Marketing & Distribution Agreement

indicates that material has been deleted pursuant to a confidential treatment request and filed separately with the Commission]







TELECOMMUNICATIONS MARKETING AGREEMENT



by and among



TEL-SAVE, INC.



TEL-SAVE HOLDINGS, INC.



AMERICA ONLINE, INC.



February 22, 1997







TELECOMMUNICATIONS MARKETING AGREEMENT





This TELECOMMUNICATIONS MARKETING AGREEMENT, dated as of February 22, 1997, is made by and among: (i) America Online, Inc., a Delaware corporation ("AOL"), on the one hand, and (ii) Tel-Save, Inc., a Pennsylvania corporation ("TS"), and Tel-Save Holdings, Inc., a Delaware corporation ("Holdings"), on the other hand (each, a "party" and, collectively, the "parties"), with respect to the following:



WHEREAS, AOL is in the business of providing online services to consumers in the United States;



WHEREAS, TS is in the business of providing telecommunications services and is a wholly owned subsidiary of Holdings;



WHEREAS, AOL and TS wish to enter into this Agreement whereby AOL will market te lecommunications services to customers of AOL's online service under one or more brand names to be owned by it and TS will provide such services on the terms and subject to the conditions herein set forth; and



WHEREAS, Holdings has agreed to guarantee all of the obligations of TS hereunder.



NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:









ARTICLE I



A. Definitions.



For purposes of this Agreement and in addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings set forth below:



1. "Actual Services Costs" for any calendar quarter means the aggregate of the respective costs set forth in, and calculated in accordance with, Schedule A hereto in respect of the provision of Services during such calendar quarter.



























2. "Additional Warrant" shall have the meaning set forth in Section X.B.2 hereof.



3. "Ad Values" at any time shall mean * * *



4. "affiliate" means, with respect to a specified person, any other person that direct ly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person, provided that, for purposes of this Agreement, "affiliate" shall not include natural persons.



5. "Agreement" means this Telecommunications Marketing Agreement.



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



7. "AOL Marks" means the service marks to be owned by AOL under which the Services will be marketed, which are presently contemplated by the parties to include a reference to AOL's name and shall be as mutually agreed to in writing by the parties hereto.



8. "AOL Performance List" has the meaning set forth in Section II.B.1.



9. "AOL Service" means AOL's online service provided to subscribers (including, without limit ation, individuals and businesses) in the United States under the America Online(R) brand name, including, without limitation, electronic mail, conferencing, news, sports, weather and stock quotes, accessed by consumers through computers using AOL's proprietary software, as it exists on the date hereof and any online service provided by AOL or any of its affiliates that is a successor thereto or substitute therefor.



10. "Applicable Profit Percentage" for any calendar quarter means the percentage of Pre-Tax Profit for such calendar quarter equal to:



(a) for each quarter in which * * *, 50%; and



(b) for each quarter in which * * *, 50% plus





an additional 2% for each * * *;



provided that in no event will the Applicable Profit Percentage exceed 70%.



11. "AT&T" means AT&T Corporation.



12. "Checklist Items" are the items set forth in the list attached as Schedule B hereto.



13. "Commercial Launch Date" means the date upon which AOL makes the Services generally available to subscribers of the AOL Service (i.e., to at least * * * % of the subscribers to the AOL Service).



14. "Commercial Mobile Radio Services" means the services defined as such, from time to time, by the Federal Communications Commission, including related features, functions and services.



15. "Dedicated CIC" means the carrier identification code (CIC) to be made available by TS for use in respect of the Services as provided herein.



16. "Effective Date" has the meaning set forth in Section IX.A.1. hereof.



17. "End User" means, during the Term, any customer of the Services or any part thereof and, after the Term, any such cus tomer as of the last day of the Term so long as such customer continues as a customer of such Services.



18. "Extension Period" shall have the meaning set forth in Section X.B.1 hereof.



19. "Gross Revenues" for any calendar quarter shall mean * * *.



20. "Holdings" has the meaning set forth in the first paragraph of this Agreement.



21. "Initial Launch Period" means the period beginning at the end of the Test Launch Period and ending on the Commercial Launch Date.



22. "Initial Payment" has the meaning set forth in Section V.A.1.







23. "Internet Telephony" means voice se rvice provided or initiated over one or more data networks where the end user initiates a voice call to, or receives a voice call from, another party over one or more data networks using a modem or CODEC or over a data network interfacing with t he public switched telephone network using a modem or CODEC.



24. "Introductory Period" means the * * * period starting a mutually agreed number of days prior to the anticipated Commercial Launch Date. The parties current ly anticipate that the Commercial Launch Date will be no later than * * * , subject to adjustment from time to time upon the mutual consent of the parties or as otherwise provided herein.



