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


                                 AMENDMENT NO. 2

     This AMENDMENT NO. 2 (this "Amendment"), dated May 14, 1998 (the "Amendment
Effective   Date"),   by  and  among  Tel-Save,   Inc.  ("TS"),  a  Pennsylvania
corporation,  and Tel-Save Holdings, Inc. ("Holdings"),  a Delaware corporation,
with their principal offices at 6805 Route 202, New Hope, Pennsylvania 18938, on
the one  hand,  and  America  Online,  Inc.,  a  Delaware  corporation  with its
principal offices at 22000 AOL Way, Dulles, Virginia 20166 ("AOL"), on the other
hand (each a "party" and, collectively, the "parties").

     WHEREAS,  TS,  Holdings  and  AOL  are  parties  to the  Telecommunications
Marketing Agreement,  dated as of February 22, 1997, as heretofore corrected and
amended by letter,  dated April 23,  1997,  and amended by an  Amendment  No. 1,
dated as of January 25, 1998 (as so  corrected  and amended to the date  hereof,
but without giving effect to this Amendment, the "Agreement"); capitalized terms
used in this Amendment without other definition are defined as in the Agreement.

     WHEREAS, the parties to the Agreement wish to make certain changes therein.

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

     A. Extension Warrant to AOL

          1. Upon AOL's execution and delivery of this Amendment, TS shall issue
and deliver to AOL a warrant to  purchase  1,000,000  shares of Holdings  Common
Stock at an exercise price per share equal to $22.25,  which warrant shall be in
the form of Appendix A to this Amendment.  This new warrant shall be a "Warrant"
for all purposes of the Warrantholder and Stockholders Agreement.

     B. Agreement Amendments.  The Agreement is amended as follows, effective as
of the Amendment Effective Date:

          1.  The  references  in the  Agreement  to  "this  Agreement"  or "the
Agreement"  (including  indirect  references  such  as  "hereunder,"   "hereby,"
"herein" and  "hereof")  shall be deemed to be  references  to the  Agreement as
amended by this Amendment.

          2. Section I.A.41.  of the Agreement is hereby amended to substitute a
reference to "June 30, 2001 (June 30, 2000 with  respect to the parties'  rights
and  obligations  hereunder  regarding  Local  Telecommunications  Services  and
Commercial Mobile Communications Services)" for the reference to "June 30, 2000"
therein.


<PAGE>



          3.  Section  III.A.1.(c)  of the  Agreement  is amended to read in its
entirety as follows:

               "(c) Notwithstanding  anything to the contrary in this Agreement,
               the parties  agree that,  commencing * * * and ending * * * , AOL
               shall provide the marketing and  promotions set forth in Schedule
               X to this Agreement."

          and the Agreement is amended to add as Schedule X thereto the Schedule
          X attached to this Amendment.

          4. Section  III.A.1.  of the Agreement is amended to add the following
new subsection:

               "(g) Notwithstanding anything to the contrary herein:

                    "(i) Section  III.A.1(f)  of this  Agreement  shall apply in
               connection  with all  marketing  efforts in  connection  with the
               Services,  including any * * * efforts directed to subscribers to
               the AOL Service that may be provided under this Agreement.

                    "(ii) TS shall not contract  formally or informally  with or
               otherwise  make payments to vendors in  connection  with * * * in
               connection with the Services.  Except as otherwise agreed by AOL,
               AOL shall retain sole  oversight and control over such vendors' *
               * * efforts, including any * * * .

                    "(iii)  All  AOL  Service  subscriber  identity  information
               necessary  to perform  any * * * efforts in  connection  with the
               Services  shall  be  provided  to * * * by AOL and  shall  not be
               disclosed  to TS, and TS shall not  purposefully  examine or take
               possession  of any such  information  or otherwise  encourage any
               vendor or other party to disclose such information,  in each case
               in a manner  inconsistent with AOL's privacy policies (other than
               by virtue of TS's  contact  with any such  subscriber  after such
               subscriber becomes an End User).

                    "(iv) All marketing  activities by TS in connection with the
               Services  shall  be  performed,  and any  subscriber  information
               obtained by TS in connection  with the Agreement shall be handled
               in  accordance  with  applicable  laws  and  regulations  and  in
               compliance with AOL's policies,  including,  without  limitation,
               AOL's   privacy   policies  and  AOL's  *  *  *  procedures   and
               guidelines."

          5. Section V.B. of the  Agreement is amended to add the  following new
subsections:

               "7.  Commencing  with * * * and so long as AOL shall be providing
          the marketing and promotions described in Schedule X hereto (including
          from and  after * * * , as AOL may  elect),  TS  shall  pay to AOL the
          amount of * * * for each Qualified End User who subscribes to the Long
          Distance  Telecommunications  Services,  whether through the marketing
          described on Schedule X or otherwise,


                                       2

<PAGE>



          after such commencement date, which amounts will be paid, with respect
          to any month, on or before the last day of the next succeeding month."

               "8. TS shall, upon AOL's request,  (a) permit AOL to monitor TS's
          compliance  with the  provisions of Section  III.A.1.g  hereof and (b)
          provide to AOL reports,  detailing  Gross  Revenues,  Actual  Services
          Costs,  Pre-Tax  Profit,  the gross numbers of End Users and Qualified
          End Users,  the gross  numbers of Qualified End Users since the end of
          the prior  quarter and net End Users from the end of the prior period.
          At AOL's request,  given  reasonably in advance,  TS shall provide the
          foregoing  information  at a frequency  of no more than once every two
          weeks with respect to End User information and no more than once every
          45 days with  respect to Gross  Revenues,  Actual  Services  Costs and
          Pre-Tax   Profit.   In  addition,   TS  shall  provide  the  foregoing
          information  with respect to any quarter  within 15 days following the
          end of such quarter and will provide  information  regarding Qualified
          End Users who subscribed during the last month of any calendar quarter
          and became End Users  within 35 days after the last day of such month.
          AOL has the right to inspect  TS's records with respect to the use and
          treatment  of  all  subscriber  information  in  accordance  with  the
          procedures set forth in Section V.B.4."

          6. The second  sentence of Section  VII.A.5 is amended to substitute a
reference to "solely through AOL or AOL's agents" for the reference to "directly
or indirectly through a third party on its behalf."

          7.  Section  X.B.2.  of the  Agreement  is amended to provide that the
reference  to "each of the first two  Extension  Periods"  shall be deleted  and
replaced  with a  reference  to "the first  Extension  Period" and to the extent
required to reflect that there will be only one (1) "Additional Warrant".

          8. Section  X.C.1.c.  of the  Agreement is deleted in its entirety and
replaced with the following:

               "c. Either AOL or TS may terminate  this Agreement by thirty (30)
          days prior written  notice to the other in the event of an acquisition
          of the other party, or all or substantially  all of the assets of such
          other party, through merger,  asset acquisition,  stock acquisition or
          otherwise,  by a competitor of the party giving such notice;  provided
          that, for purposes of this clause,  neither * * * nor * * * (each,  an
          "Excepted  Company")  shall  be  deemed  a  competitor  of AOL if,  in
          connection  with any  acquisition of TS by an Excepted  Company,  such
          Excepted  Company  shall agree with AOL to actively sell or market the
          AOL Service on a stand-alone basis, on terms and conditions  providing
          reasonable compensation and profit to such Excepted Company; provided,
          that * * * shall be an "Excepted  Company" for purposes of this clause
          only in respect of a  transaction  effected  pursuant to the terms and
          conditions of a definitive binding agreement subject only to customary
          closing  conditions  (e.g.,  legal  opinions,   regulatory  and  other
          approvals and due diligence) that is executed on or before * * * ."


                                       3

<PAGE>



          9. Section X.D.4. of the Agreement is amended to replace the reference
therein to "June 30, 2000" with a reference to "June 30, 2001".

          10. In the event of an  acquisition of TS by * * * pursuant to Section
X.C.1.c of the Agreement , then, from and after such acquisition, Sections IV.E.
and X.C.1.d of the Agreement and the second  sentence of Section  IV.C.10 of the
Agreement shall be of no further force and effect; provided, however, that after
such  acquisition  all  non-OBN  traffic  shall be  carried on the AT&T or * * *
network or a network substantially  equivalent to or better than the AT&T or * *
* network,  and Sections IV.E.,  IV.C.10 and X.C.1.d of the Agreement are hereby
amended to reflect such agreement.

     C. Amendment of Other Documents.

          1. Upon  effectiveness  of this  Amendment,  the  Warrant to  Purchase
Common Stock of Tel-Save  Holdings,  Inc,  dated as of February  22,  1997,  No.
W-AOL-1 (the "Base Warrant"),  and the Supplemental  Warrant shall be amended to
read in their  entireties as set forth in Appendices B-1 and B-2,  respectively,
to this Amendment.

     D. Miscellaneous.

          This  Amendment  does not, and shall not be construed  to,  modify any
     term or condition of the  Agreement  (including,  without  limitation,  any
     payment  obligations  under the Agreement)  other than those specific terms
     and conditions  expressly  referenced in this  Amendment.  Except as herein
     provided,  the  Agreement  shall  remain  unchanged  and in full  force and
     effect.  In the  event of any  inconsistency  or  discrepancy  between  the
     Agreement and this  Amendment,  the terms and  conditions set forth in this
     Amendment  shall  control.  Neither party shall be bound by, and each party
     specifically  objects to, any term,  condition or other  provision  that is
     different  from or in addition to the  provisions of this Amendment and the
     Agreement  (whether or not it would  materially alter this Amendment or the
     Agreement) and which is proffered by the other party in any  correspondence
     or other document, unless the party to be bound thereby specifically agrees
     to such provision in writing in accordance with the terms of the Agreement.
     This  Amendment  may be executed in  multiple  counterparts,  each of which
     shall be deemed an original, but all of which together shall constitute one
     and the same  document.  This  Amendment  shall be governed by the internal
     laws of the State of New York,  without  giving effect to the principles of
     conflict of laws thereof.


                                       4

<PAGE>



     IN WITNESS WHEREOF, the undersigned have caused this Amendment to be signed
on their behalf as of the Amendment Effective Date.

                                            AMERICA ONLINE, INC.

                                            By /s/ David M. Colburn
                                              ----------------------------------
                                               Name: David M. Colburn
                                               Title: Senior Vice-President

                                            TEL-SAVE, INC.

                                            By /s/ Daniel Borislow
                                              ----------------------------------
                                               Name: Daniel Borislow
                                               Title: Chairman & CEO

                                            TEL-SAVE HOLDINGS, INC.

                                            By /s/ Daniel Borislow
                                              ----------------------------------
                                               Name: Daniel Borislow
                                               Title: Chairman & CEO




                                       5

<PAGE>



                                                                      Schedule X






                                      * * *







                                       6

<PAGE>



                                                                      Appendix A


     THIS WARRANT AND ANY SECURITIES  ACQUIRED UPON THE EXERCISE OF THIS WARRANT
     HAVE NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
     "SECURITIES  ACT"), OR UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
     TRANSFERRED  OR  ASSIGNED  IN THE  ABSENCE OF SUCH  REGISTRATION  OR UNLESS
     TEL-SAVE   HOLDINGS,   INC.  RECEIVES  AN  OPINION  OF  COUNSEL  REASONABLY
     ACCEPTABLE TO IT THAT SUCH SALE,  TRANSFER OR ASSIGNMENT IS EXEMPT FROM ANY
     REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND
     ANY  APPLICABLE  STATE  SECURITIES  LAWS.  THIS WARRANT AND ANY  SECURITIES
     ACQUIRED  UPON  EXERCISE  OF THE  WARRANT  ARE  SUBJECT  TO THE  TERMS  AND
     CONDITIONS OF THE WARRANTHOLDER  AND STOCKHOLDERS  AGREEMENT AND THE VOTING
     TRUST AGREEMENT, EACH DATED AS OF FEBRUARY 22, 1997.


                       NONTRANSFERABLE WARRANT TO PURCHASE

                                 COMMON STOCK OF

                             TEL-SAVE HOLDINGS, INC.

Date of Grant: As of May 14, 1998.

