * * * , or
except with the prior written approval of the other party (which
approval may be withdrawn by such party at any time upon reasonable
notice to the other party), * * *
(d) Legally Required Use: Either party may use the other's
corporate name to the extent it is specifically required by statute,
regulation or other government requirement to do so. If Tel-Save
believes in good faith that it is legally required to use AT&T's name,
in connection with the advertising, promotion, marketing, sale,
provisioning or billing of telecommunications services, or associated
customer care activities, in a manner that would otherwise be
inconsistent with the provisions of Section 8.1, Tel-Save shall provide
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prior written notice to AT&T, providing a full detailed explanation of
the manner in which Tel-Save believes it is required to use AT&T's
name, the basis for such belief, and why the other provisions of
Section 8.1 are insufficient to satisfy the legal requirement. Such
notice shall include a specific reference to this Section 8.1(d). (To
the extent practicable under the circumstances, Tel-Save shall provide
such notice to AT&T at least 15 days prior to the date on which
Tel-Save believes it is required to begin using AT&T's name in this
manner.) Following its receipt of such notice, AT&T may institute a
legal proceeding for a declaratory judgment and/or injunctive relief to
prevent such use of name by Tel-Save. Any dispute arising under this
Section 8.1(d) as to the nature or extent of any statutory or
regulatory requirement that Tel-Save use AT&T's name shall not be
subject to arbitration under Section 12.2.
(e) * * *
(f) * * *
(g) Nothing in this Agreement creates in a party rights
in the Marks of the other party.
8.2. INCONSISTENT USE.
(a) If Tel-Save, in connection with its resale of the Services
provided under this Agreement, is using AT&T's corporate or trade
names, logos, trademarks, service marks, trade dress or other symbols
that serve to identify and distinguish AT&T from its competitors, in a
manner inconsistent with the provisions of Section 8.1 (an
"Inconsistent Use"), Tel-Save shall be liable for liquidated damages in
the amount of $100,000 per day
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until such time as the Inconsistent Use has ended, subject to the
phase-in schedule described in Section 8.2(b). If the Inconsistent Use
consists of * * * , the liquidated damages will not apply until 24
hours after AT&T provides notice to Tel-Save of the Inconsistent Use.
(b) Tel-Save's liability for liquidated damages for an
Inconsistent Use shall be phased in according to the following schedule
* * *
(c) Tel-Save shall take such steps that are reasonably
possible to ensure that no Intermediate Carriers takes any action that,
if done directly by Tel-Save, would constitute an Inconsistent Use. If
an Intermediate Carrier does take such action, Tel-Save shall take all
steps as are reasonably possible to cause the Inconsistent Use by the
Intermediate Carrier to be ended or corrected, to AT&T's reasonable
satisfaction (the "Required Steps"). To comply with this obligation to
take Required Steps section, Tel-Save will do the following:
* * *
(d) If AT&T finds that an Intermediate Carrier has taken
action that, if done directly by Tel-Save, would constitute an
Inconsistent Use, AT&T shall provide reasonable notice of such
Inconsistent Use to Tel-Save. If Tel-Save fails, within 15 days after
the receipt of such notice, to substantiate to AT&T's reasonable
satisfaction that the Inconsistent Use by the Intermediate Carriers has
ended or has been corrected or that Tel-
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Save has taken the Required Steps, Tel-Save will be liable for
liquidated damages in the amount calculated as described in the
following sentence, for each day until such time as the Inconsistent
Use by the Intermediate Carrier has ended or has been corrected to
AT&T's reasonable satisfaction, or until Tel-Save has taken the
Required Steps. The amount of Liquidated Damages applied per day will
be equal to $100,000 times a factor, the numerator of which is the
amount of AT&T charges for Services provided by AT&T under this
Agreement that were resold by such Intermediate Carrier (to End Users
or to other Intermediate Carriers) in the most recent billing month for
which such amount is available, and the denominator of which is the
total amount of AT&T charges for Services provided by AT&T under this
Agreement in that same month.
(e) Except to the extent provided in Section 8.l(d), the
arbitration process described in Section 12.2 and 12.3 will be the
exclusive means and remedy for settling any dispute between the parties
as to whether a particular use constitutes an Inconsistent Use or
whether Tel-Save has failed to take Required Steps with respect to an
Inconsistent Use by an Intermediate Carrier.
8.3. NO PATENT OR SOFTWARE LICENSE.
No license under patents or software copyrights (other than the limited
license to use) is granted by AT&T or shall be implied or arise by estoppel,
with respect to the Services provided under this Agreement.