25. "Local Telecommunications Services" means the provision of telephone exchange service or exchange access, including related features, functions and services.



26. "Long Distance Telecommunications Services" means intrastate telephone toll service, interstate telephone service and international telephone service, including private line service, and including related features, functions and services, as well as:



Calling Card calls, meaning those calls billed to the customer account

which has been established to allow for the use of an authorization

code for direct dialed calls using any toll free number, 0+ access, or

operator assisted calls using a service provider's calling card

authorization platform for billing to the customer account at a later



Operator Handled calls, meaning all calls where an operator or

automated mechanized system provides the end user with the ability to

place collect calls, calls billed to a third party, person to person,

conference calling and operator assisted directory assistance, but not

including party lines and off-line chat.



Toll Free services, meaning inbound residential or business telephone

services where the subscriber/recipient pays for all calls placed by

callers dialing their subscribed number, and such calls are billed to

the subscribing customer.



Directory Assistance calls, meaning calls made by the customer to

obtain names, addresses or phone numbers from a long distance directory

assistance service.



27. "Marginable Revenues" means * * * .







28. "Multiplier Adjustment Date" has the meaning set forth in Section IV.E.1.



29. "OBN" means One Better Net or OBN, TS's long distance telecommunications network based on telecommunications switches owned or leased by TS or its affiliates.



30. "Performance Lists" has the meaning set forth in Section II.B.I.



31. "Pop-Up Ads" means * * * .



32. "Pre-Launch Period" means the period beginning on the Effective Date and ending on the date AOL and TS begin testing the Services with approximately * * * testers.



33. "Pre-Tax Profit" for any calendar quarter means * * * .



34. "Quarterly Payment Amount" as to any calendar quarter means the Applicable Profit Percentage of the Pre-Tax Profit for such quarter.



35. "Quarterly Shortfall Amount" has the meaning set forth in Section V.B.1(b).



36. "Restricted Services" means, collectively, (a) Long Distance Telecommunications Services, (b) Local Telecommunications Services and (c) Commercial Mobile Radio Services, and, each, a "Restricted Service".



37. "RMG" means the remote managed gateway between TS and AOL and related systems (or any similar system agreed to by the parties), including a high speed dedicated telecommunications line, developed by the parties pursuant to Section II.B hereof, for the purpose of providing End Users the ability, through screens and/or other functionality on the AOL Service, to access monthly and historical billing information and to t ransmit order information to TS.



38. * * * .



39. "Services" means the telecommunications services, including the Restricted Services, provided, from time to time,







pursuant to this Agreement by TS, as the carrier, and marketed by AOL as herein provided under the AOL Marks; * * * .



40. "Supplemental Warrant" has the meaning set forth in Section VI.A. hereof.



41. "Term" means the period comme ncing on the date hereof and ending on June 30, 2000, unless such period is extended or sooner terminated pursuant to Article X, in which event such period shall end at the termination date or the last day of the final extension, as the case may b e.



42. "Test Launch Period" means the period beginning at the end of the Pre-Launch Period and ending on the date AOL begins marketing the Services to approximately * * * of its subscribers.



43. "TS" has the meaning set forth in the preamble of this Agreement.



44. "TS Performance List" has the meaning set forth in Section II.B.1.



45. "Unamortized Amount" as of any date means * * * .



46. "Warrants" has the meaning set forth in Section VI.A. hereof.







AI ROLLOUT SCHEDULE; PERFORMANCE LISTS



A. Description of Rollout.



This Article II sets out the process by wh ich the parties will roll out the Long Distance Telecommunications Services described on Schedule C. With respect to such Long Distance Telecommunications Services, the parties will proceed through the following sequence of periods, leading t o an anticipated Commercial Launch Date of * * * :







1. Pre-Launch Period -- completion of initial Checklist Item tasks and initial development of the Performance Lists (as further described below).



2. Test Launch Period -- testing of the Long Distance Telecommunications Services with approximately * * * testers.



3. Initial Launch Period -- marketing of the Long Distance Telecommunications Services to approximately * * * % of AOL Service subscribers (with incremental ramp-up to * * * % of AOL Service subscribers).



4. Commercial Launch Date -- general availability of the Long Distance Telecommunications Services to AOL Service subscribers (i.e., to at least * * * % of the subscribers to the AOL Service).



In addition, prior to the Commercial Launch Date, the parties will mutually establish the date for commencement of AOL's marketing obligations, (i.e., the beginning of the Introductory Period), which are further described in Article III.