Void after 5:00 PM. Eastern Standard Time on May 14,  2003

No. W-AOL-5

     FOR  VALUE  RECEIVED,  Tel-Save  Holdings,  Inc.,  a  Delaware  corporation
(together with its successors and assigns,  the "Company")  hereby certifies and
agrees that  America  Online,  Inc., a Delaware  corporation  ("AOL" and, in its
capacity  as the holder of this  Warrant  ("this  Warrant"),  together  with its
permitted successors and assigns,  the "Holder"),  with its principal address at
22000 AOL Way, Dulles, Virginia 20166-9323,  is entitled,  subject to the terms,
conditions and adjustments  hereof, to receive, in one or more exercises of this
Warrant,  from time to time,  from the  Company  such number of shares of Common
Stock,  par value $.01 per share,  of the  Company  (the  "Common  Stock") as is
determined  under Paragraph 1 hereof,  during the period  commencing at 9:00 AM,
Eastern Standard Time on the date hereof (the "Commencement Date") and ending at
5:00 PM. Eastern Standard Time on the fifth anniversary of the date hereof (such
time on such date, the "Termination  Date") and at such respective times and for
such numbers of Warrant  Shares (as defined below) as are set forth in Paragraph
1 at an exercise  price per share (the  "Exercise  Price") of U.S.  $22.25.  The
number of shares of Common Stock  issuable upon  exercise of this  Warrant,  the
number of shares  vested and the  exercise  price per share  shall be subject to
further  adjustment  from time to time upon the  occurrence of certain events as
set forth below. This Warrant is one of the "Warrants" referenced in, and issued
in conjunction with, the  Telecommunications  Marketing  Agreement,  dated as of


                                       7

<PAGE>



February 22, 1997 as  subsequently  amended as of January 25, 1998 and as of May
14, 1998 (as amended, the "Marketing Agreement"),  among the Company,  Tel-Save,
Inc.  ("TS"),  a  Pennsylvania  corporation  and wholly owned  subsidiary of the
Company and AOL.

     The shares of Common  Stock or any other  shares or other units of stock or
other securities or property or any combination thereof receivable upon exercise
of this Warrant, as adjusted from time to time, are sometimes referred to herein
as the "Exercise Shares."

1. Exercise of Warrant: Issuance of Exercise Shares.

     (a)  Exercise of Warrant.  This  Warrant  may be  exercised  as to the then
remaining  Warrant  Shares that have vested as provided  herein by the Holder in
whole or in part from time to time on or after the  Commencement  Date and until
and  including  the  Termination  Date as provided  below.  For purposes of this
Warrant,  "Warrant  Shares" shall mean 1,000,000 shares of Common Stock (subject
to adjustment as provided in Paragraph 6 hereof and to successive reduction upon
any exercise of this Warrant as provided below in this clause (a)), all of which
Warrant Shares are deemed for all purposes  hereof to have vested as of the date
hereof.

     Following the Termination Date, in the absence of the exercise hereof,  the
Holder  shall have no rights  herein to  acquire  any  Exercise  Shares and this
Warrant  shall lapse as to such  rights.  This  Warrant may be  exercised on any
business day by  delivering to the Company at its  principal  office,  presently
located at the address of the  Company set forth in  Paragraph 9 hereof (or such
other office of the Company as shall  theretofore  have been  designated  by the
Company by written  notice to the Holder),  together  with:  (i) a completed and
executed  irrevocable  Notice  of  Warrant  Exercise  in the form  set  forth in
Appendix  A hereto  and made a part  hereof,  specifying  therein  the number of
Warrant  Shares (which shall not exceed the number  thereof then remaining as to
which  this  Warrant  is then  exercisable  and as to which no Notice of Warrant
Exercise  has  previously  been given) with  respect to which the Holder is then
exercising its rights  hereunder,  and (ii) subject,  as indicated below, to the
consent or election of the Company,  within two (2) business  days after receipt
by the Company of such  Notice of  Warrant,  delivery to the Company of the full
Exercise Price as follows:

     (A) if the Company  shall not have  elected that such  exercise  shall be a
"net issuance exercise" as provided in clause (C) of this Paragraph,  payment of
the full Exercise Price therefor,  in immediately  available funds in which case
the Company,  pursuant to such Notice of Warrant  Exercise  from  Holder,  (duly
completed,  and in accordance with  Subparagraph  1(c)),  shall, upon receipt of
this Warrant and the original  executed copy of such Notice of Warrant  Exercise
and payment of such Exercise Price, issue, and deliver a certificate evidencing,
such  number  of  Exercise  Shares  as to which  this  Warrant  shall  have been
exercised; or

     (B) if the Company  shall not have  elected that such  exercise  shall be a
"net  issuance  exercise" as provided in clause (C) of this  Paragraph,  through
arrangements with a brokerage firm under which such brokerage firm, on behalf of
the Holder,  shall pay the Company the Exercise Price,  and the Company pursuant
to  an  irrevocable  notice  from  the  Holder  (the  form  of  which  shall  be
satisfactory to the Company),  shall promptly  deliver the Exercise Shares being
purchased to such firm; and


                                       8

<PAGE>



     (C) if the Company shall, upon receipt of a Notice of Warrant Exercise from
the Holder as to  Warrant  Shares,  and in its sole  discretion,  so elect,  the
Company may deliver a certificate  evidencing  such number of Exercise Shares as
shall equal the  quotient of (x) the product of (1) the  difference  between the
Current Market Price (as defined in  Subparagraph  6(e)) on the date of delivery
of such Notice of Warrant  Exercise and the then Exercise  Price,  multiplied by
(2) the number of Warrant Shares specified in such Notice of Warrant Exercise as
to which this  Warrant is to be  exercised,  divided by (y) the  Current  Market
Price on the  date of  delivery  of such  Notice  of  Warrant  Exercise  (a "net
issuance exercise"),  in which event no payment in cash of the Exercise Price in
respect of the Warrant Shares as to which such "net issuance  exercise"  applies
need be made.

     (D)  Notwithstanding  the foregoing  subparagraphs (A), (B) and (C), in the
event of a Change  of  Control  (as  defined  below),  the  Holder,  and not the
Company,  may elect in its Notice of Warrant Exercise that the exercise shall be
a  "net  issuance  exercise",  in  which  event  the  Company  shall  deliver  a
certificate  evidencing  such  number  of  Exercise  Shares  as shall  equal the
quotient of (x) the  product of (1) the  difference  between the Current  Market
Price (as defined in  Subparagraph  6(e)) on the date of delivery of such Notice
of Warrant Exercise and the then Exercise Price, multiplied by (2) the number of
Warrant  Shares  specified  in such Notice of Warrant  Exercise as to which this
Warrant is to be exercised,  divided by (y) the Current Market Price on the date
of  delivery of such  Notice of Warrant  Exercise,  in which event no payment in
cash of the  Exercise  Price in respect of the  Warrant  Shares as to which such
"net  issuance  exercise"  applies  need be made.  "Change of Control"  shall be
deemed to have occurred upon the happening of any of the following events:

               a. During any period of twelve  consecutive  months,  individuals
          who at the beginning of such period constituted the Board of Directors
          of the Company  (together with any new or replacement  directors whose
          election by the Board of Directors or whose nomination for election by
          the Company's  stockholders was approved by a vote of at least 66-2/3%
          of the directors then still in office who were either directors at the
          beginning of such period or whose  election or nomination for election
          was  previously  so  approved)  cease for any reason to  constitute  a
          majority of the directors then in office;

               b. At any time  during any period of twelve  consecutive  months,
          any  "person"  or "group"  (each as  defined  in Section  13(d) of the
          Securities Exchange Act of 1934, as amended (the "Exchange Act")), who
          or which was not an  "Affiliate"  (as defined in the Exchange  Act) of
          the Company at the beginning of such period,  becomes the  "beneficial
          owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of
          shares  representing more than 50% of the combined voting power of the
          then-outstanding  securities  entitled  to  vote  in the  election  of
          directors of the Company; or

               c.  Any  merger  or  consolidation  of the  Company  with or into
          another  corporation,  or any  merger  of any  other  person  into the
          Company unless the holders of shares of the Company  immediately prior
          to  such   transaction   are  the  owners,   directly  or  indirectly,
          immediately following such transaction,  of at least a majority of the
          total voting power of the corporation resulting from such


                                       9

<PAGE>



          transaction,  or any sale of all or substantially all of the assets of
          the Company or Tel-Save, Inc. to any person (other than to one or more
          wholly owned subsidiaries of the Company);

          provided  that  "Change of  Control"  shall in any event  include  any
          transaction  respecting TS that is referred to in Section X.C.1.(c) of
          the Marketing Agreement.

     Upon such exercise pursuant to a Notice of Warrant Exercise and issuance of
such  Exercise  Shares,  the number of  Warrant  Shares  automatically  shall be
reduced  by the  number of  Warrant  Shares as to which  this  Warrant  is to be
exercised specified in such Notice of Warrant Exercise.

     In the event that this Warrant shall be duly exercised in part prior to the
Termination Date, the Company shall issue a new Warrant of like tenor evidencing
the rights of the Holder  thereof  with  respect to the  balance of the  Warrant
Shares under the Warrant so surrendered.

     No  adjustments  shall be made for any cash  dividends  on Exercise  Shares
issuable upon exercise of this Warrant.

     (b)  Issuance of Exercise  Shares;  Delivery of Warrant  Certificates.  The
Company at its expense  shall,  as soon as  practicable  and in any event within
three (3) business days,  after the exercise of this Warrant,  issue in the name
of the  Holder  (or such  other  person  or  persons,  if any,  as  specifically
permitted  under the terms hereof and as the Holder shall have designated in the
Notice of Warrant Exercise) one or more  certificates  representing the Exercise
Shares to which the Holder (or such other persons or persons)  shall be entitled
upon such exercise  under the terms hereof.  Such  certificate  or  certificates
shall be deemed to have been  issued and the  Holder  (or such  other  person or
persons so permitted and  designated)  shall be deemed to have become the record
holder of the Exercise Shares as of the date of the due exercise of this Warrant
(including payment of the Exercise Price therefor).

     (c) Exercise Shares Fully Paid and  Non-assessable.  The Company agrees and
covenants  that all Exercise  Shares  issued or delivered  upon the due exercise
(including  payment of the Exercise Price  therefor) of this Warrant will,  upon
issuance  in  accordance  with the terms  hereof,  be duly  authorized,  validly
issued,  fully paid and  non-assessable  and free and clear of all taxes  (other
than those taxes that,  pursuant to Paragraph 2 hereof, the Company shall not be
obligated to pay), liens,  charges and security interests created by or in favor
of the Company with respect to the issuance  thereof (other than the limitations
on such Exercise  Shares imposed by applicable  securities  laws and limitations
expressly  included in this Warrant).

     (d)  Fractional  Shares.  The  Company  shall  not  be  required  to  issue
fractional  shares of capital  stock  upon the  exercise  of this  Warrant or to
deliver  certificates  that evidence  fractional shares of capital stock. In the
event that any fraction of an Exercise Share would, except for the provisions of
this  Subparagraph  (d), be issuable  upon the  exercise  of this  Warrant,  the
Company shall pay to the Holder  exercising  the Warrant an amount in cash equal
to such fraction  multiplied by the Current Market Price of the Exercise  Share.

2. Payment of Taxes. The Company will pay all documentary stamp taxes,  original
issue or similar taxes if any,  attributable  to the issuance of Exercise Shares
upon the exercise of this


                                       10

<PAGE>



Warrant;  provided,  however,  that the Company shall not be required to pay any
tax or taxes that may be payable in respect of any  transfer of this  Warrant or
any  transfer  involved  in  the  issue  of  any  Warrant  Certificates  or  any
certificates for Exercise Shares in a name other than that of the Holder of this
Warrant,  and the  Company  shall  not be  required  to  issue or  deliver  such
certificates  unless or until the  person or  persons  requesting  the  issuance
thereof  shall have paid to the  Company  the amount of such tax  required to be
withheld or shall have established to the reasonable satisfaction of the Company
that such tax has been paid.