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9. TAXES
-----
9.1. TAXES TO BE BILLED BY AT&T.
(a) For purposes of this Agreement, the term "Taxes" shall
include but not be limited to Federal, State, or local sales, use,
excise, gross receipts or other taxes or tax-like fees (including
tariff surcharges) imposed on or with respect to the Services provided
under this Agreement, excluding however, ad valorem property taxes,
state and local privilege and license taxes based on gross revenue,
taxes measured by net income, and any taxes or amounts in lieu of the
foregoing excluded items.
(b) To the extent that AT&T's provision of Services to
Tel-Save is subject to any Taxes, AT&T shall calculate, bill, collect
and remit such Taxes. AT&T shall collect such Taxes from Tel-Save in
the same manner it collects such Taxes from other customers in the
ordinary course of AT&T's business.
(c) If Tel-Save disputes the taxability of any Services or
desires to seek a refund of any Taxes imposed as a result of the
existence or operation of this Agreement, Tel-Save, at its own expense
and in its own name, may file a claim for refund or protest the
imposition of the disputed Taxes.
9.2. TAXES NOT TO BILLED BY AT&T.
(a) To the extent that AT&T's provision of Services to
Tel-Save is exempt from Taxes in any jurisdiction, Tel-Save shall
provide to AT&T annually for each such jurisdiction a valid tax
exemption certificate or such other proof of tax-exempt status as
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may be required by the tax authorities in such jurisdiction. AT&T shall
not bill Tel-Save for such Taxes.
(b) Tel-Save shall calculate, bill, collect and remit any
Taxes (and any related interest and penalties) which may apply as a
result of the provision of service by Tel-Save to its customers. AT&T
shall not include such taxes in the Call Detail Records furnished to
Tel-Save.
9.3. GROSS RECEIPTS TAX.
When utility or telecommunications assessments, franchise fees, or
privilege, license, occupational, excise, or other similar taxes or fees, based
on interstate receipts are imposed by certain taxing jurisdictions upon AT&T or
upon Local Exchange Companies and passed on to AT&T through or with interstate
access charges, the amounts of such taxes or fees will be billed to AT&T's
customers (including Tel-Save) in such a taxing jurisdiction on a prorated
basis. The amount of charge that is prorated to each customer's bill is
determined by the interstate telecommunications services provided to and billed
to a customer service location in such a taxing jurisdiction with the aggregate
of such charges equal to the amount of the tax or fee imposed upon or passed on
to AT&T. The taxing jurisdictions in which the charges will be applicable and
the associated tax factors are as specified in AT&T's Tariff F.C.C. No. 1,
Section 2.5.14.
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10. ACCESS CHARGES AND RELATED SURCHARGES
-------------------------------------
10.1. ACCESS CHARGES.
As described more fully in Attachment A, certain access charges
associated with AT&T Network Connection Services will be the responsibility of
Tel-Save. If, as a result of access restructuring (including changes to the
funding mechanism for the Universal Service Fund), certain external costs are
shifted to AT&T, AT&T will pass those charges through to Tel-Save (to the extent
such charges arise from the Services provided by AT&T under this Agreement). If
AT&T is required to pay Presubscribed Interexchange Carrier Charges (PICC) in
connection with any of the Services provided under this Agreement, AT&T may pass
those charges through to Tel-Save. This provision is not intended to require
Tel-Save to pay the same access charge twice for the same call. This provision
is intended to allow AT&T to recover, as an additional sum, a reasonable
approximation of the actual amount of Presubscribed Interexchange Carrier
Charges incurred by AT&T to the extent such charges arise from the Services
provided by AT&T under this Agreement.
10.2. SPECIAL ACCESS SURCHARGES.
Tel-Save will pay to AT&T the amount of any monthly Special Access
Surcharge which Local Exchange Carriers may collect from AT&T on account of any
services or facilities used to provide the Services under this Agreement under a
Special Access arrangement (i.e., a dedicated local channel from the End User's
premises to the AT&T POP). AT&T will bill Tel-Save the appropriate Special
Access Surcharge in the amount(s) specified in AT&T's Tariff F.C.C. No. 11,
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Section 5.2.4., unless the termination of the service component is exempt from
the Surcharge for one of the following reasons:
(a) by the nature of its operating characteristics, the
service component could not make use of the local exchange network;
(b) the service component is interconnected either directly or
indirectly to the local exchange network where the usage is subject to
Carrier Common Line charges; or
(c) the service component is not connected to a device capable
of interconnecting with the local exchange network and Tel-Save so
certifies this to AT&T (either at the time the service component is
installed or at such later time as the service component is
reterminated or changed in such a manner that an exemption applies).
10.3. OTHER SURCHARGES.
AT&T may include in charges to Tel-Save certain charges and surcharges
newly imposed after the Effective Date that are levied upon and paid by AT&T
with respect to the Services. To be eligible for inclusion under this Section,
the charges or surcharges must be imposed by a governmental authority that is
imposing the charges or surcharges specifically on telecommunications services,
and the governing law must not prohibit AT&T from passing the charges or
surcharges to Tel-Save.
