Exhibit 4.1


     

    
 

    
                                                        

      Exhibit
        4.1

       

      Talk
        America Executive Nonqualified Savings
        Plan

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      
 

    

    
       

      TALK
        AMERICA

       

      EXECUTIVE
        NONQUALIFIED SAVINGS PLAN

       

      (Effective
        February 1, 2006)

      


      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      



      ARTICLE
        1

      PURPOSE

       

      In
        recognition of the services provided by certain key employees, the Board
        of
        Directors of Talk America Holdings, Inc., a Delaware corporation, has adopted
        the Talk America Executive Nonqualified Savings Plan, effective February
        1,
        2006, to make additional retirement benefits and increased financial security
        available on a tax-favored basis to those individuals. The Plan is intended
        to
        be a nonqualified deferred compensation plan that complies with the provisions
        of Code Section 409A. The Plan is intended to be an unfunded plan maintained
        primarily for the purpose of providing deferred compensation benefits for
        a
        select group of management or highly compensated employees.

       

           
        ARTICLE 2  

      DEFINITIONS

       

      “Affiliate”
means:
        (a) any firm, partnership, or corporation that directly or indirectly through
        one or more intermediaries, controls, is controlled by, or is under common
        control with the Company; (b) any other organization similarly related to
        the
        Company that is designated as such by the Board; and (c) any other entity
        50% or
        more of the economic interests in which are owned, directly or indirectly,
        by
        the Company.

       

      “Beneficiary”
means
        the person or persons designated as such in accordance with Section
        7.3.

       

      “Board”
means
        the Board of Directors of Talk America Inc.

       

      “Change
        of Control”
means
        a
        change in the ownership or effective control of Holdings or the Company,
        or in
        the ownership of a substantial portion of the assets of Holdings or the Company,
        within the meaning of Code Section 409A and the regulations and Internal
        Revenue
        Service guidance issued thereunder.

       

      “Code”
means
        the Internal Revenue Code of 1986, as amended.

       

      “Committee”
means
        the Talk America Benefits Committee, appointed from time to time by the
        Board.

       

      “Company”
means
        Talk America Inc., a Pennsylvania corporation, as well as each Affiliate
        identified in Appendix A as may from time to time participate in the Plan
        by or
        pursuant to authorization of the Board and the board of directors of such
        Affiliate.

       

      “Compensation”
means,
        for any Eligible Employee, the total cash remuneration for services payable
        by
        the Company with respect to a Plan Year, as determined pursuant to guidelines
        established and revised by the Plan Administrator from time to time and
        communicated to Eligible Employees. 

       

      The
        Compensation of each Eligible Employee taken into account for determining
        all
        benefits provided under the Plan for any Plan Year shall not exceed the annual
        compensation limit under Code Section 401(a)(17) for such Plan Year ($220,000
        for 2006).

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      “Contribution
        Dollar Limitation”
means
        the limit stated in Code Section 415(c)(1)(A) ($44,000 for 2006), as adjusted
        in
        accordance with Code Section 415(d)(1)(C).

       

      “Disability”
means
        a
        disability as defined in Code Section 409A(a)(2)(C).

       

      “Disabled”
means
        having a Disability. The determination of whether a Participant is Disabled
        shall be made by the Plan Administrator, whose determination shall be
        conclusive.

       

      “Distribution
        Account(s)”
means,
        with respect to a Participant, the Fixed Distribution Account and/or the
        Flexible Distribution Account(s) established on the books of account of the
        Company, pursuant to Section
        5.1,
        for
        that Participant.

       

      “Earnings
        Crediting Options”
means
        the deemed investment options selected by the Participant from time to time
        pursuant to which deemed earnings or losses are credited or debited, as the
        case
        may be, to the Participant’s Distribution Accounts.

       

      “Effective
        Date”
means
        February 1, 2006.

       

      “Eligible
        Employee”
means
        an Employee who has attained age 21 and completed one (1) year of Service
        with
        the Company, and whose base salary from the Company for the previous twelve
        (12)
        months is at least $100,000. Notwithstanding the foregoing, for purposes
        of
        determining those Eligible Employee as of the Effective Date, the Employee’s
        base salary for the calendar year ending December 31, 2005 shall be
        considered.

       

      “Employee”
means
        any individual employed by the Company on a regular, full-time basis (in
        accordance with the personnel policies and practices of the Company), including
        citizens of the United States employed outside of their home country and
        resident aliens employed in the United States; provided,
        however,
        that to
        qualify as an “Employee” for purposes of the Plan, the individual must be a
        member of a “select group of management or highly compensated employees” within
        the meaning of Sections 201, 301 and 401 of the Employee Retirement Income
        Security Act of 1974, as amended; provided
        further,
        that
        the following individuals shall not be eligible to participate in the Plan:
        (a) individuals who are not classified by the Company as its employees,
        even if they are retroactively recharacterized as employees by a third party
        or
        the Company, (b) individuals for whom the Company does not report wages on
        Form
        W-2 or who are not on an employee payroll of the Company; and (c) individuals
        who have entered into an agreement with the Company which excludes them from
        participation in employee benefit plans of the Company (whether or not they
        are
        treated or classified as employees for certain specified purposes that do
        not
        include eligibility in the Plan).