3. Mutilated or Missing Warrant. In case this Warrant shall be mutilated,  lost,
stolen or destroyed,  the Company may in its discretion  issue,  in exchange and
substitution  for and upon  cancellation of, this Warrant,  if mutilated,  or in
lieu of and in substitution for this Warrant if lost, stolen or destroyed, a new
Warrant of like tenor and in the same aggregate denomination (but reflecting the
number of Warrant  Shares as to which this  Warrant was then  exercisable),  but
only (i) in the case of loss,  theft or  destruction,  upon  receipt of evidence
reasonably  satisfactory  to the Company of such loss,  theft or  destruction of
this Warrant and, in the case of AOL as the Holder, AOL's indemnity, and, in the
case of any other Person as the holder, indemnity or bond, if requested, in each
case  also  reasonably  satisfactory  to the  Company,  and  (ii) in the case of
mutilation,  upon surrender of this Warrant.  The applicant for such  substitute
Warrant shall also comply with such other  reasonable  regulations  and pay such
other reasonable charges as the Company or its counsel may prescribe.

4. Rights of Holder.  The Holder  shall not, by virtue of anything  contained in
this Warrant or otherwise, be entitled to any right whatsoever, either in law or
equity,  of a stockholder of the Company,  including,  without  limitation,  the
right to receive  dividends  or to vote or to consent or to receive  notice as a
shareholder  in respect of the  meetings  of  shareholders  or the  election  of
directors of the Company or any other matter.

5. Notices of Corporate Action. In the event of a proposal by the Company (or of
which the Company shall have  knowledge) for:

     (a) any taking by the  Company  of a record of the  holders of any class of
securities for the purpose of determining  the holders  thereof who are entitled
to receive any dividend (other than a regular periodic dividend payable in cash)
or other  distribution,  or any right to  subscribe  for,  purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, or

     (b) any capital  reorganization  of the Company,  any  reclassification  or
recapitalization  of the capital stock of the Company,  any statutory  exchange,
consolidation  or merger  involving  the  Company  and any  other  Person or any
transfer  of all or  substantially  all the  assets of the  Company to any other
Person, or any voluntary or involuntary  dissolution,  liquidation or winding-up
of the Company,  the Company will deliver to the Holder a notice  specifying (i)
the date or  expected  date on  which  any such  record  is to be taken  for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right, or (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, statutory exchange,
consolidation,  merger, transfer,  dissolution,  liquidation or winding-up is to
take  place  and the  time,  if any such  time is to be  fixed,  as of which the
holders of record of Common Stock shall be entitled to exchange  their shares of
Common  Stock  for the  securities  or 


                                       11

<PAGE>



other  property   deliverable   upon  such   reorganization,   reclassification,
recapitalization,   statutory   exchange,   consolidation,   merger,   transfer,
dissolution,  liquidation  or  winding-up.  Such  notice  shall with  respect to
Subparagraphs  (a) and (b) hereof,  be  furnished  at least 20 days prior to the
date  therein  specified  and,  with  respect to  Subparagraph  (c)  hereof,  be
furnished  promptly  upon  the  commencement  of any  event  described  therein.

6. Adjustment of Exercise Price Warrant Shares and Exercise Shares. The Exercise
Price,  the number of Warrant  Shares and the kind of Exercise  Shares  issuable
upon the exercise of this Warrant  shall be subject to  adjustment  from time to
time upon the happening of certain  events after the date hereof as  hereinafter
provided. The Exercise Price in effect at any time, the number of Warrant Shares
and the kind of  securities  issuable  upon  exercise of this  Warrant  shall be
subject to adjustment as follows:

     (a) If the Company shall after the date hereof (i) pay a dividend or make a
distribution  on its  shares of Common  Stock in  shares of Common  Stock,  (ii)
subdivide or classify  its  outstanding  Common  Stock into a greater  number of
shares,  or (iii)  combine or  reclassify  its  outstanding  Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date  for  such  dividend  or  distribution  or of the  effective  date  of such
subdivision, combination or reclassification shall be proportionally adjusted so
that the Holder of this Warrant  exercised  after such date shall be entitled to
receive the  aggregate  number and kind of shares that, if this Warrant had been
exercised by such Holder  immediately prior to such date, such Holder would have
owned  upon such  exercise  and been  entitled  to receive  upon such  dividend,
subdivision,  combination  or  reclassification.  For  example,  if the  Company
declares  a  2-for-1  stock  dividend  or stock  split  and the  Exercise  Price
immediately prior to such event was $5.00 per share, the adjusted Exercise Price
immediately  after such event would be $2.50 per share. Such adjustment shall be
made successively whenever any event listed above shall occur.

     (b) In case the  Company  shall  after  the date  hereof  issue  rights  or
warrants to all holders of its Common Stock  entitling  them to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock) at
a price (or having a  conversion  price per share) less than the Current  Market
Price of the Common  Stock (as  defined in  Subparagraph  (e) of this  Paragraph
below) on the record date mentioned  below, the Exercise Price shall be adjusted
so that the same shall equal the price  determined by  multiplying  the Exercise
Price in effect  immediately  prior to the date of such  issuance by a fraction,
the  numerator of which shall be the sum of the number of shares of Common Stock
outstanding  on the record  date  mentioned  below and the number of  additional
shares of Common Stock that the aggregate  offering price of the total number of
shares of Common  Stock so offered  (or the  aggregate  conversion  price of the
convertible  securities so offered)  would  purchase at the Current Market Price
per share of the Common Stock,  and the denominator of which shall be the sum of
the number of shares of Common  Stock  outstanding  on such  record date and the
number  of  additional  shares of  Common  Stock  offered  for  subscription  or
purchases (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively  whenever such rights or warrants are
issued and shall  become  effective  immediately  after the record  date for the
determination of shareholders entitled to receive such rights or warrants;  and,
to the extent  that  shares of Common  Stock are not  delivered  (or  securities
convertible  into Common Stock are not  delivered)  after the expiration of such
rights  or  warrants,  the  Exercise  Price  for  Warrant  Shares as to which no
exercise has been made shall be readjusted to the Exercise Price that would then
be in  effect  had


                                       12

<PAGE>



the adjustment  made upon the issuance of such rights or warrants been made upon
the  basis of  delivery  of only the  number  of  shares  of  Common  Stock  (or
securities convertible into Common Stock) actually delivered.

     (c) If, after the date hereof, there shall be any reclassification, capital
reorganization  or  change  of the  Common  Stock  (other  than as a result of a
subdivision, combination or stock dividend provided for in Subparagraphs (a) and
(b) above),  or any  consolidation of the Company with, or merger of the Company
into,  another  corporation  or  other  business   organization  (other  than  a
consolidation  or merger in which the Company is the continuing  corporation and
that does not result in any reclassification or change of the outstanding Common
Stock),  or any sale or  conveyance  to another  corporation  or other  business
organization of all or substantially  all of the assets of the Company (referred
to in this  Subparagraph (c) as a  "Reclassification"),  then, as a condition of
such  Reclassification,  lawful  provisions  shall  be made,  and duly  executed
documents  evidencing  the  same  from the  Company  or its  successor  shall be
delivered to the Holder,  so that the Holder shall  thereafter have the right to
purchase,  at a total price not to exceed that payable upon the exercise of this
Warrant in full, the kind and amount of shares of stock and other securities and
property  receivable  upon such  Reclassification  by a holder of the  number of
shares of Common Stock that might have been purchased by the Holder  immediately
prior to such  Reclassification,  and in any such  case  appropriate  provisions
shall be made with  respect to the rights and  interest of the Holder to the end
that the provisions hereof (including,  without  limitation,  provisions for the
adjustment of the Exercise  Price and the number of shares  issuable  hereunder)
shall  thereafter  be  applicable  in  relation  to any shares of stock or other
securities and property thereafter deliverable upon exercise hereof.

     (d) Whenever the Exercise  Price  payable upon  exercise of this Warrant is
adjusted pursuant to Subparagraphs (a), (b) and (c) above, the number of Warrant
Shares that have vested as of such time and the maximum number of Warrant Shares
that may then be issuable pursuant to this Warrant shall each  simultaneously be
adjusted by multiplying (x) each such number by (y) a fraction, the numerator of
which is the  Exercise  Price in effect  just prior to such  adjustment  and the
denominator of which is the Exercise Price, as adjusted.

     (e) For the purpose of any computation in this Warrant,  the Current Market
Price per share of Common Stock at any date shall be deemed to be the average of
the daily closing prices for 10 consecutive  business days before such date. The
closing  price for each day shall be the last sale price regular way or, in case
no such  reported sale takes place on such day, the average of the last reported
bid and lowest  reported  asked prices as reported by NASDAQ,  or other  similar
organizations  if NASDAQ is no longer reporting such  information,  or if not so
available,  the fair market  price as  determined  in good faith by the Board of
Directors.

     (f) No  adjustment  in the  Exercise  Price shall be  required  unless such
adjustment  would  require an increase or decrease of at least ten cents ($0.10)
in such price;  provided,  however,  that any adjustments that by reason of this
Subparagraph  (f) are not required to be made shall be carried forward and taken
into account in any subsequent  adjustment  required to be made  hereunder.  All
calculations  under this Paragraph 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Paragraph
6 to the contrary notwithstanding,  the Company shall be entitled, but shall not
be  required,  to make such  additional  reductions  in the Exercise  Price,  in
addition to those required by this  Paragraph 6, as


                                       13

<PAGE>



it, in its sole  discretion,  shall  determine to be advisable in order that any
dividend   or   distribution   in   shares   of   Common   Stock,   subdivision,
reclassification  or  combination  of Common  Stock,  issuance  of  warrants  to
purchase  Common Stock or  distribution  of evidences of  indebtedness  or other
assets  (excluding cash  dividends)  referred to hereinabove in this Paragraph 6
hereafter  made by the  Company to the  Holders of its  Common  Stock  shall not
result in any tax to the Holders of its Common Stock or  securities  convertible
into  Common  Stock. 

     (g) Whenever the Exercise Price is adjusted as herein provided, the Company
shall  promptly  cause a notice,  setting forth the adjusted  Exercise Price and
adjusted  number of Warrant Shares as to which a Notice of Warrant  Exercise may
be given  under  this  Warrant,  to be  mailed  to the  Holders,  at their  last
addresses  appearing  in the books of the  Company,  and shall cause a certified
copy thereof to be mailed to its transfer  agent, if any. The Company may retain
a firm of  independent  certified  public  accountants  selected by the Board of
Directors (who may be the regular  accountants  employed by the Company) to make
any computation  required by this Paragraph 6, and a certificate  signed by such
firm shall be conclusive evidence of the correctness of such adjustment.

     (h) In the  event  that at any  time,  as a result  of an  adjustment  made
pursuant to Subparagraph 6(a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly  equivalent as practicable to the provisions with respect to the
Common Stock contained in Subparagraphs  (a) to (f),  inclusive,  of Paragraph 6
above.

     (i)  Irrespective of any  adjustments in the Exercise Price,  the number of
Warrant  Shares or kind of Exercise  Shares  purchasable  upon  exercise of this
Warrant,  Warrants  theretofore or thereafter issued in exchange or substitution
for this  Warrant or any part thereof may continue to express the same price and
number and kind of shares as are stated in this Warrant.

     (j)  Whenever  the  Exercise  Price  shall be  adjusted  as required by the
provisions  hereof,  the  Company  shall  forthwith  file in the  custody of its
Secretary or an Assistant  Secretary at its principal  office and with its stock
transfer agent, if any, an officer's  certificate  showing the adjusted Exercise
Price  determined  as herein  provided  and,  in the case of an  Exercise  Price
adjustment,  setting  forth  in  reasonable  detail  the  facts  requiring  such
adjustment,  including a statement of the number of additional  shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such  adjustment.  Each such  officer's  certificate
shall be made available at all reasonable times for inspection by the Holder and
the  Company  shall,  forthwith  after  each  such  adjustment,  mail a copy  by
certified   mail  or  such   certificate   to  the   Holder. 