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11. CONFIDENTIALITY
---------------
11.1. CONFIDENTIAL INFORMATION.
(a) Non-public information furnished or disclosed by one party
or its agent or representative (the "Originating Party") to the other
party or its agent or representative (the "Receiving Party") in
connection with or in contemplation of this Agreement, or relating to
current or anticipated voice and data telecommunications needs of
Tel-Save and its Affiliates or otherwise obtained by the Receiving
Party as a result of performance under this Agreement (including but
not limited to proposals, contracts, tariff and contract drafts,
specifications, drawings, network designs and design proposals, pricing
information, strategic plans, computer programs, software and
documentation, and other technical or business information related to
current and anticipated AT&T products and services or Tel-Save's
current and anticipated voice and data telecommunications needs,
network designs and design proposals, business plan and customer
information), shall be "Confidential Information".
(b) If such information is in written or other tangible form
(including, without limitation, information incorporated in computer
software or held in electronic storage media) when disclosed to the
Receiving Party it shall be Confidential Information only if it is
identified by clear and conspicuous markings to be confidential and/or
proprietary information of the Originating Party; provided, however,
that all written or oral pricing, contract or tariff proposals, and
information relating to new AT&T products or services currently under
development, and information related to Customer's current and
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anticipated voice and data telecommunications needs, network designs
and design proposals, business plans, and customer information,
exchanged between the parties or obtained in connection with the
provision of the Services pursuant to this Agreement also shall be
deemed Confidential Information, whether or not expressly indicated by
markings or statements to be confidential or proprietary.
(c) If such information is not in writing or other tangible
form when disclosed to the Receiving Party, it shall be Confidential
Information only if (1) the original disclosure of the information is
accompanied by a statement that the information is confidential and/or
proprietary, and (2) the Originating Party provides a written
description of the information so disclosed, in detail reasonably
sufficient to identify such information, to the Receiving Party within
thirty (30) days after such original disclosure.
(d) The terms and conditions of this Agreement shall be deemed
Confidential Information as to which each party shall be both an
Originating Party and a Receiving Party.
(e) Confidential Information shall be deemed the property of
the Originating Party.
(f) Information that was previously known to
the Receiving Party, before being received from the Originating Party,
free of any obligation to keep it confidential, or is independently
developed by the Receiving Party shall not be deemed Confidential
Information.
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(g) Rights and obligations provided by this Section shall take
precedence over specific legends or statements associated with
information when received.
11.2. PROTECTION OF CONFIDENTIALITY.
A Receiving Party shall hold all Confidential Information in confidence
during the Term and for a period of two (2) years following the end of the Term.
During that period, the Receiving Party:
(a) shall use such Confidential Information solely in
furtherance of the matters contemplated by this Agreement and related
to either party's performance of this Agreement;
(b) shall reproduce such Confidential Information only to the
extent necessary for such purposes;
(c) shall restrict disclosure of such Confidential Information
to such of its employees or its Affiliate's employees as have a need to
know such information for such purposes only;
(d) shall advise any employees to whom such Confidential
Information is disclosed of the obligations assumed in this Agreement;
(e) shall not disclose any Confidential Information to any
third party without prior written approval of the Originating Party
except as expressly provided in this Agreement; and
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(f) shall use at least the same degree of care as it uses with
regard to its own proprietary or confidential information to prevent
the disclosure, use or publication of such Confidential Information in
violation of this Agreement.
The Receiving Party shall not be required to hold in confidence any
Confidential Information which is made public by the Originating Party or a
third party. The Receiving Party shall also not be required to hold in
confidence any Confidential Information which is provided to the Receiving Party
by a third party, unless the Receiving Party knows, or should have known, that
the third party was not entitled to provide the Confidential Information to the
Receiving Party.
11.3. DISCLOSURE TO OR BY AFFILIATES OR SUBCONTRACTORS.
In the absence of a contrary instruction by a party, such party's
Affiliates and its subcontractors performing work in connection with this
Agreement shall be deemed agents of such party for purposes of receipt or
disclosure of Confidential Information. Accordingly, any receipt or disclosure
of Confidential Information by a party's Affiliate, or its subcontractor
performing work in connection with this Agreement, shall be deemed a receipt or
disclosure by the party.
