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Technology Stocks : Tel-Save Holdings (TALK) -- Ignore unavailable to you. Want to Upgrade?

To: Helios who wrote (174)	12/31/1997 1:22:00 PM
From: Helios	Read Replies (1) \| Respond to of 840

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.