7. Restrictions on Transferability: Restrictive Legends: Indemnification.

     (a)  Neither  this  Warrant nor the right to  exercise  this  Warrant or to
receive  Exercise  Shares  upon  any such  exercise  may be  sold,  assigned  or
transferred  by the  Holder,  except  that this  Warrant  and such rights may be
transferred,  upon compliance with the other  Subparagraphs


                                      -14-

<PAGE>



of this  Paragraph  7, by AOL, as the  Holder,  to (i) any  successor  to AOL by
reason of a merger,  consolidation or statutory exchange of AOL or any successor
to all or substantially all of AOL's assets if such successor assumes in writing
this Warrant and all of AOL's  liabilities and  obligations  under the Marketing
Agreement;  or (ii) any  subsidiary or affiliate of AOL;  provided that AOL owns
voting stock of such  subsidiary  or affiliate  entitling AOL to at least 80% of
the voting power thereof in the election of directors.  Any sale,  assignment or
transfer of this Warrant in violation of this Paragraph 7 is null and void as of
the time of such transfer.

     (b) No  Exercise  Share  may be  offered  for  sale or sold,  or  otherwise
transferred  or sold in any  transaction  that would  constitute  a sale thereof
within the meaning of the  Securities  Act,  unless (i) such  security  has been
registered for sale under the  Securities Act and registered or qualified  under
applicable  state  securities laws relating to the offer and sale of securities,
or (ii) an exemption from the  registration  requirements  of the Securities Act
and the registration or qualifications requirements of all such state securities
laws are  available  and the Company  shall have  received an opinion of counsel
(which  may  be an  opinion  that  covers  multiple  or  all  subsequent  sales)
satisfactory to the Company that the proposed sale or other  disposition of such
securities may be effected without  registration  under the Securities Act, such
counsel and such  opinion to be  reasonably  satisfactory  to the  Company.

     (c) Except as otherwise permitted by this Paragraph 7, this Warrant and any
Warrant issued upon direct or indirect  transfer of or in substitution  for this
Warrant  or any part  thereof  shall be stamped or  otherwise  imprinted  with a
legend  substantially  in the  form  of the  legend  with  respect  to  transfer
limitation  and  securities  acts at the head of this  Warrant. 

     (d) Except as otherwise permitted by this Paragraph 7, each certificate for
an Exercise  Share issued upon  exercise of this  Warrant or any Warrant  issued
upon direct or indirect  transfer of or in substitution  for this Warrant or any
part  thereof  shall  be  stamped  or  otherwise  imprinted  with  a  legend  in
substantially the following form:

               The  shares  represented  by  this  certificate  are  subject  to
          restrictions  imposed  by  the  federal  Securities  Act of  1933,  as
          amended,  and applicable  state securities laws. The shares may not be
          sold or  transferred  in the absence of  registration  or an exemption
          therefrom under such Securities Act of 1933 and such applicable  state
          securities  laws.  All  shares  represented  by this  Certificate  are
          subject  to  the  terms  and   conditions  of  a   Warrantholder   and
          Stockholders  Agreement,  dated as of February 22, 1997,  and a Voting
          Trust Agreement,  dated as the same date both of which may be examined
          at the offices of TelSave Holdings, Inc., New Hope, Pennsylvania.

     (e) The  Company  shall,  at the  request  of any  registered  holder of an
Exercise  Share,  exchange  the  certificate  representing  such  security for a
certificate  representing  the same security not bearing the restrictive  legend
required by Subparagraph  7(d) if the Exercise Shares may be sold or transferred
pursuant to the  provisions  of Rule 144(k)  and, in the  reasonable  opinion of
counsel to the Company, such restrictive legend is no longer necessary.


                                      -15-

<PAGE>



     (f) The Holder agrees to indemnify  and hold  harmless the Company  against
any loss, damage, claim or liability arising solely from the disposition of this
Warrant or any  Exercise  Share held by such Holder or any  interest  therein in
violation of the provisions of this Subparagraph 7(b).

     (g)  The  Holder  of  this  Warrant  is  entitled  to the  benefit  of such
registration  rights in respect of the Shares of Common  Stock  issuable to such
Holder upon exercise of the Warrants as are set forth in the  Warrantholder  and
Stockholders  Agreement,  dated as of  February  22,  1997,  among the  Company,
Tel-Save,  Inc., a Pennsylvania  corporation and wholly owned  subsidiary of the
Company and the Holder.

8.  Company  Representations  and  Warranties.  Company  hereby  represents  and
warrants to AOL as follows:

     (a) Due  Organization:  Good  Standing.  Company (i) is a corporation  duly
organized,  validly existing and in good standing under the laws of the State of
Delaware;  and (ii) has the corporate  power and authority to own its properties
and assets and to carry on its business as now conducted.

     (b)  Authorization.  The execution,  delivery and performance by Company of
this Warrant are within its  corporate  powers and have been duly  authorized by
all necessary corporate action.

     (c) No Conflict. The execution, delivery and performance by Company of this
Warrant do not  contravene  any provision of its charter or by-laws,  and do not
conflict  with,  result in a breach  of, or  constitute  a  default  under,  any
agreement,  instrument,  covenant or other restriction to which the Company is a
party or by which it or any of its  assets is bound.  

     (d) Enforceability. This Warrant is the legal, valid and binding obligation
of Company,  enforceable against Company in accordance with its terms, except as
such  enforceability  may  be  limited  by  applicable  bankruptcy,  insolvency,
moratorium,  reorganization, or other laws affecting creditors' rights generally
or by the availability of equitable remedies.


     (e)   Capitalization.   As  of  March  31,  1998,  the  authorized   equity
capitalization  of Company  consists of 300,000,000  shares of Common Stock, par
value $.01 per share, of which  64,535,012  shares were issued and  outstanding,
2,714,623 were held in treasury and 39,072,696 shares were reserved for issuance
upon  the  exercise  of  outstanding   options  or  warrants  or  conversion  of
outstanding  convertible  notes and 5,000,000  shares of undesignated  Preferred
Stock, par value $.01 per share, of which no shares were issued and outstanding.
The Company agrees that,  prior to the  expiration of this Warrant,  the Company
will at all times  have  authorized  and in  reserve,  and will keep  available,
solely for issuance or delivery upon the exercise of this Warrant, the shares of
the Common Stock and other  securities and properties as from time to time shall
be receivable upon the exercise of this Warrant,  the shares of the Common Stock
and other  securities  and  properties  as from time to time shall be receivable
upon the exercise of this  Warrant.  Upon issuance of the shares of Common Stock
upon exercise of this Warrant,  such shares will have been duly  authorized  and
validly issued and will be fully paid and  nonassessable  

                                      -16-

<PAGE>

shares of Common Stock of the Company,  and not subject to preemptive  rights or
rights to first refusal.

     (f)  Commission  Filings.  Company  has made  available  to AOL  copies  of
Company's (i) Annual Report on Form 10-K for the fiscal year ended  December 31,
1997, as amended, and (ii) filings by Company under the Securities Act and other
filings by Company  under the Exchange  Act, in each case since  January 1, 1998
and as  filed  with  the  SEC.  Company  has  filed  all  reports,  registration
statements and other  documents  (the "SEC Reports")  required to be filed under
the  Exchange  Act and the rules and  regulations  thereunder,  the SEC  Reports
complied,  in all material respects,  with the requirements of the Exchange Act,
such compliance to be determined,  to the extent applicable,  in accordance with
the standards applied to the reports in the following two sentences. As of their
respective  dates,  the SEC Reports did not  contain any untrue  statement  of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which  they  were  made,  not   misleading.  

9.   Notices. All notices or other communications under this Warrant shall be in
writing and shall be deemed to have been given if delivered by hand or mailed by
certified  mail,  postage  prepaid,  return receipt  requested,  or delivered by
facsimile  transmission  (which  shall be  followed  by  delivery of an original
copy), addressed as follows:

                           If to the Company:

                           Tel-Save Holdings, Inc.
                           6805 Route 202
                           New Hope, PA 18938
                           Facsimile No. 215-862-1083

                           with a copy to:

                           Aloysius T. Lawn, IV, Esquire
                           General Counsel and Secretary
                           Tel-Save Holdings, Inc.
                           6805 Route 202
                           New Hope, PA 18938
                           Facsimile No. 215-862-1085

                           and to the Holder:

                           American Online, Inc.
                           22000 AOL Way
                           Dulles, VA 20166
                           Attn: General Counsel
                           with a copy to:  Head of Business Affairs
                           Facsimile No. 703-265-2208




                                      -17-
<PAGE>

Either of the  Company or the Holder may from time to time change the address or
facsimile  number to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.

10.  Supplements  and  Amendments.  Except as otherwise  provided  herein,  this
Warrant and any term hereof may be changed,  waived,  discharged  or  terminated
only by an instrument in writing  signed by the party against which  enforcement
of such change, waiver, discharge or termination is sought.

11.  Severability.  If for any reason any  provision,  paragraph or term of this
Warrant is held to be  invalid  or  unenforceable,  all other  valid  provisions
herein  shall  remain in full force and effect  and all  terms,  provisions  and
paragraphs of this Warrant shall be deemed to be severable.  

12.  Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of  Delaware  and for all  purposes  shall be  governed by and
construed in accordance with the laws of said State.

13.  Entire  Agreement.  This Warrant  consists of all the terms and  conditions
contained herein and all documents incorporated herein specifically by reference
and  constitutes  the complete  and  exclusive  statement of the  understandings
between the parties and supersedes all proposals and prior  agreements  (oral or
written)  between the parties  relating to the rights and  obligations  provided
hereunder.

14.  Headings: Construction. Paragraph and Subparagraph headings used herein are
included  herein for  conveniences  of  reference  only and shall not affect the
construction of this Warrant nor constitute a part of this Warrant for any other
purpose. The words "herein," "hereof," "hereby," "hereto," "hereunder" and words
of similar  import  refer to this  Warrant as a whole and not to any  particular
article, section, paragraph,  subparagraph or other subdivision of this Warrant.
Defined  terms shall  include the plural and the  singular as the context  shall
require.  

15.  Consent and  Acknowledgment  of Holder.  The terms and  conditions  of this
Warrant are agreed and  consented  to by the Holder,  as  evidenced  by Holder's
signature on the line provided below. This Warrant shall bind and be enforceable
by and  against  the  Holder  and  such  Holder's  successors,  heirs,  estates,
representatives and assigns and the Company and its successors and assigns.


                                      -18-
<PAGE>



     IN WITNESS  WHEREOF,  the Company and the Holder have caused these presents
to be duly executed as of the day and year written above.

                                                TEL-SAVE HOLDINGS, INC.



                                                By:/s/ Daniel Borislow
                                                   ----------------------------
                                                   Name:  Daniel Borislow
                                                   Title:  Chairman & CEO

         Accepted by:

         AMERICA ONLINE, INC.

         By:/s/ David M. Colburn
           ----------------------
           Name:  David M. Colburn
           Title: Senior Vice President


                                       19
<PAGE>





APPENDIX A

                           NOTICE OF WARRANT EXERCISE

     Pursuant  to  the  attached  Warrant   ("Warrant"),   by  and  between  the
undersigned and Tel-Save Holdings, Inc., a Delaware corporation (the "Company"),
dated as of May [ ], 1998, the undersigned hereby irrevocably elects to exercise
the Warrant with respect to ___________________  Warrant Shares (as such term is
defined in the Warrant) as provided for therein.  [The  undersigned  hereby also
elects  that the  exercise  shall be a "net  issuance  exercise"  as provided in
Section 1(a)(D) of the Warrant.]

     The  undersigned  requests  that a  certificate  for  the  Exercise  Shares
issuable  in  accordance  with the terms of the  Warrant  upon the  exercise  as
requested above be issued in the name of:



-------------------------------------------------


--------------------------------------------------------------------------------
(Please print name, address and social security number)

Dated:
           -------------------------------------------------------------
Address:
           -------------------------------------------------------------

           -------------------------------------------------------------

           -------------------------------------------------------------

           -------------------------------------------------------------
Signature:
           -------------------------------------------------------------




                                     20
<PAGE>

                                                                    Appendix B-1



         THIS  WARRANT AND ANY  SECURITIES  ACQUIRED  UPON THE  EXERCISE OF THIS
         WARRANT HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED (THE "SECURITIES  ACT"), OR UNDER ANY STATE SECURITIES LAWS AND
         MAY  NOT BE  SOLD,  TRANSFERRED  OR  ASSIGNED  IN THE  ABSENCE  OF SUCH
         REGISTRATION OR UNLESS TEL-SAVE  HOLDINGS,  INC. RECEIVES AN OPINION OF
         COUNSEL  REASONABLY  ACCEPTABLE  TO IT  THAT  SUCH  SALE,  TRANSFER  OR
         ASSIGNMENT  IS EXEMPT FROM ANY  REGISTRATION  AND  PROSPECTUS  DELIVERY
         REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE  STATE SECURITIES
         LAWS.  THIS WARRANT AND ANY  SECURITIES  ACQUIRED  UPON EXERCISE OF THE
         WARRANT ARE SUBJECT TO THE TERMS AND  CONDITIONS  OF THE  WARRANTHOLDER
         AND STOCKHOLDERS  AGREEMENT AND THE VOTING TRUST AGREEMENT,  EACH DATED
         AS OF FEBRUARY 22, 1997.