11.4. RETURN OR DESTRUCTION OF CONFIDENTIAL INFORMATION.
(a) Upon termination of this Agreement, or at an earlier time
if the information is no longer needed for the purposes described in
Section 11.2((a)), each party shall cease use of Confidential
Information received from the other party and, upon specific written
request of the Originating Party, shall use its best efforts to destroy
all such Confidential
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Information, including copies thereof, then in its possession or
control. Alternatively, or at the written request of the Originating
Party, the Receiving Party shall use its best efforts to return all
such Confidential Information and copies to the Originating Party.
(b) Any Confidential Information that is contained in
databases and/or mechanized systems in such a manner that it reasonably
cannot be isolated for destruction or return, shall continue to be held
in confidence subject to the provisions of this Agreement.
(c) The rights and obligations of the parties under this
Agreement with respect to any Confidential Information returned to the
Originating Party shall survive the return of the Confidential
Information.
11.5. DISCLOSURE TO CONSULTANTS.
A Receiving Party may disclose Confidential Information to a person or
entity (other than a direct competitor of the Originating Party) retained by the
Receiving Party to provide advice, consultation, analysis, legal counsel or any
other similar services ("Consulting Services") in connection with this Agreement
or the Services (such person or entity hereafter referred to as "Consultant") if
the Consultant agrees in writing to be bound by the confidentiality obligations
of this Agreement and if the Originating Party consents (such consent not to be
unreasonably withheld) to the disclosure to Consultant (except such consent or
written agreement shall not be required in connection with a disclosure to legal
counsel for purposes of legal advice and a disclosure by legal counsel shall
constitute a disclosure by the Receiving Party).
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11.6 Required Disclosure.
(a) A Receiving Party may disclose Confidential Information as
may be required by law, regulation or legal process or as may be
necessary for the enforcement of this Agreement. If either party
becomes aware of any motion or other regulatory or court proceeding
that might require it to disclose any Confidential Information, 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 information.
(b) If the FCC or a state regulatory entity with applicable
jurisdiction orders either party to file this Agreement with the
Commission or such state regulatory entity pursuant to authority
granted by law or regulation, the party charged with such filing shall
provide notice to the other party as provided in Section 11.6((a)), and
file the Agreement to the extent required. Each party shall request
confidential treatment in connection with such filing.
(c) 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 the status of the party, or an Affiliate of the
party, as a public company and with transactions involving the offering
of securities of the party, or its Affiliates. In addition, 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 it seeks to protect the confidentiality of
the terms hereof in the same manner and to the same degree as its own
confidential information.
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11.7. INJUNCTIVE REMEDY.
In the event of a breach or threatened breach by a Receiving Party or
its agent or representative of the terms of this Section 11, the Originating
Party shall be entitled to an injunction prohibiting such breach in addition to
such other legal and equitable remedies as may be available to it in connection
with such breach. Each party acknowledges that the Confidential Information of
the other Party is valuable and unique and that the use or disclosure of such
Confidential Information in breach of this Agreement will result in irreparable
injury to the other party.
12. DISPUTE RESOLUTION
------------------
If a dispute arises between the parties relating to this Agreement or
to the Services provided under this Agreement, to a Bill Dispute, or to the
provision, use, sale, or resale of the Services (a "Dispute"), the parties will
used good faith efforts to resolve the Dispute promptly and fairly by
negotiation. If the parties are unable to resolve the Dispute through
negotiation, the parties shall follow the dispute resolution procedures provided
in this Section.
12.1. MEDIATION.
If the parties are unable to resolve a Dispute by negotiation and the
parties then agree to mediate the Dispute, the parties shall submit it to
mediation conducted by a mediator to be selected jointly by the parties or, at
the option of either party, to be selected by the procedures established under
the then-current rules of the CPR Institute for Dispute Resolution ("CPR") for
the selection of a mediator. The parties, their representatives, other
participants and the mediator
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shall hold the existence, content and result of the mediation in confidence. The
mediation shall conclude at such time as either party (or the mediator) notifies
the other party (or, for the mediator, both parties) in writing that the parties
are at an impasse and that continued efforts at mediation are unlikely to be
productive.
12.2. ARBITRATION.
(a) If a Dispute in which the total amount in controversy
(based on the written positions taken by the parties) is ten million
dollars ($10,000,000) or less, or if any Dispute (regardless of the
amount in controversy) regarding either the payment, nonpayment or
applicability of charges (including shortfall or termination charges)
or a claimed Inconsistent Use, is not successfully resolved by
negotiation or any agreed upon mediation, it shall be subject to
binding arbitration under the then-current rules and supervision of the
CPR, except as provided in Section 8.1(d). The arbitration will be held
in New York, New York. The Federal Arbitration Act, 9 U.S C Sections 1
to 16, will govern the arbitrability of all claims. The arbitral
decision and award will be final and binding, and either party may
enter it in any court with jurisdiction.