       

      “Employer”
means
        Talk America Inc. and its Affiliates.

       

      “Enrollment
        Agreement”
means
        the authorization form which an Eligible Employee files with the Plan
        Administrator to participate in the Plan, including, without limitation,
        one
        that is completed and/or sent electronically in a manner specified by the
        Plan
        Administrator.

       

      “Holdings”
means
        Talk America Holdings, Inc., a Delaware corporation. 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      “Key
        Employee”
means
        a
“specified employee” as defined in Code Section 409A(a)(2)(B)(i).

       

      “Matching
        Contributions”
are
        contributions credited to the Participant’s Fixed Distribution Account by the
        Company pursuant to Section
        4.3
        of the
        Plan.

       

      “Participant”
means
        an Eligible Employee who has filed a completed and executed Enrollment Agreement
        with the Plan Administrator or its designee and is participating in the Plan
        in
        accordance with the provisions of Article 4. In the event of the death or
        incompetency of a Participant, the term shall mean his or her personal
        representative or guardian. An individual shall remain a Participant until
        that
        individual has received full distribution of any amount credited to the
        Participant’s Distribution Account(s).

       

      “Plan”
means
        the Talk America Executive Nonqualified Savings Plan, as amended from time
        to
        time.

       

      “Plan
        Administrator”
means
        the Committee.

       

      “Plan
        Year”
means
        the 12-month period beginning on each January 1 and ending on the following
        December 31. Notwithstanding the foregoing, for purposes of the Plan Year
        which
        includes the Effective Date (the “Initial Plan Year”), “Plan Year” means the
        period beginning on the Effective Date and ending on December 31,
        2006.

       

      “Service”
means
        the period of time during which an employment relationship exists between
        an
        Employee and the Company, including any period during which the Employee
        is on
        an approved leave of absence, whether paid or unpaid. “Service” shall not be
        deemed to have ceased if an Employee transfers directly between the Company
        and
        an Affiliate. 

       

      “Subsequent
        Election”
means
        an election made by a Participant in accordance with Section
        4.1(d).

       

      “Unforeseeable
        Emergency”
means
        a
        severe financial hardship to the Participant resulting from an illness or
        accident of the Participant, the Participant’s spouse, or a dependent (as
        defined in Code Section 152(a)) of the Participant, loss of the Participant’s
        property due to casualty, or other similar extraordinary and unforeseeable
        circumstances arising as a result of events beyond the control of the
        Participant.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      



      ARTICLE
        3  

      ADMINISTRATION
        OF THE PLAN AND DISCRETION

       

          3.1.  The
        Committee, as Plan Administrator, shall have full power and authority to
        interpret the Plan, to prescribe, amend and rescind any rules, forms and
        procedures as it deems necessary or appropriate for the proper administration
        of
        the Plan and to make any other determinations and to take any other such
        actions
        as it deems necessary or advisable in carrying out its duties under the Plan.
        All action taken by the Plan Administrator arising out of, or in connection
        with, the administration of the Plan or any rules adopted thereunder, shall,
        in
        each case, lie within its sole discretion, and shall be final, conclusive
        and
        binding upon Holdings, the Company, the Board, all Employees, all Beneficiaries
        and all persons and entities having an interest therein. The Committee, may,
        however, delegate to any person or entity any of its powers or duties under
        the
        Plan. To the extent of any such delegation, the delegate shall become the
        Plan
        Administrator responsible for administration of the Plan, and references
        to the
        Plan Administrator shall apply instead to the delegate. Any action by the
        Committee assigning any of its responsibilities to specific persons who are
        directors, officers, or employees of the Company shall not constitute delegation
        of the Committee’s responsibility but rather shall be treated as the manner in
        which the Committee has determined internally to discharge such
        responsibility.

       

          3.2.  The
        Plan
        Administrator shall serve without compensation for its services unless otherwise
        determined by the Board. All expenses of administering the Plan shall be
        paid by
        the Company.

       

          3.3.  The
        Company shall indemnify and hold harmless the Plan Administrator from any
        and
        all claims, losses, damages, expenses (including counsel fees) and liability
        (including any amounts paid in settlement of any claim or any other matter
        with
        the consent of the Board) arising from any act or omission of such member,
        except when the same is due to gross negligence or willful
        misconduct.

       

          3.4.  Any
        decisions, actions or interpretations to be made under the Plan by the Company,
        the Board or the Plan Administrator shall be made in its respective sole
        discretion, not as a fiduciary, and need not be uniformly applied to similarly
        situated individuals and shall be final, binding and conclusive on all persons
        interested in the Plan.