                       NONTRANSFERABLE WARRANT TO PURCHASE

                                 COMMON STOCK OF

                             TEL-SAVE HOLDINGS, INC.

Date of Grant:  As of February  22, 1997 (as amended and  restated as of May 14,
1998).

Void after 5:00 PM. Eastern Standard Time on February 22, 2002

No. W-AOL-3

         FOR VALUE RECEIVED,  Tel-Save  Holdings,  Inc., a Delaware  corporation
(together with its successors and assigns,  the "Company")  hereby certifies and
agrees that  America  Online,  Inc., a Delaware  corporation  ("AOL" and, in its
capacity  as the holder of this  Warrant  ("this  Warrant"),  together  with its
permitted successors and assigns,  the "Holder"),  with its principal address at
22000 AOL Way, Dulles, Virginia 20166-9323,  is entitled,  subject to the terms,
conditions and adjustments  hereof, to receive, in one or more exercises of this
Warrant,  from time to time,  from the  Company  such number of shares of Common
Stock,  par value $.01 per share,  of the  Company  (the  "Common  Stock") as is
determined  under Paragraph 1 hereof,  during the period  commencing at 9:00 AM,
Eastern Standard Time on the date hereof (the "Commencement Date") and ending at
5:00 PM. Eastern Standard Time on the fifth anniversary of the date hereof (such
time on such date, the "Termination  Date") and at such respective times and for
such numbers of Warrant  Shares (as defined below) as are set forth in Paragraph
1 at an exercise  price per share (the  "Exercise  Price") of U.S.  $15.50.  The
number of shares of Common Stock  issuable upon  exercise of this  Warrant,  the
number of shares  vested and the  exercise  price per share  shall be subject to
further  adjustment  from time to time upon the  occurrence of certain events as
set forth below. This Warrant is one of the "Warrants" referenced in, and issued
in conjunction with, the  Telecommunications  Marketing  Agreement,  dated as of



                                      -21-
<PAGE>

February 22, 1997 as  subsequently  amended as of January 25, 1998 and as of May
14, 1998 (as amended, the "Marketing Agreement"),  among the Company,  Tel-Save,
Inc.  ("TS"),  a  Pennsylvania  corporation  and wholly owned  subsidiary of the
Company and AOL.

         The shares of Common  Stock or any other shares or other units of stock
or other  securities  or property or any  combination  thereof  receivable  upon
exercise of this Warrant,  as adjusted from time to time, are sometimes referred
to herein as the "Exercise Shares."

1.   Exercise of Warrant: Issuance of Exercise Shares.

     (a)  Exercise of Warrant.  This  Warrant  may be  exercised  as to the then
remaining  Warrant  Shares that have vested as provided  herein by the Holder in
whole or in part from time to time on or after the  Commencement  Date and until
and  including  the  Termination  Date as provided  below.  For purposes of this
Warrant,  "Warrant  Shares" shall mean 4,000,000 shares of Common Stock (subject
to adjustment as provided in Paragraph 6 hereof and to successive reduction upon
any exercise of this Warrant as provided below in this clause (a)), all of which
Warrant Shares are deemed for all purposes  hereof to have vested as of the date
hereof.

     Following the Termination Date, in the absence of the exercise hereof,  the
Holder  shall have no rights  herein to  acquire  any  Exercise  Shares and this
Warrant  shall lapse as to such  rights.  This  Warrant may be  exercised on any
business day by  delivering to the Company at its  principal  office,  presently
located at the address of the  Company set forth in  Paragraph 9 hereof (or such
other office of the Company as shall  theretofore  have been  designated  by the
Company by written  notice to the Holder),  together  with:  (i) a completed and
executed  irrevocable  Notice  of  Warrant  Exercise  in the form  set  forth in
Appendix  A hereto  and made a part  hereof,  specifying  therein  the number of
Warrant  Shares (which shall not exceed the number  thereof then remaining as to
which  this  Warrant  is then  exercisable  and as to which no Notice of Warrant
Exercise  has  previously  been given) with  respect to which the Holder is then
exercising its rights  hereunder,  and (ii) subject,  as indicated below, to the
consent or election of the Company,  within two (2) business  days after receipt
by the Company of such  Notice of  Warrant,  delivery to the Company of the full
Exercise Price as follows:

     (A) if the Company  shall not have  elected that such  exercise  shall be a
"net issuance exercise" as provided in clause (C) of this Paragraph,  payment of
the full Exercise Price therefor,  in immediately  available funds in which case
the Company,  pursuant to such Notice of Warrant  Exercise  from  Holder,  (duly
completed,  and in accordance with  Subparagraph  1(c)),  shall, upon receipt of
this Warrant and the original  executed copy of such Notice of Warrant  Exercise
and payment of such Exercise Price, issue, and deliver a certificate evidencing,
such  number  of  Exercise  Shares  as to which  this  Warrant  shall  have been
exercised; or

     (B) if the Company  shall not have  elected that such  exercise  shall be a
"net  issuance  exercise" as provided in clause (C) of this  Paragraph,  through
arrangements with a brokerage firm under which such brokerage firm, on behalf of
the Holder,  shall pay the Company the Exercise Price,  and the Company pursuant
to  an  irrevocable  notice  from  the  Holder  (the  form  of  which  shall  be
satisfactory to the Company),  shall promptly  deliver the Exercise Shares being
purchased to such firm; and

                                      22
<PAGE>

     (C) if the Company shall, upon receipt of a Notice of Warrant Exercise from
the Holder as to  Warrant  Shares,  and in its sole  discretion,  so elect,  the
Company may deliver a certificate  evidencing  such number of Exercise Shares as
shall equal the  quotient of (x) the product of (1) the  difference  between the
Current Market Price (as defined in  Subparagraph  6(e)) on the date of delivery
of such Notice of Warrant  Exercise and the then Exercise  Price,  multiplied by
(2) the number of Warrant Shares specified in such Notice of Warrant Exercise as
to which this  Warrant is to be  exercised,  divided by (y) the  Current  Market
Price on the  date of  delivery  of such  Notice  of  Warrant  Exercise  (a "net
issuance exercise"),  in which event no payment in cash of the Exercise Price in
respect of the Warrant Shares as to which such "net issuance  exercise"  applies
need be made.

     (D)  Notwithstanding  the foregoing  subparagraphs (A), (B) and (C), in the
event of a Change  of  Control  (as  defined  below),  the  Holder,  and not the
Company,  may elect in its Notice of Warrant Exercise that the exercise shall be
a  "net  issuance  exercise",  in  which  event  the  Company  shall  deliver  a
certificate  evidencing  such  number  of  Exercise  Shares  as shall  equal the
quotient of (x) the  product of (1) the  difference  between the Current  Market
Price (as defined in  Subparagraph  6(e)) on the date of delivery of such Notice
of Warrant Exercise and the then Exercise Price, multiplied by (2) the number of
Warrant  Shares  specified  in such Notice of Warrant  Exercise as to which this
Warrant is to be exercised,  divided by (y) the Current Market Price on the date
of  delivery of such  Notice of Warrant  Exercise,  in which event no payment in
cash of the  Exercise  Price in respect of the  Warrant  Shares as to which such
"net  issuance  exercise"  applies  need be made.  "Change of Control"  shall be
deemed to have occurred upon the happening of any of the following events:

              a. During any period of twelve consecutive months, individuals who
          at the beginning of such period  constituted the Board of Directors of
          the Company  (together  with any new or  replacement  directors  whose
          election by the Board of Directors or whose nomination for election by
          the Company's  stockholders was approved by a vote of at least 66-2/3%
          of the directors then still in office who were either directors at the
          beginning of such period or whose  election or nomination for election
          was  previously  so  approved)  cease for any reason to  constitute  a
          majority of the directors then in office;

              b. At any time during any period of twelve consecutive months, any
          "person"  or  "group"  (each  as  defined  in  Section  13(d)  of  the
          Securities Exchange Act of 1934, as amended (the "Exchange Act")), who
          or which was not an  "Affiliate"  (as defined in the Exchange  Act) of
          the Company at the beginning of such period,  becomes the  "beneficial
          owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of
          shares  representing more than 50% of the combined voting power of the
          then-outstanding  securities  entitled  to  vote  in the  election  of
          directors of the Company; or

              c. Any merger or consolidation of the Company with or into another
          corporation, or any merger of any other person into the Company unless
          the  holders  of  shares  of the  Company  immediately  prior  to such
          transaction  are  the  owners,  directly  or  indirectly,  immediately
          following such transaction, of at least


                                       23
<PAGE>

          a majority of the total voting power of the corporation resulting from
          such  transaction,  or any  sale  of all or  substantially  all of the
          assets of the Company or Tel-Save,  Inc. to any person  (other than to
          one or more wholly owned subsidiaries of the Company);

     provided  that  "Change  of  Control"   shall  in  any  event  include  any
     transaction  respecting TS that is referred to in Section  X.C.1.(c) of the
     Marketing Agreement.

     Upon such exercise pursuant to a Notice of Warrant Exercise and issuance of
such  Exercise  Shares,  the number of  Warrant  Shares  automatically  shall be
reduced  by the  number of  Warrant  Shares as to which  this  Warrant  is to be
exercised specified in such Notice of Warrant Exercise.

     In the event that this Warrant shall be duly exercised in part prior to the
Termination Date, the Company shall issue a new Warrant of like tenor evidencing
the rights of the Holder  thereof  with  respect to the  balance of the  Warrant
Shares under the Warrant so surrendered.

     No  adjustments  shall be made for any cash  dividends  on Exercise  Shares
issuable upon exercise of this Warrant.

     (b)  Issuance of Exercise  Shares;  Delivery of Warrant  Certificates.  The
Company at its expense  shall,  as soon as  practicable  and in any event within
three (3) business days,  after the exercise of this Warrant,  issue in the name
of the  Holder  (or such  other  person  or  persons,  if any,  as  specifically
permitted  under the terms hereof and as the Holder shall have designated in the
Notice of Warrant Exercise) one or more  certificates  representing the Exercise
Shares to which the Holder (or such other persons or persons)  shall be entitled
upon such exercise  under the terms hereof.  Such  certificate  or  certificates
shall be deemed to have been  issued and the  Holder  (or such  other  person or
persons so permitted and  designated)  shall be deemed to have become the record
holder of the Exercise Shares as of the date of the due exercise of this Warrant
(including payment of the Exercise Price therefor).

     (c) Exercise Shares Fully Paid and  Non-assessable.  The Company agrees and
covenants  that all Exercise  Shares  issued or delivered  upon the due exercise
(including  payment of the Exercise Price  therefor) of this Warrant will,  upon
issuance  in  accordance  with the terms  hereof,  be duly  authorized,  validly
issued,  fully paid and  non-assessable  and free and clear of all taxes  (other
than those taxes that,  pursuant to Paragraph 2 hereof, the Company shall not be
obligated to pay), liens,  charges and security interests created by or in favor
of the Company with respect to the issuance  thereof (other than the limitations
on such Exercise  Shares imposed by applicable  securities  laws and limitations
expressly included in this Warrant).