(b) The arbitration will be conducted by a single arbitrator,
except that either party may require that the arbitration be conducted
by a tribunal of three such arbitrators by providing written notice of
such a demand to the other party before a single arbitrator is
selected. For claims arising under Section 8.1 and/or 8.1(f)(3), each
arbitrator shall be a practicing attorney or a former judge
knowledgeable in the law relating to trademark and related intellectual
property issues, except as the parties may otherwise agree. For all
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other claims, each arbitrator shall be a practicing attorney or former
judge knowledgeable in the law relating to telecommunications, except
as the parties may otherwise agree. The arbitrator(s) may not limit,
expand or otherwise modify the terms of this Agreement and will not
have authority to award damages to either party beyond the limitations
of liability provided in this Agreement.
(c) Each party will bear its own attorney's fees and related
costs and expenses associated with the arbitration. The parties will
pay the arbitrator(s) fees and other similar costs and expenses of the
arbitration as the rules of the CPR provide.
(d) The parties, their representatives, other participants and
the arbitrator(s) shall hold the existence, content and result of the
arbitration in confidence except that the prevailing party shall have
the right to enter the arbitration award in a court of competent
jurisdiction if such entry is necessary to enforce the terms of the
award. Either party may disclose the existence and nature of the
Dispute, and the content and result of the arbitration to the extent it
deems such disclosure reasonably necessary under applicable federal and
state securities laws, regulations and policies in connection with the
status of the party, or an Affiliate of the party, as a public company
and with transactions involving the offering of securities of the
party, or its Affiliates. In addition, either party may disclose the
existence and nature of the Dispute, and the content and result of the
arbitration to third parties as necessary in connection with other
financing or merger and acquisition activities, provided that it seeks
to protect the confidentiality of the terms hereof in the same manner
and to the same degree as its own confidential information.
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(e) Neither party may bring legal proceedings before a court
or administrative body in connection with a Dispute subject to this
Section 12.2, except as provided in Section 12.3. If a party disregards
this restriction, files such a legal proceeding, and fails to dismiss
it promptly upon being notified of this provision, that party will pay
the other party's costs and expenses, including attorney's fees,
incurred after the notice in defending the legal proceeding.
12.3. INJUNCTIVE RELIEF.
(a) In connection with a Dispute subject to Section 12.2,
either party may request appropriate temporary injunctive relief (i.e.,
a temporary restraining order or a preliminary injunction) to maintain
the status quo pending arbitration. The legal standards applicable to
the request for temporary injunctive relief will be those applicable in
the United States District Court for the Southern District of New York
under the Federal Rules of Civil Procedure. A party may include its
request for such relief in its initial demand for arbitration (or
counterclaim), or may request such relief after an arbitration has been
initiated. If the request is made before the arbitrator has been
appointed, the requesting party shall bring the request to the
immediate attention of the other party and the CPR, with a request that
the CPR immediately appoint a temporary Arbitrator. If the CPR receives
such a request, it shall appoint as temporary arbitrator a single
neutral arbitrator from the CPR panel of arbitrators. The temporary
arbitrator shall serve until a permanent arbitrator is appointed. Once
appointed, the permanent arbitrator may modify
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or terminate any order of the temporary arbitrator granting (or
denying) temporary injunctive relief.
(b) If the need for temporary injunctive relief is so urgent
that the procedure provided in Section 12.3(a) is unworkable, the party
seeking such relief may file a Civil Action seeking a temporary
restraining order in the United States District Court for the Southern
District of New York; provided that the party filing the Civil Action
shall seek appointment of a temporary arbitrator pursuant to Section
12.3(a) as soon as possible. The temporary arbitrator, once appointed,
shall reconsider the request for temporary injunctive relief on a de
novo and contested basis, and shall rule on such request as soon as
reasonably possible. Within three (3) business days after the temporary
(or permanent) arbitrator has ruled on the request, the party that
filed the Civil Action shall file a notice of dismissal of the Civil
Action, without prejudice, and any temporary restraining order that may
have been issued in such Civil Action shall be dissolved.
(c) The arbitrator(s) may grant permanent injunctive relief as
deemed appropriate under applicable legal standards for granting such
relief.
12.4. COURT PROCEEDINGS.
If a Dispute not subject to Section 12.2 is not successfully resolved
by negotiation or mediation, it may be the subject of legal proceedings
(including proceedings for injunctive or other equitable relief) brought before
a court or administrative body having jurisdiction over the Dispute, and will be
submitted to arbitration only by written agreement of the parties.
54
<PAGE>
13. GENERAL TERMS AND CONDITIONS
----------------------------
13.1. TEL-SAVE CERTIFICATION.
Tel-Save certifies to AT&T that it is a "common carrier," as that term
is defined in the Communications Act of 1934, as amended.