       

      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      



         
        ARTICLE 4  

      PARTICIPATION

       

          4.1.  Election
        to Participate.

       

                    
(a)  Eligibility
        and Timing of Election to Participate.
        Any
        Eligible Employee may enroll in the Plan effective as of the first day of
        a Plan
        Year by filing a completed
        and fully executed Enrollment Agreement with the Plan Administrator by a
        date
        set by the Plan Administrator.

       

        (i)  Filing
        of Enrollment Agreement.
        An
        executed Enrollment Agreement must be filed by December 31 of the Plan Year
        preceding the Plan Year in which such Compensation is to be earned, or such
        earlier time as may be established by the Plan Administrator. 

       

      (ii)  Initial
        Plan Year.
        For the
        short Initial Plan Year commencing on the Effective Date, an executed Enrollment
        Agreement must be submitted by January 31, 2006 and shall be effective for
        Compensation earned in payroll periods on and after the Effective
        Date.

       

                           
(iii)  Revocation
        of Election.
        Deferral elections for a Plan Year are irrevocable.

       

                      (b)  Amount
        of Deferral.
        Pursuant to the Enrollment Agreement, the Eligible Employee shall irrevocably
        elect the percentage by which (as a result of payroll deduction) an amount
        equal
        to any whole percentage of the Participant’s Compensation will be deferred for
        the Plan Year. Each Participant’s Enrollment Agreement shall designate
        separately the percentage of Compensation to be taken from the Participant’s
        base salary and bonus for the Plan Year. The amount that may be deferred
        is any
        whole percentage of the Participant’s Compensation, up to 15% and not in excess
        of the applicable dollar amount contained in Code Section 402(g)(1)(B) and
        (4)
        in effect at the beginning of the Plan Year ($15,000 for 2006); provided,
        however,
        that
        deferrals will be made after required non-deferrable payroll tax deductions
        and
        any deductions elected by the Participant (including, but not limited to,
        deductions for payment of health insurance premiums). The Plan Administrator
        may
        establish minimum amounts that may be deferred under this Section
        4.1
        and may
        change such standards from time to time. Any such minimum shall be communicated
        by the Plan Administrator to the Participants prior to the date by which
        Participants must submit an Enrollment Agreement with respect to the Plan
        Year
        to which the minimum applies. 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (i)  Catch-Up
        Deferrals.
        Notwithstanding Section
        4.1(b),
        Eligible Employees who have attained age 50 before the close of a Plan Year
        shall be eligible to make catch-up deferrals subject to the limitations of
        Code
        Section 414(v)(2)(B)(i) and (C) ($5,000 for 2006). The maximum deferral
        percentage and dollar limits specified above in Section
        4.1(b)
        shall
        not apply to limit catch-up deferrals described in this Section, and such
        catch-up deferrals shall not be taken into account for purposes of the maximum
        contribution limitation in Section
        4.4
        of the
        Plan.

       

      (c)  Timing
        and Form of Payment of Distribution from Accounts.
        At the
        time that a Participant makes a deferral election with respect to a Plan
        Year,
        the Participant shall designate the time and form in which such deferral
        shall
        be distributed (together with any Matching Contributions made for such Plan
        Year) and all notional earnings thereon, and the Distribution Account(s)
        to
        which the amounts deferred by the Participant pursuant to that Enrollment
        Agreement will be credited. All Enrollment Agreements filed by an Eligible
        Employee must provide for distribution to be made at a time and in a form
        that
        is consistent with the distribution options made available under the Plan
        and
        permitted under applicable law, including, without limitation, Code Section
        409A. An election with respect to the time and form of benefit distributions
        may
        not be changed, except as expressly provided for herein. 

       

      (d)  Subsequent
        Elections.
        Each
        Participant who has made an election to defer Compensation may make a Subsequent
        Election to further defer the time of payment and/or change the form of payment
        for one or more of such Participant’s Distribution Account(s). No such
        Subsequent Election shall be valid unless it is made 12 months prior to the
        originally scheduled payment date applicable to such Distribution Account
        and
        the payment commencement date is deferred for not less than five (5) years
        from
        the originally scheduled payment date. In the event of the Participant’s
        termination of Service with the Company prior to the expiration of 12 months
        from the date the Subsequent Election is made, the Subsequent Election shall
        be
        of no effect and distribution shall be made in accordance with Section
        6.3.

       

      (e)  Vesting.
        All
        Compensation deferred by Participants under this Section
        4.1,
        and any
        deemed earnings thereon, shall be fully and immediately vested and
        nonforfeitable.

       

          4.2.  Filing
        of Elections by New Eligible Employees.
        

       

      (a)  New
        Eligible Employees.
        The
        Plan Administrator may, in its discretion, permit an Employee who first becomes
        an Eligible Employee after the beginning of a Plan Year to enroll in the
        Plan
        for that Plan Year by filing a completed and fully executed Enrollment
        Agreement, in accordance with Section
        4.1,
        as soon
        as practicable following the date the Employee becomes an Eligible Employee
        but,
        in any event, not later than 30 days after such date. Notwithstanding the
        foregoing, however, any election by an Eligible Employee to defer Compensation
        pursuant to this Section
        4.2(a)
        shall
        apply only to such amounts as are earned by the Eligible Employee after the
        date
        on which such Enrollment Agreement is filed.