     (d)  Fractional  Shares.  The  Company  shall  not  be  required  to  issue
fractional  shares of capital  stock  upon the  exercise  of this  Warrant or to
deliver  certificates  that evidence  fractional shares of capital stock. In the
event that any fraction of an Exercise Share would, except for the provisions of
this  Subparagraph  (d), be issuable  upon the  exercise  of this  Warrant,  the
Company shall pay to the Holder  exercising  the Warrant an amount in cash equal
to such fraction  multiplied by the Current Market Price of the Exercise  Share.

2.   Payment  of  Taxes.  The  Company  will pay all  documentary  stamp  taxes,
original issue or similar taxes if any, attributable to the issuance of Exercise
Shares upon the exercise of this Warrant;  provided,  however,  that the Company
shall not be  required to pay any tax or taxes that may be payable in respect of
any  transfer  of this  Warrant  or any  transfer  involved  in the issue of any
Warrant  Certificates  or any  certificates  for Exercise Shares in a name other
than that of the Holder of this  Warrant,  and the Company shall not be required
to issue or  deliver  such  certificates  unless or until the  person or persons
requesting  the  issuance  thereof  shall have paid to the Company the amount of
such tax  required to be withheld or shall have  established  to the  reasonable
satisfaction of the Company that such tax has been paid.

3.   Mutilated  or Missing  Warrant.  In case this Warrant  shall be  mutilated,
lost, stolen or destroyed,  the Company may in its discretion issue, in exchange
and substitution for and upon cancellation of, this Warrant, if mutilated, or in
lieu of and in substitution for this Warrant if lost, stolen or destroyed, a new
Warrant of like tenor and in the same aggregate denomination (but reflecting the
number of Warrant  Shares as to which this  Warrant was then  exercisable),  but
only (i) in the case of loss,  theft or  destruction,  upon  receipt of evidence
reasonably  satisfactory  to the Company of such loss,  theft or  destruction of
this Warrant and, in the case of AOL as the Holder, AOL's indemnity, and, in the
case of any other Person as the holder, indemnity or bond, if requested, in each
case  also  reasonably  satisfactory  to the  Company,  and  (ii) in the case of
mutilation,  upon surrender of this Warrant.  The applicant for such  substitute
Warrant shall also comply with such other  reasonable  regulations  and pay such
other reasonable charges as the Company or its counsel may prescribe.  

4.   Rights of Holder.  The Holder shall not, by virtue of anything contained in
this Warrant or otherwise, be entitled to any right whatsoever, either in law or
equity,  of a stockholder of the Company,  including,  without  limitation,  the
right to receive  dividends  or to vote or to consent or to receive  notice as a
shareholder  in respect of the  meetings  of  shareholders  or the  election  of
directors of the Company or any other matter.

5.   Notices of Corporate  Action. In the event of a proposal by the Company (or
of which the Company shall have knowledge) for: 

     (a) any taking by the  Company  of a record of the  holders of any class of
securities for the purpose of determining  the holders  thereof who are entitled
to receive any dividend (other than a regular periodic dividend payable in cash)
or other  distribution,  or any right to  subscribe  for,  purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, or

     (b) any capital  reorganization  of the Company,  any  reclassification  or
recapitalization  of the capital stock of the Company,  any statutory  exchange,
consolidation  or merger  involving  the  Company  and any  other  Person or any
transfer  of all or  substantially  all the  assets of the  Company to any other
Person, or any voluntary or involuntary  dissolution,  liquidation or winding-up
of the Company,  the Company will deliver to the Holder a notice  specifying (i)
the date or  expected  date on  which  any such  record  is to be taken  for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right, or (ii) the date or expected date on which
any such reorganization, reclassification, recapitalization, statutory exchange,
consolidation,  merger, transfer,  dissolution,  liquidation or winding-up is to


                                       25
<PAGE>

take  place  and the  time,  if any such  time is to be  fixed,  as of which the
holders of record of Common Stock shall be entitled to exchange  their shares of
Common  Stock  for the  securities  or  other  property  deliverable  upon  such
reorganization,   reclassification,    recapitalization,   statutory   exchange,
consolidation,  merger, transfer,  dissolution,  liquidation or winding-up. Such
notice shall with respect to Subparagraphs  (a) and (b) hereof,  be furnished at
least  20 days  prior  to the  date  therein  specified  and,  with  respect  to
Subparagraph  (c) hereof,  be furnished  promptly upon the  commencement  of any
event  described  therein.  

6.   Adjustment  of Exercise  Price  Warrant  Shares and  Exercise  Shares.  The
Exercise  Price,  the number of Warrant  Shares and the kind of Exercise  Shares
issuable upon the exercise of this Warrant  shall be subject to adjustment  from
time to time upon the  happening  of  certain  events  after the date  hereof as
hereinafter  provided.  The Exercise  Price in effect at any time, the number of
Warrant Shares and the kind of securities issuable upon exercise of this Warrant
shall be subject to adjustment as follows:

     (a) If the Company shall after the date hereof (i) pay a dividend or make a
distribution  on its  shares of Common  Stock in  shares of Common  Stock,  (ii)
subdivide or classify  its  outstanding  Common  Stock into a greater  number of
shares,  or (iii)  combine or  reclassify  its  outstanding  Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date  for  such  dividend  or  distribution  or of the  effective  date  of such
subdivision, combination or reclassification shall be proportionally adjusted so
that the Holder of this Warrant  exercised  after such date shall be entitled to
receive the  aggregate  number and kind of shares that, if this Warrant had been
exercised by such Holder  immediately prior to such date, such Holder would have
owned  upon such  exercise  and been  entitled  to receive  upon such  dividend,
subdivision,  combination  or  reclassification.  For  example,  if the  Company
declares  a  2-for-1  stock  dividend  or stock  split  and the  Exercise  Price
immediately prior to such event was $5.00 per share, the adjusted Exercise Price
immediately  after such event would be $2.50 per share. Such adjustment shall be
made successively whenever any event listed above shall occur.

     (b) In case the  Company  shall  after  the date  hereof  issue  rights  or
warrants to all holders of its Common Stock  entitling  them to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock) at
a price (or having a  conversion  price per share) less than the Current  Market
Price of the Common  Stock (as  defined in  Subparagraph  (e) of this  Paragraph
below) on the record date mentioned  below, the Exercise Price shall be adjusted
so that the same shall equal the price  determined by  multiplying  the Exercise
Price in effect  immediately  prior to the date of such  issuance by a fraction,
the  numerator of which shall be the sum of the number of shares of Common Stock
outstanding  on the record  date  mentioned  below and the number of  additional
shares of Common Stock that the aggregate  offering price of the total number of
shares of Common  Stock so offered  (or the  aggregate  conversion  price of the
convertible  securities so offered)  would  purchase at the Current Market Price
per share of the Common Stock,  and the denominator of which shall be the sum of
the number of shares of Common  Stock  outstanding  on such  record date and the
number  of  additional  shares of  Common  Stock  offered  for  subscription  or
purchases (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively  whenever such rights or warrants are
issued and shall  become  effective  immediately  after the record  date for the
determination of shareholders entitled to receive such rights or warrants;  and,
to the extent  that  shares of Common  Stock are not  delivered  (or  securities
convertible  into Common Stock are not  delivered)  after the 



                                       26
<PAGE>

expiration of such rights or warrants,  the Exercise Price for Warrant Shares as
to which no exercise has been made shall be  readjusted  to the  Exercise  Price
that would then be in effect had the  adjustment  made upon the issuance of such
rights or  warrants  been made upon the basis of  delivery of only the number of
shares of Common Stock (or securities  convertible  into Common Stock)  actually
delivered.

     (c) If, after the date hereof, there shall be any reclassification, capital
reorganization  or  change  of the  Common  Stock  (other  than as a result of a
subdivision, combination or stock dividend provided for in Subparagraphs (a) and
(b) above),  or any  consolidation of the Company with, or merger of the Company
into,  another  corporation  or  other  business   organization  (other  than  a
consolidation  or merger in which the Company is the continuing  corporation and
that does not result in any reclassification or change of the outstanding Common
Stock),  or any sale or  conveyance  to another  corporation  or other  business
organization of all or substantially  all of the assets of the Company (referred
to in this  Subparagraph (c) as a  "Reclassification"),  then, as a condition of
such  Reclassification,  lawful  provisions  shall  be made,  and duly  executed
documents  evidencing  the  same  from the  Company  or its  successor  shall be
delivered to the Holder,  so that the Holder shall  thereafter have the right to
purchase,  at a total price not to exceed that payable upon the exercise of this
Warrant in full, the kind and amount of shares of stock and other securities and
property  receivable  upon such  Reclassification  by a holder of the  number of
shares of Common Stock that might have been purchased by the Holder  immediately
prior to such  Reclassification,  and in any such  case  appropriate  provisions
shall be made with  respect to the rights and  interest of the Holder to the end
that the provisions hereof (including,  without  limitation,  provisions for the
adjustment of the Exercise  Price and the number of shares  issuable  hereunder)
shall  thereafter  be  applicable  in  relation  to any shares of stock or other
securities and property thereafter deliverable upon exercise hereof.

     (d) Whenever the Exercise  Price  payable upon  exercise of this Warrant is
adjusted pursuant to Subparagraphs (a), (b) and (c) above, the number of Warrant
Shares that have vested as of such time and the maximum number of Warrant Shares
that may then be issuable pursuant to this Warrant shall each  simultaneously be
adjusted by multiplying (x) each such number by (y) a fraction, the numerator of
which is the  Exercise  Price in effect  just prior to such  adjustment  and the
denominator of which is the Exercise Price, as adjusted.  

     (e) For the purpose of any computation in this Warrant,  the Current Market
Price per share of Common Stock at any date shall be deemed to be the average of
the daily closing prices for 10 consecutive  business days before such date. The
closing  price for each day shall be the last sale price regular way or, in case
no such  reported sale takes place on such day, the average of the last reported
bid and lowest  reported  asked prices as reported by NASDAQ,  or other  similar
organizations  if NASDAQ is no longer reporting such  information,  or if not so
available,  the fair market  price as  determined  in good faith by the Board of
Directors. 

     (f) No  adjustment  in the  Exercise  Price shall be  required  unless such
adjustment  would  require an increase or decrease of at least ten cents ($0.10)
in such price;  provided,  however,  that any adjustments that by reason of this
Subparagraph  (f) are not required to be made shall be carried forward and taken
into account in any subsequent  adjustment  required to be made  hereunder.  All
calculations  under this Paragraph 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Paragraph
6 to the 


                                       27
<PAGE>

contrary  notwithstanding,  the  Company  shall be  entitled,  but  shall not be
required,  to make such additional reductions in the Exercise Price, in addition
to those  required by this  Paragraph  6, as it, in its sole  discretion,  shall
determine to be advisable in order that any dividend or  distribution  in shares
of Common Stock,  subdivision,  reclassification or combination of Common Stock,
issuance of warrants to purchase  Common Stock or  distribution  of evidences of
indebtedness or other assets (excluding cash dividends)  referred to hereinabove
in this  Paragraph 6 hereafter  made by the Company to the Holders of its Common
Stock  shall  not  result  in any tax to the  Holders  of its  Common  Stock  or
securities  convertible  into Common Stock.  

     (g) Whenever the Exercise Price is adjusted as herein provided, the Company
shall  promptly  cause a notice,  setting forth the adjusted  Exercise Price and
adjusted  number of Warrant Shares as to which a Notice of Warrant  Exercise may
be given  under  this  Warrant,  to be  mailed  to the  Holders,  at their  last
addresses  appearing  in the books of the  Company,  and shall cause a certified
copy thereof to be mailed to its transfer  agent, if any. The Company may retain
a firm of  independent  certified  public  accountants  selected by the Board of
Directors (who may be the regular  accountants  employed by the Company) to make
any computation  required by this Paragraph 6, and a certificate  signed by such
firm shall be conclusive evidence of the correctness of such adjustment.  

     (h) In the  event  that at any  time,  as a result  of an  adjustment  made
pursuant to Subparagraph 6(a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly  equivalent as practicable to the provisions with respect to the
Common Stock contained in Subparagraphs  (a) to (f),  inclusive,  of Paragraph 6
above.  

     (i)  Irrespective of any  adjustments in the Exercise Price,  the number of
Warrant  Shares or kind of Exercise  Shares  purchasable  upon  exercise of this
Warrant,  Warrants  theretofore or thereafter issued in exchange or substitution
for this  Warrant or any part thereof may continue to express the same price and
number and kind of shares as are stated in this Warrant.