B. Pre-Launch Period.



1. During the Pre-Launch Period, each of the parties shall perform all of the Checklist Item tasks des ignated on Schedule B as being its responsibility during the Pre-Launch Period with respect to the Long Distance Telecommunications Services described in Schedule C. With respect to each task involving the development of a definition, procedur e or standard, the responsible party shall generate a detailed written guideline that will be applicable to the appropriate party and will be set forth in a list of standards, procedures and/or obligations to be observed by such party (the "AOL Performance List" and the "TS Performance List", respectively, and together, the "Performance Lists"). Each such guideline set forth in the Performance Lists shall be subject to the mutual agreement of the parties, not to be unreasonably withhel d . With respect to Checklist Item tasks that are designated on Schedule B as the joint responsibility of TS and AOL during the Pre-Launch Period, TS and AOL shall work jointly in good faith to develop the appropriate guidelines and to allocate responsi bilities thereunder to the appropriate Performance List.



2. The Pre-Laun ch Period shall commence promptly following the Effective Date and shall not end until completion of all of the Checklist Item tasks designated for completion during the Pre-Launch Period on Schedule B. If any such Checklist Item task remain s uncompleted or if any guideline has not been agreed to as of * * * , the anticipated date therefor, the period for such completion may be extended by up to * * * at the request of either party.







C. Test Launch Period.



1. During the Test Launch Period, each of the parties shall perform all of the Checklist Item tasks designated on Schedule B as being its responsibility during the Test Launch Period with respect to the Long Distance Telecommunic a tions Services described in Schedule C. With respect to each task involving the development of a definition, procedure or standard, the responsible party shall generate a detailed written guideline that will be applicable to the appropriate pa r ty and will be added to its respective Performance List. Each such guideline shall be subject to the mutual agreement of the parties, not to be unreasonably withheld. With respect to Checklist Item tasks that are designated on Schedule B as the joint responsibility of TS and AOL during the Test Launch Period, TS and AOL shall work jointly in good faith to develop the appropriate guidelines and to allocate responsibilities thereunder to the appropriate Performance List.



2. The Test Launch Period shall commence upon completion of the Pre-Launch Period and shall not end until completion of all of the Checklist Item tasks designated for completion during the Test Launch Period on Schedule B. If any suc h Checklist Item tasks remain uncompleted as of the date that is * * * after the commencement of the Test Launch Period, the period for such completion may be extended by up to * * * at the request of either party.



D. Initial Launch Period.



1. During the Initial Launch Period, the parties will commence marketing and make the Services available to approximately * * * % of the AOL Service subscribers (or such higher number as AOL may determine, subject to TS's reasonable capacity limitations) during * * * of the Initial Launch Period; approximately * * * % of the AOL Service subscribers (or such higher number as AOL may determine subject to TS's reasonable capacity limitations) during * * * of the Initial Launch Period; and approximately * * * % of the AOL Service subscribers (or such higher number as AOL may determine subject to TS's reasonable capacity limitations) during the remainder of the Initial Launch Period. AOL shall dete r mine the specific roll-out plan for the Initial Launch Period in consultation with TS in order to efficiently and effectively perform the Initial Launch Period Checklist Item tasks listed on Schedule B. Notwithstanding the anticipated * * * periods above, AOL may, in each such case, delay marketing to a larger portion of the AOL Service subscriber base until AOL is satisfied, in its reasonable discretion, that the guidelines included in the parties' respective Performance Lists are met or a re likely to be met during any such period.







2. During the Initial Launch Period, each of the parties shall perform all of the Checklist Item tasks designated on Schedule B as being its responsibility during the Initial L aunch Period with respect to the Long Distance Telecommunications Services described in Schedule C. With respect to tasks involving the development of a definition, procedure or standard, the responsible party shall generate a detailed written gui d eline that will be applicable to the appropriate party and will be added to its respective Performance List. Each such guideline shall be subject to the mutual agreement of the parties, not to be unreasonably withheld. With respect to Checkli s t Item tasks that are designated on Schedule B as the joint responsibility of TS and AOL, TS and AOL shall work jointly in good faith to develop the appropriate guidelines and to allocate responsibilities thereunder to the appropriate Perfo rmance List.



3. The Initial Launch Period shall commence upon completion of the Test Launch Period. The Initial Launch Period shall not end until completion of all of the Checklist Item tasks designated for completion during the Initial Launch Period on Schedule B. If any such Checklist Item task remains uncompleted or if any guideline has not been agreed to as of the date that is * * * after the commencement of the Initial Launch Period, the period for such co mpletion may be extended by up to * * * at the request of either party.