       

      (b)  Promotions.
        The
        Plan Administrator may, in its discretion, permit an Employee who first becomes
        an Eligible Employee after the beginning of a Plan Year due to a promotion,
        to
        enroll in the Plan for that Plan Year by filing a completed and fully executed
        Enrollment Agreement, in accordance with Section
        4.1,
        as soon
        as practicable following the date the Employee becomes an Eligible Employee
        but,
        in any event, not later than 30 days after such date. Notwithstanding the
        foregoing, however, any election by an Eligible Employee to defer Compensation
        pursuant to this Section
        4.2(b)
        shall
        apply only to such amounts as are earned by the Eligible Employee after the
        date
        on which such Enrollment Agreement is filed.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

          4.3.  Matching
        Contributions.
        The
        Company may make a Matching Contribution if a Participant defers Compensation
        under the Plan during a Plan Year. Such Matching Contribution will be made
        in
        the sole and absolute discretion of the Company, and to such Participants
        or
        group(s) or category(ies) of Participants as shall be determined in the sole
        and
        absolute discretion of the Committee. If made for a Plan Year, the Matching
        Contribution will be credited to the Participant’s Fixed Distribution Account in
        an amount equal to $.25 for each $1.00 of Compensation deferred by the
        Participant, up to a maximum of 4% of Compensation. 

       

          4.4.  Maximum
        Contribution.
        For
        each Plan Year, the maximum aggregate amount which may be deferred and
        contributed on a Participant’s behalf pursuant to Sections
        4.1(b) and 4.3
        shall
        not exceed the Contribution Dollar Limitation.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      



      ARTICLE
        5  

      ALLOCATION
        TO ACCOUNTS

       

          5.1.  Distribution
        Accounts.
        For
        each Participant, the Plan Administrator shall establish and maintain one
        Fixed
        Distribution Account and shall establish and maintain up to five (5) separate
        Flexible Distribution Accounts. The amount of Compensation deferred pursuant
        to
Section
        4.1
        shall be
        credited by the Company to the Participant’s Distribution Account(s), in
        accordance with the Participant’s Enrollment Agreement, as soon as reasonably
        practicable following the close of the payroll period or bonus payment date
        for
        which the deferred Compensation would otherwise be payable, as determined
        by the
        Plan Administrator in its sole discretion. Any amount once taken into account
        as
        Compensation for purposes of the Plan shall not be taken into account
        thereafter. Matching Contributions, when credited, as determined by the Plan
        Administrator in its sole discretion, are credited only to the Fixed
        Distribution Account. The Participant’s Distribution Account(s) shall be reduced
        by the amount of payments made by the Company to the Participant or the
        Participant’s Beneficiary pursuant to the Plan.

       

          5.2.  Earnings
        on Distribution Accounts.

       

      (a)  General.
        A
        Participant’s Distribution Account shall be credited with earnings in accordance
        with the Earnings Crediting Options elected by the Participant from time
        to
        time. Participants may allocate their Distribution Accounts among the Earnings
        Crediting Options available under the Plan only in whole percentages of not
        less
        than 1%.

       

      (b)  Investment
        Options.
        The
        deemed rate of return, positive or negative, credited or debited, as the
        case
        may be, under each Earnings Crediting Option is based upon the actual investment
        performance of the investment fund(s) as the Plan Administrator may designate
        from time to time, and shall equal the total return of such investment fund
        net
        of asset based charges, including, without limitation and as the Plan
        Administrator determines from time to time, money management fees, fund expenses
        and mortality and expense risk insurance contract charges. The amount of
        such
        deemed investment rate of return shall be determined by the Plan Administrator
        and such determination shall be final and conclusive upon all concerned.
        The
        Plan Administrator reserves the right, on a prospective basis, to add or
        delete
        Earnings Crediting Options.

       

          5.3.  Earnings
        Crediting Options.
        Notwithstanding that the rates of return credited or debited to Participants’
Distribution Accounts under the Earnings Crediting Options are based upon
        the
        actual performance of the investment options specified in Section
        5.2,
        or such
        other investment funds as the Plan Administrator may designate, neither Holdings
        nor the Company shall be obligated to invest any Compensation deferred by
        Participants under this Plan, or any other amounts, in such portfolios or
        in any
        other investment funds.