     (j)  Whenever  the  Exercise  Price  shall be  adjusted  as required by the
provisions  hereof,  the  Company  shall  forthwith  file in the  custody of its
Secretary or an Assistant  Secretary at its principal  office and with its stock
transfer agent, if any, an officer's  certificate  showing the adjusted Exercise
Price  determined  as herein  provided  and,  in the case of an  Exercise  Price
adjustment,  setting  forth  in  reasonable  detail  the  facts  requiring  such
adjustment,  including a statement of the number of additional  shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such  adjustment.  Each such  officer's  certificate
shall be made available at all reasonable times for inspection by the Holder and
the  Company  shall,  forthwith  after  each  such  adjustment,  mail a copy  by
certified mail or such certificate to the Holder.


                                       28
<PAGE>

7.   Restrictions on Transferability: Restrictive Legends: Indemnification.

     (a)  Neither  this  Warrant nor the right to  exercise  this  Warrant or to
receive  Exercise  Shares  upon  any such  exercise  may be  sold,  assigned  or
transferred  by the  Holder,  except  that this  Warrant  and such rights may be
transferred,  upon compliance with the other  Subparagraphs of this Paragraph 7,
by AOL,  as the  Holder,  to (i) any  successor  to AOL by  reason  of a merger,
consolidation  or  statutory  exchange  of  AOL  or  any  successor  to  all  or
substantially  all of AOL's  assets if such  successor  assumes in writing  this
Warrant  and all of  AOL's  liabilities  and  obligations  under  the  Marketing
Agreement;  or (ii) any  subsidiary or affiliate of AOL;  provided that AOL owns
voting stock of such  subsidiary  or affiliate  entitling AOL to at least 80% of
the voting power thereof in the election of directors.  Any sale,  assignment or
transfer of this Warrant in violation of this Paragraph 7 is null and void as of
the time of such transfer.

     (b) No  Exercise  Share  may be  offered  for  sale or sold,  or  otherwise
transferred  or sold in any  transaction  that would  constitute  a sale thereof
within the meaning of the  Securities  Act,  unless (i) such  security  has been
registered for sale under the  Securities Act and registered or qualified  under
applicable  state  securities laws relating to the offer and sale of securities,
or (ii) an exemption from the  registration  requirements  of the Securities Act
and the registration or qualifications requirements of all such state securities
laws are  available  and the Company  shall have  received an opinion of counsel
(which  may  be an  opinion  that  covers  multiple  or  all  subsequent  sales)
satisfactory to the Company that the proposed sale or other  disposition of such
securities may be effected without  registration  under the Securities Act, such
counsel and such  opinion to be  reasonably  satisfactory  to the  Company.  

     (c) Except as otherwise permitted by this Paragraph 7, this Warrant and any
Warrant issued upon direct or indirect  transfer of or in substitution  for this
Warrant  or any part  thereof  shall be stamped or  otherwise  imprinted  with a
legend  substantially  in the  form  of the  legend  with  respect  to  transfer
limitation and securities acts at the head of this Warrant.

     (d) Except as otherwise permitted by this Paragraph 7, each certificate for
an Exercise  Share issued upon  exercise of this  Warrant or any Warrant  issued
upon direct or indirect  transfer of or in substitution  for this Warrant or any
part  thereof  shall  be  stamped  or  otherwise  imprinted  with  a  legend  in
substantially the following form:

                The  shares  represented  by this  certificate  are  subject  to
          restrictions  imposed  by  the  federal  Securities  Act of  1933,  as
          amended,  and applicable  state securities laws. The shares may not be
          sold or  transferred  in the absence of  registration  or an exemption
          therefrom under such Securities Act of 1933 and such applicable  state
          securities  laws.  All  shares  represented  by this  Certificate  are
          subject  to  the  terms  and   conditions  of  a   Warrantholder   and
          Stockholders  Agreement,  dated as of February 22, 1997,  and a Voting
          Trust Agreement,  dated as the same date both of which may be examined
          at the offices of TelSave Holdings, Inc., New Hope, Pennsylvania.

     (e) The  Company  shall,  at the  request  of any  registered  holder of an
Exercise  Share,  exchange  the  certificate  representing  such  security for a
certificate  representing  the same security 



                                       29
<PAGE>

not bearing the restrictive legend required by Subparagraph 7(d) if the Exercise
Shares may be sold or transferred pursuant to the provisions of Rule 144(k) and,
in the reasonable opinion of counsel to the Company,  such restrictive legend is
no longer necessary.

     (f) The Holder agrees to indemnify  and hold  harmless the Company  against
any loss, damage, claim or liability arising solely from the disposition of this
Warrant or any  Exercise  Share held by such Holder or any  interest  therein in
violation of the  provisions of this  Subparagraph  7(b). 

     (g)  The  Holder  of  this  Warrant  is  entitled  to the  benefit  of such
registration  rights in respect of the Shares of Common  Stock  issuable to such
Holder upon exercise of the Warrants as are set forth in the  Warrantholder  and
Stockholders  Agreement,  dated as of  February  22,  1997,  among the  Company,
Tel-Save,  Inc., a Pennsylvania  corporation and wholly owned  subsidiary of the
Company and the Holder. 

8.   Company  Representations  and  Warranties.  Company  hereby  represents and
warrants to AOL as follows:

     (a) Due  Organization:  Good  Standing.  Company (i) is a corporation  duly
organized,  validly existing and in good standing under the laws of the State of
Delaware;  and (ii) has the corporate  power and authority to own its properties
and assets and to carry on its business as now conducted.

     (b)  Authorization.  The execution,  delivery and performance by Company of
this Warrant are within its  corporate  powers and have been duly  authorized by
all necessary  corporate action.  

     (c) No Conflict. The execution, delivery and performance by Company of this
Warrant do not  contravene  any provision of its charter or by-laws,  and do not
conflict  with,  result in a breach  of, or  constitute  a  default  under,  any
agreement,  instrument,  covenant or other restriction to which the Company is a
party or by which it or any of its assets is bound.

     (d) Enforceability. This Warrant is the legal, valid and binding obligation
of Company,  enforceable against Company in accordance with its terms, except as
such  enforceability  may  be  limited  by  applicable  bankruptcy,  insolvency,
moratorium,  reorganization, or other laws affecting creditors' rights generally
or by the availability of equitable remedies. 

     (e)  Capitalization.  As  of  February  13,  1997,  the  authorized  equity
capitalization  of Company  consists of 100,000,000  shares of Common Stock, par
value $.01 per share, of which  62,887,998  shares were issued and  outstanding,
10,503,800  shares were reserved for issuance  upon the exercise of  outstanding
options or warrants and no shares were held in treasury and 5,000,000  shares of
undesignated  Preferred Stock, par value $.01 per share, of which no shares were
issued and outstanding. The Company agrees that, prior to the expiration of this
Warrant,  the Company will at all times have authorized and in reserve, and will
keep  available,  solely for  issuance  or  delivery  upon the  exercise of this
Warrant,  the shares of the Common Stock and other  securities and properties as
from time to time shall be  receivable  upon the exercise of this  Warrant,  the
shares of the Common Stock and other  securities  and properties as from time to
time shall be receivable upon the exercise of this Warrant. Upon issuance of the
shares of 



                                       30
<PAGE>



Common  Stock upon  exercise  of this  Warrant,  such shares will have been duly
authorized and validly issued and will be fully paid and nonassessable shares of
Common Stock of the Company,  and not subject to preemptive  rights or rights of
first refusal.

     (f)  Commission  Filings.  Company  has made  available  to AOL  copies  of
Company's (i) Annual Report on Form 10-K for the fiscal year ended  December 31,
1997, as amended, and (ii) filings by Company under the Securities Act and other
filings by Company  under the Exchange  Act, in each case since  January 1, 1998
and as  filed  with  the  SEC.  Company  has  filed  all  reports,  registration
statements and other  documents  (the "SEC Reports")  required to be filed under
the  Exchange  Act and the rules and  regulations  thereunder,  the SEC  Reports
complied,  in all material respects,  with the requirements of the Exchange Act,
such compliance to be determined,  to the extent applicable,  in accordance with
the standards applied to the reports in the following two sentences. As of their
respective  dates,  the SEC Reports did not  contain any untrue  statement  of a
material fact or omit to state a material fact required to be stated  therein or
necessary to make the statements  therein,  in light of the circumstances  under
which they were made, not misleading.


9.   Notices. All notices or other communications under this Warrant shall be in
writing and shall be deemed to have been given if delivered by hand or mailed by
certified  mail,  postage  prepaid,  return receipt  requested,  or delivered by
facsimile  transmission  (which  shall be  followed  by  delivery of an original
copy), addressed as follows:

                           If to the Company:

                           Tel-Save Holdings, Inc.
                           6805 Route 202
                           New Hope, PA 18938
                           Facsimile No. 215-862-1083

                           with a copy to:

                           Aloysius T. Lawn, IV, Esquire
                           General Counsel and Secretary
                           Tel-Save Holdings, Inc.
                           6805 Route 202
                           New Hope, PA 18938
                           Facsimile No. 215-862-1085

                           and to the Holder:

                           American Online, Inc.
                           22000 AOL Way
                           Dulles, VA 20166
                           Attn: General Counsel
                           with a copy to:  Head of Business Affairs
                           Facsimile No. 703-265-2208



                                       31
<PAGE>

Either of the  Company or the Holder may from time to time change the address or
facsimile  number to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.

10.  Supplements  and  Amendments.  Except as otherwise  provided  herein,  this
Warrant and any term hereof may be changed,  waived,  discharged  or  terminated
only by an instrument in writing  signed by the party against which  enforcement
of such change, waiver, discharge or termination is sought.

11.  Severability.  If for any reason any  provision,  paragraph or term of this
Warrant is held to be  invalid  or  unenforceable,  all other  valid  provisions
herein  shall  remain in full force and effect  and all  terms,  provisions  and
paragraphs of this Warrant shall be deemed to be severable.  

12.  Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of  Delaware  and for all  purposes  shall be  governed by and
construed in accordance with the laws of said State.

13.  Entire  Agreement.  This Warrant  consists of all the terms and  conditions
contained herein and all documents incorporated herein specifically by reference
and  constitutes  the complete  and  exclusive  statement of the  understandings
between the parties and supersedes all proposals and prior  agreements  (oral or
written)  between the parties  relating to the rights and  obligations  provided
hereunder. 

14.  Headings: Construction. Paragraph and Subparagraph headings used herein are
included  herein for  conveniences  of  reference  only and shall not affect the
construction of this Warrant nor constitute a part of this Warrant for any other
purpose. The words "herein," "hereof," "hereby," "hereto," "hereunder" and words
of similar  import  refer to this  Warrant as a whole and not to any  particular
article, section, paragraph,  subparagraph or other subdivision of this Warrant.
Defined  terms shall  include the plural and the  singular as the context  shall
require.

15.  Consent and  Acknowledgment  of Holder.  The terms and  conditions  of this
Warrant are agreed and  consented  to by the Holder,  as  evidenced  by Holder's
signature on the line provided below. This Warrant shall bind and be enforceable
by and  against  the  Holder  and  such  Holder's  successors,  heirs,  estates,
representatives and assigns and the Company and its successors and assigns.


                                       32
<PAGE>


     IN WITNESS  WHEREOF,  the Company and the Holder have caused these presents
to be duly executed as of the day and year written above.

                                                      TEL-SAVE HOLDINGS, INC.

                                                      By:/s/ Daniel Borislow
                                                         -------------------
                                                         Name:  Daniel Borislow
                                                         Title:  Chairman & CEO

Accepted by:

AMERICA ONLINE, INC.

By:/s/ David M. Colburn
   -------------------------
   Name:  David M. Colburn
   Title:  Senior Vice President








                                       33
<PAGE>




                                   APPENDIX A

                           NOTICE OF WARRANT EXERCISE

     Pursuant  to  the  attached  Warrant   ("Warrant"),   by  and  between  the
undersigned and Tel-Save Holdings, Inc., a Delaware corporation (the "Company"),
dated as of May [ ], 1998, the undersigned hereby irrevocably elects to exercise
the Warrant with respect to ___________________  Warrant Shares (as such term is
defined in the Warrant) as provided for therein.  [The  undersigned  hereby also
elects  that the  exercise  shall be a "net  issuance  exercise"  as provided in
Section 1(a)(D) of the Warrant.]