13.2. SERVICE FORECASTING.
At least one month before the start of each calendar quarter, Tel-Save
shall provide to AT&T a good faith written forecast of anticipated service
volumes for the AT&T Network Connection Services provided under this Agreement
for the following fifteen months. The quarterly forecast will include, for each
Local Exchange Carrier ("LEC") serving area, the information required by the
Carrier Solutions Platform Forecast document, which AT&T will provide to
Tel-Save. Tel-Save's obligations are established by this Agreement; Tel-Save's
good faith written forecasts of anticipated service volumes provided pursuant to
this Section shall not obligate Tel-Save to buy the minimum amounts forecast or
limit Tel-Save's purchases to the maximum amounts forecast.
13.3. ASSIGNMENT.
(a) Neither party may assign, delegate or otherwise transfer
its rights or obligations under this Agreement in whole or in part
without the prior written consent of the other party, except as
expressly provided in this Agreement. In the event of a Change in
Control of Tel-Save, Section 8.1(f) will cease to apply thirty days
after the Change in Control occurs, unless this Agreement is amended
(pursuant to Section 13.19(a)) to specifically provide to the contrary.
55
<PAGE>
(b) Tel-Save may, without further permission but upon notice
to AT&T, assign its rights and delegate its obligations to a
successor-in-interest, subject to AT&T's right to require a deposit
pursuant to Section 6.3, if appropriate under the circumstances.
(c) AT&T shall not unreasonably withhold its consent to an
assignment of this Agreement to an Affiliate of Tel-Save.
(d) AT&T may, without further permission but upon notice to
Tel-Save, assign its rights to receive payment. AT&T may delegate its
performance obligations to its Affiliates, to the extent such
delegation does not create a legal or regulatory burden for Tel-Save
and does not otherwise prejudice Tel-Save's rights under this
Agreement.
(e) This provision shall not affect Tel-Save's resale or
shared use of the services provided pursuant to this Agreement.
Further, any resale, shared use, delegation or assignment shall not
release either party from its obligations under this Agreement.
13.4. THIRD-PARTY BENEFICIARIES; AFFILIATES.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors or assigns. This Agreement does
not provide any third parties with any remedy, claim, right of action, or other
right. Each party shall ensure that its Affiliates comply with the applicable
provisions of this Agreement and do not take any action which, if done by the
party, would constitute a breach of this Agreement.
13.5. RELATIONSHIP OF THE PARTIES.
The relationship established by this Agreement shall in no way
constitute AT&T (or its agents or employees) as a partner, agent or fiduciary of
Tel-Save or any Tel-Save Affiliate (or any
56
<PAGE>
of their agents or employees). The relationship established by this Agreement
shall in no way constitute Tel-Save or any Tel-Save Affiliate (or any of their
agents or employees) as a partner, agent or fiduciary of AT&T (Or its agents or
employees). The provision of Service described in this Agreement does not
establish any joint undertaking, joint venture, pooling arrangement,
partnership, agency, fiduciary relationship or formal business organization of
any kind. Tel-Save and AT&T shall be independent contractors with each other for
all purposes at all times and neither shall act as or hold itself out as agent
for the other or create or attempt to create liabilities for the other.
13.6. ACKNOWLEDGEMENT OF RIGHT TO COMPETE.
Each party acknowledges and understands that it remains at all times
solely responsible for the success and profits of its business, and that the
other party makes no promises, warranties or representations regarding business
success or prospects of business success in connection with the provision of the
service pursuant to this Agreement. Each party acknowledges and understands that
the other party will continue to market services directly to the public and that
such marketing may from time to time bring the parties into direct or indirect
competition. Each party also markets its services to competitors of the other
party. Each party acknowledges and understands that nothing in this Agreement
diminishes or restricts in any way the rights of the other party to engage in
competition for customers or to market its services to competitors of the first
party.
13.7. NETWORK EQUIPMENT.
AT&T shall retain title to all of its equipment and facilities used to
provide the Services. Tel-Save shall retain title to all of its equipment and
facilities used to connect to the Services
57
<PAGE>
13.8. REMOVAL OF PROPERTY.
At the end of the Term, each party that has installed or located any
equipment or other property on the other party's premises shall, at the other
party's request, remove such property within a reasonable time after such
request. Any such property not removed within sixty (60) days after the end of
the Term shall be deemed abandoned. The party removing such property shall use
reasonable care in doing so, and, unless otherwise agreed in writing by the
party on whose premises the property was installed, shall return the premises to
their original condition, reasonable wear and tear excepted.