       

          5.4.  Changes
        in Earnings Crediting Options.
        A
        Participant may change the Earnings Crediting Options to which his or her
        Distribution Account(s) are deemed to be allocated, subject to such rules
        and
        limitations as may be determined by the Plan Administrator. Each such change
        may
        include (a) reallocation of the Participant’s existing Distribution Account(s)
        in whole percentages of not less than 1%, and/or (b) change in investment
        allocation of amounts to be credited to the Participant’s Distribution
        Account(s) in the future, as the Participant may elect. The effect of a
        Participant’s change in Earnings Crediting Options shall be reflected in the
        Participant’s Distribution Account(s) as soon as reasonably practicable
        following the Plan Administrator’s receipt of notice of such change, as
        determined by the Plan Administrator in its sole discretion.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

          5.5.  Valuation
        of Accounts.
        Except
        as otherwise provided in Section
        5.7,
        the
        value of a Participant’s Distribution Account(s) as of any date shall equal the
        amounts theretofore credited or debited to such Distribution Account(s),
        including any earnings (positive or negative) deemed to be earned on such
        Distribution Account(s) in accordance with Section
        5.2
        through
        the day preceding such date, less the amounts theretofore deducted from such
        Distribution Account(s).

       

          5.6.  Statement
        of Accounts.
        The
        Plan Administrator shall provide to each Participant, not less frequently
        than
        annually, a statement in such form as the Plan Administrator deems appropriate
        setting forth the balance standing to the credit of each Participant in each
        of
        his or her Distribution Account(s).

       

          5.7.  Distributions
        from Accounts.
        

       

                      (a)  For
        purposes of any provision of the Plan relating to distribution of benefits
        to
        Participants or Beneficiaries, the value of a Participant’s Distribution
        Account(s) shall be determined as of a date as soon as reasonably practicable
        preceding the distribution date, as determined by the Plan Administrator
        in its
        sole discretion. In the case of any benefit payable in the form of a single
        lump-sum payment, the value of a Participant’s Distribution Account(s), as
        determined pursuant to this Article, shall be distributed. In the case of
        any
        benefit payable in the form of annual installments, as of any payment date,
        the
        amount of each installment payment shall be determined as the quotient of
        (x)
        the value of the Participant’s Distribution Account subject to distribution, as
        determined pursuant to this Article, divided by (y) the number of remaining
        annual installments immediately preceding the payment date. 

       

      (b)  Any
        distribution made to or on behalf of a Participant from his or her Distribution
        Account in an amount which is less than the entire balance of any such
        Distribution Account shall be made pro rata from each of the Earnings Crediting
        Options to which such Distribution Account is then allocated.

       

      (c)  Any
        and
        all distributions from the Plan shall be made in cash.

       

          5.8.  Small
        Benefit Cash-Out.
        If a
        Participant or Beneficiary becomes eligible for a distribution in accordance
        with the provisions of Section
        6.3(a) or 6.3(b),
        relating to payments following termination of Service, Disability or death,
        the
        Plan Administrator shall, notwithstanding any election of the time and form
        of
        payment by the Participant, distribute to the Participant (or Beneficiary,
        as
        applicable) his or her Distribution Account(s) as soon as administratively
        practicable (but not later than required by Code Section 409A) following
        such
        Participant’s termination of Service, Disability or death, if the value of the
        Participant’s Distribution Account(s) does not exceed $10,000, or such higher
        amount as may be permitted under Code Section 409A.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      



      ARTICLE
        6  

      BENEFITS
        TO PARTICIPANTS

       

          6.1.  Benefits
        From the Fixed Distribution Account.
        Benefits from a Participant’s Fixed Distribution Account shall be paid to the
        Participant as follows:

       

      (a)  Fixed
        Distributions.
        The
        Participant’s Fixed Distribution Account shall be distributed in one of the
        following methods, as elected by the Participant in the Enrollment Agreement:
        (i) in a lump sum; or (ii) in up to 15 annual installments. Unless elected
        otherwise in accordance with this Section
        6.1(a),
        the
        default form of payment of a Participant’s Fixed Distribution Account shall be a
        lump sum.

       

      (b)  Time
        of Payment.
        Any
        benefit payable in accordance with this Section
        6.1
        shall be
        paid or commence by January 31 of the Plan Year following the payment date
        elected by the Participant in the Enrollment Agreement or in a Subsequent
        Election. 

       

      (c)  Forfeiture.
        If a
        Participant terminates Service, other than due to retirement (as determined
        pursuant to the terms of the Talk America, Inc. 401(k) Plan), Disability
        or
        death, prior to being credited with three (3) years of Service, as determined
        by
        the Plan Administrator in its sole discretion, the portion (if any) of the
        Participant’s Fixed Distribution Account attributable to Matching Contributions
        shall be forfeited, as follows:

       

      
        	
                Termination
                  Prior to

                Completion
                  of Year

              	
                Portion
                  Forfeited

              
	
                1

              	
                100%

              
	
                2

              	
                67%

              
	
                3

              	
                34%

              


      

      


          6.2.  Benefits
        From the Flexible Distribution Account.
        Benefits from a Participant’s Flexible Distribution Account shall be paid to the
        Participant as follows:

       

      (a)          Flexible
        Distributions.
        In the
        case of a Participant who continues in Service, the Participant’s Flexible
        Distribution Account shall be paid or commence to be paid to the Participant
        by
        January 31 of the Plan Year following the payment date elected by the
        Participant in the Enrollment Agreement pursuant to which such Flexible
        Distribution Account was established (which payment date may be no earlier
        than
        two (2) years after the date such Flexible Distribution Account was
        established), in a lump sum or in up to 15 annual installments, as elected
        by
        the Participant in the Enrollment Agreement or in a Subsequent
        Election.