E. Performance Lists.



1. The Performance Lists may be modified at any time during the Term as mutually agreed by the parties.



2. The parties shall reasonably cooperate with one another in facilitating the preparation of the Performance Lists and the guidelines included therein and the completion of the Checklist Item tasks.



3. Each party shall be responsible for performing substantially in accordance with the guidelines contained in its respective Performance List from time to time.



F. New Services. As new Services are added under this Agreement, the procedures set forth in this Article II, as may be reasonably applicable to such new Services, shall be followed with respect to such Services.



G. Failure to Agree on Guidelines. If the parties are unable to reach agreement with respect to any guideline to be included in a party's Performance List, the matter shall be submitted for resolution pursuant to XI.D.











AI AOL MARKETING



A. Services Marketing.



On and after the first day of the Introductory Period, AOL shall have the sole right to, and shall, market the Services generally across the AOL Service in the United States, through online advertising and marketing on the AOL Service and otherwise as the parties may agree, through mass media and direct marketing media, as follows:



1. During each of the months during the Introductory Period, AOL shall include for subscribers to the AOL Service on-screen promotions and advertisements for the Long Distance Telecommunications Services, including Pop-Up Ads, (a) in substance (the specific Long Distanc e Telecommunications Services to be offered and the terms thereof and the terms on which they are offered) developed and prepared by TS in consultation with AOL, and (b) in form (how the offered Services are packaged and presented) developed and prepare d by AOL in consultation with TS and subject to the mutual agreement of the parties, with an Ad Value of at least $ * * * . Such promotions and advertisements shall include * * * . Such promotions and advertisements shall be spaced as evenly as prac t icable over each such month, provided that TS and AOL shall consult as to the manner in which such online advertising will be included in such advertising opportunities. The parties recognize that in some months, a $ * * * promotion and advertising cam p aign may not represent the best allocation of promotion and advertising resources. Accordingly, the foregoing notwithstanding, subject to the mutual agreement of the parties, some of the promotional and advertising resources, * * *, a llocated to the Introductory Period may be reallocated among the months occurring during the Introductory Period and among the * * * months following the Introductory Period and shall be in addition to the resources required otherwise to be provided in such months.



2. During each of the months subsequent to the Introductory Period and during the Term, AOL shall include for subscribers to the AOL Service on-screen promotions and advertisements for the Long Distan ce Telecommunications Services, including, at AOL's option (subject to the requirements of









Section III.A.4 hereof), Pop-Up Ads, (a) in substance (the specific Long Distance Telecommunications Services to be offered and the terms thereo f and the terms on which they are offered) developed and prepared by TS in consultation with AOL, and (b) in form (how the offered Services are packaged and presented) developed and prepared by AOL in consultation with TS and subject to the mutual ag r eement of the parties, with an Ad Value of at least $ * * * . Any Pop-Up Ads included by AOL subsequent to the Introductory Period and during the Term in excess of * * * per month shall not be counted toward meeting this $ * * * requirement. A O L will work cooperatively with TS during this period to develop strategies for targeting the Services to new subscribers to the AOL Service most effectively. Such promotions and advertisements shall be spaced as evenly as practicable over each such month, provided that TS and AOL shall consult as to the manner in which such online advertising will be included in such advertising opportunities.



3. During the Term, AOL may also include advertisements and promoti ons for the Long Distance Telecommunications Services, in substance (the specific Long Distance Telecommunications Services to be offered and the terms thereof and the terms on which they are offered) developed and prepared by TS in consultation wi t h AOL, and form (how the offered Services are packaged and presented) developed and prepared by AOL in consultation with TS and subject to the mutual agreement of the parties, in or with any of AOL's mass media advertising of any of its services o r with any of AOL's direct marketing efforts, including, without limitation, mail solicitations of customers for any of its services and any joint advertising or marketing programs with other companies and any other advertisements an d solicitations done in conjunction with other companies; provided that, unless TS shall have specifically agreed with AOL to share responsibility for any such advertising and promotions, TS shall have no responsibility for any part of the co sts thereof.



4. With respect to Pop-Up Ads:



(a) Any Pop-Up Ad * * * to be included or

provided by AOL shall contain * * * .



(b) * * * .









(c) * * * .



5. During the Term, the parties shall also, in consultation with each other, explore additional marketing and promotional o pportunities related to the Services, including utilizing new advertising techniques and mechanisms, as they are developed by AOL and utilizing TS's existing marketing channels. The parties also will, in good faith, explore the following ad ditional marketing opportunities (the more specific terms and conditions of which to be as set forth in writing between the parties):



(a) Online marketing of bundled offerings of the

Services and the AOL Service by AOL, with mutually ...