13.9. NOTICES.
Any notice to the other party under this Agreement shall be given in
writing to the following individual or such individual's designated agent, and
either (a) delivered by hand, (b) sent by United States certified mail, return
receipt requested, (c) sent by a recognized overnight delivery service, to the
following address, or (d) transmitted by facsimile to the following facsimile
number:
If to AT&T:
Pat McIntyre
AT&T
300 Atrium Drive
Somerset, New Jersey 08873
Facsimile Number: 732-805-5720
58
<PAGE>
with a copy to:
Richard Meade
AT&T Law Department (BMD - Wholesale Markets)
Room 3226B2
295 North Maple Avenue
Basking Ridge, New Jersey 07023
Facsimile Number: 908-953-8360
If to Tel-Save:
Daniel Borislow
C.E.O.
Tel-Save, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Facsimile Number: 215-862-1515
The name, address or facsimile number for notice may be changed by
giving notice in accordance with this Section. If mailed in accordance with this
Section, notice shall be deemed given when actually received by the individual
addressee or designated agent or three (3) business days after mailing,
whichever is earlier. If transmitted by facsimile or sent by a recognized
overnight delivery service in accordance with this Section, notice shall be
deemed given when actually received by the individual addressee or designated
agent or one (1) business day after transmission or sending, whichever is
earlier.
13.10. DETARIFFING.
If, during the Term, any of the tariffs of AT&T referenced in this
Agreement are canceled, in whole or in part, pursuant to a statutory change,
order or requirement of a governmental or judicial authority of competent
jurisdiction requiring detariffing, then, following such cancellation, any
rates, terms and conditions of such tariffs that had been applicable to the
Services provided
59
<PAGE>
under this Agreement will continue to apply, based on the language of the
tariffs in effect as of the date of cancellation.
13.11. COMPLIANCE WITH LAWS.
(a) Each party is responsible for its own compliance with all
laws and regulations affecting its business.
(b) Nothing contained in this Agreement shall require either
party to take any action prohibited or omit to take any action required
by applicable law, the Federal Communications Commission or any other
regulatory authority.
13.12. EXPORT REGULATION COMPLIANCE.
The parties acknowledge that any products, software, and technical
information (including, but not limited to, services and training) provided
under this Agreement are subject to U.S. export laws and regulations and any use
of or transfer of such products, software and technical information must be
authorized under those regulations. Tel-Save agrees that it will not use
distribute, transfer or transmit the products, software or technical information
(even if incorporated into other products) except in compliance with U.S. export
regulations. If requested by AT&T, Tel-Save also agrees to sign written
assurances and other export-related documents as may be required for AT&T to
comply with U.S. export regulations.
13.13. CHOICE OF LAW.
The domestic law of the State of New York, except its conflict-of-laws
rules, shall govern the construction, interpretation, and performance of this
Agreement except to the extent superseded by federal law.
60
<PAGE>
13.14. SEVERABILITY.
If any portion of this Agreement shall be found to be invalid or
unenforceable, such portion shall be void and of no effect, but the remainder of
the Agreement shall continue in full force and effect unless the Agreement fails
of its essential purpose without the voided portion. If the invalid or
unenforceable provision is deemed essential, the parties will begin negotiations
for a replacement of the invalid or unenforceable portion.
13.15. ATTACHMENTS GOVERN.
The Attachments are intended to complement the Master Carrier
Agreement. To the extent they are in conflict, the provisions of the Attachments
shall control the rights and obligations of the parties.
13.16. CONSTRUCTION.
In the event of any conflict or inconsistency between the language or
intent of the provisions of this Agreement and the provisions of an AT&T Tariff
expressly made applicable hereunder, the provisions of this Agreement shall
control.
13.17. DESCRIPTIVE HEADINGS.
Descriptive headings in this Agreement are for convenience only and
shall not affect the content or construction of this Agreement.
13.18. SURVIVAL OF TERMS.
The provisions of this Agreement will apply with respect to all
Services provided during the Term. The terms and provisions contained in this
Agreement that by their sense and context
61
<PAGE>
are intended to survive this Agreement shall so survive, without limitation,
provisions for indemnification, confidentiality and the making of any and all
payments due hereunder.
13.19. MODIFICATION AND WAIVER.
(a) This Agreement and the terms under which the Services are
provided may be modified only by a writing signed by authorized
representatives of both parties.
(b) The failure of a party to waive notice of default or to
enforce or insist upon compliance with any of the terms or conditions
of this Agreement, or the granting of an extension of time for
performance shall not constitute a continuing or permanent waiver of
any such term or condition, and this Agreement and each of the
provisions hereof shall remain at all times in full force and effect
unless and until modified by the parties in writing.
13.20. ENTIRE AGREEMENT.
This Agreement, including the Attachments hereto, constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
all prior written or oral agreements, proposals, representations, statements or
understandings. Neither party is relying on any representation, promise,
inducement or statement of intention made by the other party which is not
embodied in this Agreement. This Agreement does not affect (a) any agreements
that may exist for the provision of billing services to Tel-Save by AT&T College
and University Systems or (b) a Data Connection Agreement to be executed at or
about the same time as this Agreement.