       

          6.3.  Acceleration
        of Payment.

       

      (a)  Termination
        of Service.
        In the
        case of a Participant whose Service with the Company ceases, the Participant’s
        Distribution Account(s) shall be distributed as elected by the Participant
        in
        the Enrollment Agreement or in a Subsequent Election; provided,
        however,
        that
        the Distribution Account(s) of Participants who are Key Employees shall not
        be
        distributed prior to the expiration of six (6) months from the date of such
        termination, as determined by the Plan Administrator in its sole discretion.
        Prior to distribution, such Participant’s Distribution Account(s) shall continue
        to be credited with earnings and/or losses in accordance with Section
        5.2
        until
        fully distributed.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (b)  Disability
        or Death.
        In the
        case of a Participant who becomes Disabled or dies, the Participant’s
        Distribution Account(s) shall be distributed as elected by the Participant
        in
        the Enrollment Agreement or in a Subsequent Election. Prior to distribution,
        such Participant’s Distribution Account(s) shall continue to be credited with
        earnings and/or losses in accordance with Section
        5.2
        until
        fully distributed.

       

      (c)  Unforeseeable
        Emergency.
        In the
        event that the Plan Administrator, upon written request of a Participant,
        determines, in its sole discretion, that the Participant has suffered an
        Unforeseeable Emergency, the Company shall pay to the Participant from his
        or
        her Distribution Account(s), as soon as practicable following such
        determination, an amount necessary to meet such Unforeseeable Emergency,
        in a
        manner consistent with Code Section 409A and the regulations and Internal
        Revenue Service guidance issued thereunder, after deduction of any and all
        taxes
        as may be required pursuant to Section
        7.9
        (the
“Emergency Benefit”). Emergency Benefits shall be paid first from the
        Participant’s Flexible Distribution Account(s), if any, to the extent the
        balance of one or more of such Flexible Distribution Accounts is sufficient
        to
        meet the emergency, in the order in which such Accounts would otherwise be
        distributed to the Participant. If the distribution exhausts the Flexible
        Distribution Account(s), the vested portion of the Fixed Distribution Account
        may be accessed. With respect to that portion of any Distribution Account
        which
        is distributed to a Participant as an Emergency Benefit in accordance with
        this
Section
        6.3(c),
        no
        further benefit shall be payable to the Participant under this
        Plan.

       

      (d)  Change
        of Control.
        To the
        extent permitted by the regulations and other guidance under Code Section
        409A,
        within the 30 days preceding or the twelve (12) months following a Change
        of
        Control, the Board may exercise its discretion to terminate this Plan and,
        notwithstanding any other provision of the Plan or the terms of any Enrollment
        Agreement or Subsequent Election, distribute to or with respect to each
        Participant his or her entire Distribution Account.

       

      (e)  Other
        Acceleration Events.
        To the
        extent permitted by Code Section 409A and the regulations and Internal Revenue
        Service guidance issued thereunder, notwithstanding the terms of an Enrollment
        Agreement or Subsequent Election, distribution of all or part of a Participant’s
        Distribution Account(s) may be made:

       

      (i)  to
        the
        extent necessary to fulfill a domestic relations order (as defined in Code
        Section 414(p)(1)(B)); or

       

      (ii)  to
        the
        extent necessary to pay the amount included in income by the Participant
        as a
        result of the Plan failing to meet the requirements of Code Section 409A
        and the
        regulations thereunder.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      



      ARTICLE
        7  

      MISCELLANEOUS

       

          7.1.  Amendment
        and Termination.
        The
        Plan may be amended, suspended, discontinued or terminated at any time by
        the
        Company; provided,
        however,
        that no
        such amendment, suspension, discontinuance or termination shall reduce or
        in any
        manner adversely affect the rights of any Participant with respect to benefits
        that are payable or may become payable under the Plan based upon the balance
        of
        the Participant’s Distribution Account(s) as of the effective date of such
        amendment, suspension, discontinuance or termination. Notwithstanding the
        preceding provisions of this Section
        7.1,
        the
        Company reserves the right to amend the Plan, either retroactively or
        prospectively, in whatever manner is required to achieve compliance with
        the
        requirements of Code Section 409A.

       

          7.2.  Claims
        Procedure.
        It is
        intended that the claims procedures of this Plan be administered in accordance
        with the claims procedure regulations of the Department of Labor set forth
        in 29
        CFR §2560.503-1.

       

      (a)  Claim.
        A
        person who believes that he is being denied a benefit to which he is entitled
        under the Plan (hereinafter referred to as a “Claimant”) may file a written
        request for such benefit with the Plan Administrator, setting forth the
        claim.

