Oops make that 1% assuming 10 million on aol. Note that TALK thinks it need 2 to 6% in order to break even in its 100 million payment to AOL. Also AOL gets 50 to 70% of the profits. TALK's recent prospectus makes for interesting reading.
edgar.whowhere.com
Here is part of the document relating to the AOL agreement.
The Company entered into a Telecommunications Marketing Agreement (the "AOL
Agreement"), dated as of February 22, 1997 and effective as of February 25,
1997, with America Online, Inc. ("AOL"), under which the Company will provide
long distance telecommunications services to be marketed by AOL to all of the
subscribers of AOL's online network. The Company made an initial payment of $100
million to AOL at signing and agreed to provide marketing payments to AOL based
on a percentage of the Company's profits from the services (between 50% and 70%
depending on the level of revenues from the services). The AOL Agreement
provides that $43 million of the initial payment will be offset and recoverable
by the Company through reduction of such profit-based marketing payments during
the
6
<PAGE>
initial term of the AOL Agreement or, subject to certain monthly reductions of
the amount thereof, directly by AOL upon certain earlier terminations of the AOL
Agreement. The $57 million balance of the initial payment is solely recoverable
by offset against a percentage of such profit-based marketing payments made
after the first five years of the AOL Agreement (when extended beyond the
initial term) and by offset against a percentage of AOL's share of the profits
from the services after termination or expiration of the AOL Agreement. Any
portion of the $43 million not previously repaid or reduced in amount would be
added to the $57 million and would be recoverable similarly. The Company service
was launched on the AOL online network on October 9, 1997 on a limited basis,
with the general public promotion of the service anticipated to begin late in
the 1997 fourth quarter.
Also under the AOL Agreement, the Company issued to AOL at signing two
warrants to purchase shares of the Company Common Stock at a premium over the
market value of such stock on the issuance date. One warrant is for 5 million
shares, at an exercise price of $15.50 per share, one-half of which shares
vested on October 9, 1997 when the Company service was launched on the AOL
online network in accordance with the AOL Agreement and the balance of which
will vest on the first anniversary of issuance if the AOL Agreement has not
terminated. The other warrant is for up to 7 million shares, at an exercise
price of $14.00 per share, which will vest, commencing December 31, 1997, based
on the number of subscribers to the services and would vest fully if there are
at least 3.5 million such subscribers at any one time. The Company also agreed
to issue to AOL an additional warrant to purchase 1 million shares of the
Company Common Stock, at market value at the time of issuance, upon each of the
first two annual extensions by AOL of the term of the AOL Agreement, which
warrants also will vest based on the number of subscribers to the services.
The profitability of the AOL Agreement for the Company depends on the
Company's ability to develop in a timely fashion, and to continue to develop and
to maintain, online ordering, call detail, billing and customer services for the
AOL members, which will require, among other things, the ability to identify and
employ sufficient personnel qualified to provide the necessary programming; the
ability of the Company and AOL to work together effectively to develop jointly
the online marketing contemplated by the AOL Agreement; a rapid response rate to
online promotions to AOL's online subscribers, most of whom are expected to be
potential residential customers rather than business customers to which Tel-Save
has marketed historically; the Company's ability to expand OBN to accommodate
increased traffic levels; and AOL's ability to execute successfully its publicly
stated business plan and implement its announced network changes to improve
member access to its online service. Since the $100 million payment is
recoverable only through the profits from the services, to the extent that the
AOL Agreement is unsuccessful, such amount is subject to potential non-recovery
or limited recovery by the Company. The Company currently estimates that between
2% and 6% of AOL's customers will need to sign up for the Company's long
distance service in order for the Company to break even on its investment in the
AOL Agreement. |