62
<PAGE>
13.21. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in counterparts, which together shall
constitute the original Agreement.
13.22. INDEX OF DEFINED TERMS.
The following terms are defined in this Agreement at the indicated
page:
Affiliate, 13 LEC, 61
Agreement, 5 Map, 13
AT&T, 5 MAP Attainment Amount, 14
Authorized Tel-Save CICs, 20 MAP Period, 13
Bill Dispute, 29 MAP Services, 13
Change in Control, 14 MARC, 11
Commencement Date, 10 Marc Period, 11
Confidential Information, 51 Marks, 36
Consultant, 55 Originating Party, 50
Consulting Services, 55 Receiving Party, 50
CPR, 57 Required Steps, 45
CT 1715, 10 Services, 5
Dispute, 56 Taxes, 47
Effective Date, 10 Tel-Save, 5
End Users, 19 Tel-Save IXC Switch, 8
Force Majeure Condition, 34 Tel-Save Records, 18
Inconsistent Use, 43 Tel-Save's AT&T Charges, 15
Indemnified Party, 33 Term, 10
Indeminifying Party, 33 Total Qualified Charges, 11
Intermediate Carriers, 19 Total Tel-Save Charges 14
Other terms not listed above may be defined in the Agreement.
* * *
AT&T and Tel-Save, acting through their duly authorized represetatives,
hereby agree to the terms set forth in this Agreement, and warrant that their
respective signatories
63
<PAGE>
whose signatures appear below have been and are of the date of this Agreement
duly authorized by all necessary and appropriate corporate action to execute
this Agreement.
TEL-SAVE AT&T CORP.
By: /s/ Emanuel De Maio By: /s/ Barbara Peda
------------------------ -------------------------------
Emanuel DeMaio Barbara Peda
--------------------------- ----------------------------------
(Typed or printed name) (Typed or printed name)
C.O.O. Vice President - Wholesale Markets
--------------------------- ----------------------------------
(Title) (Title)
4/22/98 4/22/98
--------------------------- ----------------------------------
(Date) (Date)
2
<PAGE>
AT&T Network Connection Platform ATTACHMENT A
PAGE 1 OF 16
AT&T NETWORK CONNECTION PLATFORM
1. SERVICE DESCRIPTIONS
--------------------
* * *
1
<PAGE>
Fraud & Uncollectibes Management Services ATTACHMENT B
PAGE 1 OF 6
AT&T NETWORK CONNECTION -
FRAUD & UNCOLLECTIBLES MANAGEMENT SERVICES
------------------------------------------
* * *
1
<PAGE>
IMPLEMENTATION PLAN RESPONSIBILITIES ATTACHMENT C
PAGE 1 OF 4
IMPLEMENTATION PLAN RESPONSIBILITIES
------------------------------------
* * *
1
<PAGE>
PRICING ATTACHMENT D
Page 1 of 48
PRICING
-------
* * *
EXHIBIT 11
TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $(41,795) $ 5,430
========= ========
BASIC
Weighted average common shares outstanding - Basic: 64,153 62,429
======== ========
Net income (loss) per share - Basic $ (.65) $ .09
========= ========
DILUTED
Weighted average common and common equivalent shares
outstanding - Diluted:
Weighted average shares 64,153 62,429
Weighted average equivalent shares - 3,410
-------- --------
Weighted average common and common equivalent shares -Diluted $ 64,153 65,839
======== ========
Net income (loss) per share - Diluted $ (.65) $ .08
========= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE UNAUDITED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1998 OF TEL-SAVE HOLDINGS, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 27,107,000
<SECURITIES> 593,501,000
<RECEIVABLES> 57,048,000
<ALLOWANCES> 2,165,000
<INVENTORY> 0
<CURRENT-ASSETS> 871,394,000
<PP&E> 62,498,000
<DEPRECIATION> 4,826,000
<TOTAL-ASSETS> 974,066,000
<CURRENT-LIABILITIES> 238,551,000
<BONDS> 500,000,000
0
0
<COMMON> 672,000
<OTHER-SE> 197,741,000
<TOTAL-LIABILITY-AND-EQUITY> 974,066,000
<SALES> 0
<TOTAL-REVENUES> 91,146,000
<CGS> 0
<TOTAL-COSTS> 76,580,000
<OTHER-EXPENSES> 78,268,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,814,000
<INCOME-PRETAX> (68,516,000)
<INCOME-TAX> (26,721,000)
<INCOME-CONTINUING> (41,795,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,795,000)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