       

      (b)  Claim
        Decision.
        Upon
        receipt of a claim, the Plan Administrator shall advise the Claimant within
        ninety (90) days of receipt of the claim whether the claim is denied. If
        special
        circumstances require more than ninety (90) days for processing, the Claimant
        will be notified in writing within ninety (90) days of filing the claim that
        the
        Plan Administrator requires up to an additional ninety (90) days to reply.
        The
        notice will explain what special circumstances make an extension necessary
        and
        indicate the date a final decision is expected to be made.

       

      If
        the
        claim is denied in whole or in part, the Claimant shall be provided a written
        opinion, using language calculated to be understood by the Claimant, setting
        forth:

       

      (i)  The
        specific reason or reasons for such denial;

       

      (ii)  The
        specific reference to pertinent provisions of this Plan on which such denial
        is
        based;

       

      (iii)  A
        description of any additional material or information necessary for the Claimant
        to perfect his or her claim and an explanation why such material or such
        information is necessary;

       

      (iv)  Appropriate
        information as to the steps to be taken if the Claimant wishes to submit
        the
        claim for review; 

       

      (v)  The
        time
        limits for requesting a review under subsection (c) and for review under
        subsection (d) hereof; and 

       

      (vi)  The
        Claimant’s right to bring a civil action under Section 502(a) of the Employee
        Retirement Income Security Act following an adverse benefit
        determination.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      (c)  Request
        for Review.
        Within
        sixty (60) days after the receipt by the Claimant of the written opinion
        described above, the Claimant may request in writing that the Plan Administrator
        review its determination. The Claimant or his or her duly authorized
        representative may, but need not, review the pertinent documents and submit
        issues and comments in writing for consideration by the Plan Administrator.
        If
        the Claimant does not request a review of the initial determination within
        such
        sixty (60) day period, the Claimant shall be barred and estopped from
        challenging the determination.

       

      (d)  Review
        of Decision.
        Within
        sixty (60) days after the Plan Administrator’s receipt of a request for review,
        it will review the initial determination. After considering all materials
        presented by the Claimant, the Plan Administrator will render a written opinion,
        written in a manner calculated to be understood by the Claimant, setting
        forth
        the specific reasons for the decision and containing specific references
        to the
        pertinent provisions of the Plan on which the decision is based. If special
        circumstances require that the sixty (60) day time period be extended, the
        Plan
        Administrator will so notify the Claimant and will render the decision as
        soon
        as possible, but no later than one hundred twenty (120) days after receipt
        of
        the request for review.

       

          7.3.  Designation
        of Beneficiary.
        Each
        Participant may designate a Beneficiary or Beneficiaries (which Beneficiary
        may
        be an entity other than a natural person) to receive any payments which may
        be
        made following the Participant’s death. Such designation may be changed or
        canceled at any time without the consent of any such Beneficiary. Any such
        designation, change or cancellation must be made in a form approved by the
        Plan
        Administrator and shall not be effective until received by the Plan
        Administrator, or its designee. If no Beneficiary has been named, or the
        designated Beneficiary or Beneficiaries shall have predeceased the Participant,
        the Beneficiary shall be the Participant’s estate. If a Participant designates
        more than one Beneficiary, the interests of such Beneficiaries shall be paid
        in
        equal shares, unless the Participant has specifically designated
        otherwise.

       

          7.4.  Limitation
        of Participant’s Right.
        Nothing
        in this Plan shall be construed as conferring upon any Participant any right
        to
        continue in Service, nor shall it interfere with the rights of the Company
        to
        terminate the employment of any Participant and/or to take any personnel
        action
        affecting any Participant without regard to the effect which such action
        may
        have upon such Participant as a recipient or prospective recipient of benefits
        under the Plan. Any amounts payable hereunder shall not be deemed salary
        or
        other compensation to a Participant for the purposes of computing benefits
        to
        which the Participant may be entitled under any other arrangement established
        by
        the Company or its Affiliates for the benefit of its employees.

       

          7.5.  No
        Limitation on Company Actions.
        Nothing
        contained in the Plan shall be construed to prevent the Company from taking
        any
        action which is deemed by it to be appropriate or in its best interest. No
        Participant, Beneficiary, or other person shall have any claim against the
        Company as a result of such action.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

          7.6.  Obligations
        to Company.
        If a
        Participant becomes entitled to a distribution of benefits under the Plan,
        and
        if at such time the Participant has outstanding any debt, obligation, or
        other
        liability representing an amount owing to the Employer, then the Employer
        may
        offset such amount owed to it against the amount of benefits otherwise
        distributable. Such determination shall be made by the Plan Administrator
        in its
        sole discretion.

       

          7.7.  Nonalienation
        of Benefits.
        Except
        as expressly provided herein, no Participant or Beneficiary shall have the
        power
        or right to transfer (otherwise than by will or the laws of descent and
        distribution), alienate, or otherwise encumber the Participant’s or
        Beneficiary’s interest under the Plan. The Employer’s obligations under this
        Plan are not assignable or transferable, except to (a) any corporation or
        other entity which acquires all or substantially all of the Employer’s assets or
        (b) any corporation or other entity into which the Employer may be merged
        or consolidated. The provisions of the Plan shall inure to the benefit of
        each
        Participant and the Participant’s Beneficiaries, heirs, executors,
        administrators or successors in interest.

       

          7.8.  Protective
        Provisions.
        Each
        Participant shall cooperate with the Company by furnishing any and all
        information requested by the Company in order to facilitate the payment of
        benefits hereunder, taking such physical examinations as the Company may
        deem
        necessary and taking such other relevant action as may be requested by the
        Company. If a Participant refuses to cooperate, the Company shall have no
        further obligation to the Participant under the Plan, other than payment
        to such
        Participant of the then current vested balance of the Participant’s Distribution
        Account(s) in accordance with his or her Enrollment Agreement and/or Subsequent
        Election.

       

          7.9.  Taxes.
        The
        Company may make such provisions and take such action as it may deem appropriate
        for the withholding of any taxes which the Company is required by any law
        or
        regulation of any governmental authority, whether Federal, state or local,
        to
        withhold in connection with any benefits under the Plan, including, but not
        limited to, the withholding of appropriate sums from any amount otherwise
        payable to the Participant (or his or her Beneficiary). Each Participant,
        however, shall be responsible for the payment of all individual tax liabilities
        relating to any such benefits.

       

          7.10.  Unfunded
        Status of Plan.
        The
        Plan is an “unfunded” plan for tax and Employee Retirement Income Security Act
        purposes. This means that the value of a Participant’s Distribution Account(s)
        is based on the value assigned to a hypothetical bookkeeping account, which
        is
        invested in hypothetical shares or units of investments funds available under
        the Plan. As the nature of the investment fund which forms the “index” or
“meter” for the valuation of the bookkeeping account changes, the valuation of
        the bookkeeping account changes as well. The amount owed to a Participant
        is
        based on the value assigned to the bookkeeping account. Holdings may decide
        to
        use a “rabbi trust” to anticipate its and the Company’s potential Plan
        liabilities, and it may attempt to have Plan investments mirror the hypothetical
        investments deemed credited to the bookkeeping accounts. However, the liability
        to pay the benefits is Holdings’ and the Company’s, and the assets of the rabbi
        trust are potentially available to satisfy the claims of non-participant
        creditors of Holdings and/or the Company. A Participant’s Distribution
        Account(s) shall at all times represent a general obligation of Holdings
        and the
        Company. The Participant shall be a general creditor of Holdings and the
        Company
        with respect to this obligation, and shall not have a secured or preferred
        position with respect to the Participant’s Distribution Account(s). Nothing
        contained herein shall be deemed to create an escrow, trust, custodial account
        or fiduciary relationship of any kind.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

          7.11.  Severability.
        If any
        provision of this Plan is held unenforceable, the remainder of the Plan shall
        continue in full force and effect without regard to such unenforceable provision
        and shall be applied as though the unenforceable provision were not contained
        in
        the Plan.

       

          7.12.  Governing
        Law.
        The
        Plan shall be construed in accordance with and governed by the laws of the
        Commonwealth of Pennsylvania, without reference to the principles of conflict
        of
        laws.

       

          7.13.  Headings.
        Headings are inserted in this Plan for convenience of reference only and
        are to
        be ignored in the construction of the provisions of the Plan.

       

          7.14.  Gender,
        Singular and Plural.
        All
        pronouns and any variations thereof shall be deemed to refer to the masculine,
        feminine, or neuter, as the identity of the person or persons may require.
        As
        the context may require, the singular may read as the plural and the plural
        as
        the singular.

       

          7.15.  Notice.
        Any
        notice or filing required or permitted to be given to the Plan Administrator
        under the Plan shall be sufficient if in writing and hand delivered, or sent
        by
        registered or certified mail, to Talk America Inc., 6805 Route 202, New Hope,
        Pennsylvania 18938; Attention: General Counsel, or to such other entity as
        the
        Plan Administrator may designate from time to time. Such notice shall be
        deemed
        given as to the date of delivery, or, if delivery is made by mail, as of
        the
        date shown on the postmark on the receipt for registration or
        certification.

       

      IN
        WITNESS WHEREOF, Talk America Holdings, Inc. has caused this Plan to be executed
        by its officers thereunto duly authorized, on this 23rd day of January
        2006.

       

      
        	
                 

                 

                 

                 

                Attest:   
                  /s/
                  Aloysius T. Lawn IV

                Aloysius
                  T. Lawn, IV

                Secretary

              	
                TALK
                  AMERICA HOLDINGS, INC.

                 

                 

                 

                By:        
                  /s/
                  Edward B. Meyercord, III

                Edward
                  B. Meyercord, III

                Chief
                  Executive Officer

              


      

      


      


      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      



      APPENDIX
        A

       

      PARTICIPATING
        AFFILIATES

       

      Participating
        Affiliates of Talk America Inc. as of February 1, 2006:

       

      
        	·  	
                LDMI
                  Telecommunications, Inc., a Michigan
                  corporation