     The  undersigned  requests  that a  certificate  for  the  Exercise  Shares
issuable  in  accordance  with the terms of the  Warrant  upon the  exercise  as
requested above be issued in the name of:




--------------------------------------------------------


--------------------------------------------------------------------------------
(Please print name, address and social security number)

Dated:
             -------------------------------------------------------------

             -------------------------------------------------------------
Address:
             -------------------------------------------------------------
      
             -------------------------------------------------------------

             -------------------------------------------------------------
Signature:
             -------------------------------------------------------------




                                       34
<PAGE>

                                                                    Appendix B-2

         THIS  WARRANT AND ANY  SECURITIES  ACQUIRED  UPON THE  EXERCISE OF THIS
         WARRANT HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS
         AMENDED (THE "SECURITIES  ACT"), OR UNDER ANY STATE SECURITIES LAWS AND
         MAY  NOT BE  SOLD,  TRANSFERRED  OR  ASSIGNED  IN THE  ABSENCE  OF SUCH
         REGISTRATION OR UNLESS TEL-SAVE  HOLDINGS,  INC. RECEIVES AN OPINION OF
         COUNSEL  REASONABLY  ACCEPTABLE  TO IT  THAT  SUCH  SALE,  TRANSFER  OR
         ASSIGNMENT  IS EXEMPT FROM ANY  REGISTRATION  AND  PROSPECTUS  DELIVERY
         REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE  STATE SECURITIES
         LAWS.  THIS WARRANT AND ANY  SECURITIES  ACQUIRED  UPON EXERCISE OF THE
         WARRANT ARE SUBJECT TO THE TERMS AND  CONDITIONS  OF THE  WARRANTHOLDER
         AND STOCKHOLDERS  AGREEMENT AND THE VOTING TRUST AGREEMENT,  EACH DATED
         AS OF FEBRUARY 22, 1997.

                       NONTRANSFERABLE WARRANT TO PURCHASE

                                 COMMON STOCK OF

                             TEL-SAVE HOLDINGS, INC.

Date of Grant:  As of  February  22,  1997 (as  amended  and  restated as of May
14,1998).

Void after 5:00 PM. Eastern Standard Time on February 22, 2002

No. W-AOL-4

         FOR VALUE RECEIVED,  Tel-Save  Holdings,  Inc., a Delaware  corporation
(together with its successors and assigns,  the "Company")  hereby certifies and
agrees that  America  Online,  Inc., a Delaware  corporation  ("AOL" and, in its
capacity  as the holder of this  Warrant  ("this  Warrant"),  together  with its
permitted successors and assigns,  the "Holder"),  with its principal address at
22000 AOL Way, Dulles, Virginia 20166-9323,  is entitled,  subject to the terms,
conditions and adjustments  hereof, to receive, in one or more exercises of this
Warrant,  from time to time,  from the  Company  such number of shares of Common
Stock,  par value $.01 per share,  of the  Company  (the  "Common  Stock") as is
determined  under Paragraph 1 hereof,  during the period  commencing at 9:00 AM,
Eastern Standard Time on the date hereof (the "Commencement Date") and ending at
5:00 PM. Eastern Standard Time on the fifth anniversary of the date hereof (such
time on such date, the "Termination  Date") and at such respective times and for
such numbers of Warrant  Shares (as defined below) as are set forth in Paragraph
1 at an exercise  price per share (the  "Exercise  Price") of U.S.  $14.00.  The
number of shares of Common Stock  issuable upon  exercise of this  Warrant,  the
number of shares  vested and the  exercise  price per share  shall be subject to
further  adjustment  from time to time upon the  occurrence of certain events as
set forth below. This Warrant is one of the "Warrants" referenced in, and issued
in conjunction with, the  Telecommunications  Marketing  Agreement,  dated as of
February 22, 1997, 



                                       35
<PAGE>

as  subsequently  amended as of January  25,  1998 and as of May 14, 1998 (as so
amended,  the  "Marketing  Agreement"),  among the  Company,  Tel-Save,  Inc., a
Pennsylvania  corporation and wholly owned subsidiary of the Company ("TS"), and
AOL.

         The shares of Common  Stock or any other shares or other units of stock
or other  securities  or property or any  combination  thereof  receivable  upon
exercise of this Warrant,  as adjusted from time to time, are sometimes referred
to herein as the "Exercise Shares."

         Anything else herein to the contrary notwithstanding, if the "Effective
Date"  (as such  term is  defined  in the  Marketing  Agreement)  shall not have
occurred by March 6, 1997, this Warrant  automatically shall expire and shall be
of no further force or effect.

1.   Exercise of Warrant; Issuance of Exercise Shares.

     (a)  Exercise of Warrant.  This  Warrant  may be  exercised  as to the then
remaining  Warrant  Shares that have vested as provided  herein by the Holder in
whole at any time or in part from time to time on or after the Commencement Date
and until and including the Termination  Date as provided below. For purposes of
this Warrant,  "Warrant  Shares" shall mean at any time such number of shares of
Common Stock as shall have vested as of such time as follows:

          (i) such  number of shares of Common  Stock as shall equal the product
     of the Vesting  Multiplier  (as defined below) times the number (the "First
     Quarter Number") of (x) End Users (as such term is defined in the Marketing
     Agreement)  for whom TS is  providing  Services,  and (y) End Users as such
     term is defined in a certain Telecommunications  Marketing Agreement, dated
     as of February 6, 1997, as amended,  among the Company,  TS, and CompuServe
     Interactive Services, Inc., a Delaware corporation) as of December 31, 1997
     (the  "First  Vesting  Date"),  shall  vest  and  shall be  Warrant  Shares
     hereunder as of such First Vesting Date;

          (ii) such number of  additional  shares of Common Stock as shall equal
     the  product of the  Vesting  Multiplier  times the amount by which (x) the
     number of End Users (each,  a "Subsequent  Quarter  Number") for whom TS is
     providing  Services as of the last day of each full calendar quarter (each,
     a "Subsequent  Vesting Date") after the First Vesting Date and on or before
     the  earlier of (x) the last day of the Term (as  defined in the  Marketing
     Agreement) or any Extension Period (as defined in the Marketing  Agreement)
     and (y) the last day of the full  calendar  quarter in which the  Marketing
     Agreement is terminated prior to the end of such Term or Extension  Period,
     exceeds  (y)  the  greater  of the  First  Quarter  Number  and  any  prior
     Subsequent Quarter Number, shall vest and shall be Warrant Shares hereunder
     as of such Subsequent Vesting Date; and

          (iii) notwithstanding the foregoing,  all shares of Common Stock shall
     vest and shall be Warrant  Shares as of and upon a "Change of Control",  as
     defined below;

     provided  that,  in no event will the  aggregate  number of Warrant  Shares
     exceed 7,000,000,  subject to further adjustment as provided in Paragraph 6
     hereof and to  successive  reduction  upon any  exercise of this Warrant as
     provided  below in this clause  (a).  For  purposes  hereof,  the  "Vesting
     Multiplier" shall be two (2), provided that, from 




                                       36
<PAGE>

     and after the  "Multiplier  Adjustment  Date" (as defined in the  Marketing
     Agreement),  the Vesting  Multiplier  as in effect as of such Date shall be
     doubled for purposes of subsequent  vestings.  "Change of Control" shall be
     deemed to have occurred upon the happening of any of the following events:

                           a.  During any period of twelve  consecutive  months,
                  individuals  who at the  beginning of such period  constituted
                  the Board of Directors of the Company  (together  with any new
                  or  replacement  directors  whose  election  by the  Board  of
                  Directors or whose  nomination  for election by the  Company's
                  stockholders was approved by a vote of at least 66-2/3% of the
                  directors  then still in office who were either  directors  at
                  the  beginning of such period or whose  election or nomination
                  for election was previously so approved)  cease for any reason
                  to constitute a majority of the directors then in office;

                           b.  At  any  time   during   any   period  of  twelve
                  consecutive  months,  any "person" or "group" (each as defined
                  in Section  13(d) of the  Securities  Exchange Act of 1934, as
                  amended  (the  "Exchange  Act")),  who  or  which  was  not an
                  "Affiliate" (as defined in the Exchange Act) of the Company at
                  the beginning of such period,  becomes the "beneficial  owner"
                  (as defined in Rules 13d-3 and 13d-5 under the  Exchange  Act)
                  of shares  representing  more than 50% of the combined  voting
                  power of the  then-outstanding  securities entitled to vote in
                  the election of directors of the Company; or

                           c. Any merger or consolidation of the Company with or
                  into  another  corporation,  or any merger of any other person
                  into the  Company  unless the holders of shares of the Company
                  immediately prior to such transaction are the owners, directly
                  or indirectly,  immediately following such transaction,  of at
                  least a majority of the total voting power of the  corporation
                  resulting  from  such  transaction,  or  any  sale  of  all or
                  substantially  all of the assets of the  Company or  Tel-Save,
                  Inc. to any person  (other  than to one or more  wholly  owned
                  subsidiaries of the Company);

provided  that "Change of Control"  shall in any event  include any  transaction
respecting  TS  that  is  referred  to in  Section  X.C.1.(c)  of the  Marketing
Agreement.

     Following the Termination Date, in the absence of the exercise hereof,  the
Holder  shall have no rights  herein to  acquire  any  Exercise  Shares and this
Warrant  shall lapse as to such  rights.  This  Warrant may be  exercised on any
business day by  delivering to the Company at its  principal  office,  presently
located at the address of the  Company set forth in  Paragraph 9 hereof (or such
other office of the Company as shall  theretofore  have been  designated  by the
Company by written  notice to the Holder),  together  with:  (1) a completed and
executed  irrevocable  Notice  of  Warrant  Exercise  in the form  set  forth in
Appendix  A hereto  and made a part  hereof,  specifying  therein  the number of
Warrant  Shares (which shall not exceed the number  thereof then remaining as to
which  this  Warrant  is then  exercisable  and as to which no Notice of Warrant
Exercise  has  previously  been given) with  respect to which the Holder is then
exercising its rights hereunder,  and (2),  subject,  as indicated below, to the
consent or election of the Company,  within 



                                       37
<PAGE>

two (2)  business  days after  receipt by the Company of such Notice of Warrant,
delivery to the Company of the full Exercise Price as follows:

     (A) if the Company  shall not have  elected that such  exercise  shall be a
"net issuance exercise" as provided in clause (C) of this Paragraph,  payment of
the full Exercise Price therefor,  in immediately available funds, in which case
the  Company,  pursuant to such Notice of Warrant  Exercise  from  Holder,  duly
completed,  and in accordance with Subparagraph 1(c) hereof, shall, upon receipt
of this  Warrant  and the  original  executed  copy of such  Notice  of  Warrant
Exercise and payment of such Exercise  Price,  issue,  and deliver a certificate
evidencing,  such number of Exercise  Shares as to which this Warrant shall have
been exercised;

     (B) if the Company  shall not have  elected that such  exercise  shall be a
"net  issuance   exercise"  as  provided  in  clause  (C)  of  this   Paragraph,
arrangements with a brokerage firm under which such brokerage firm, on behalf of
the Holder,  shall pay the Company the Exercise Price,  and the Company pursuant
to an irrevocable  notice from the Holder (the form of which is  satisfactory to
the Company),  shall, upon receipt of this Warrant,  such irrevocable notice and
payment of such  Exercise  Price,  promptly  deliver the  Exercise  Shares being
purchased to such firm; and

     (C) if the Company shall, upon receipt of a Notice of Warrant Exercise from
the Holder as to  Warrant  Shares,  and in its sole  discretion,  so elect,  the
Company may deliver a certificate  evidencing  such number of Exercise Shares as
shall equal the  quotient of (x) the product of (1) the  difference  between the
Current  Market  Price (as defined in  Subparagraph  6(e) hereof) on the date of
delivery  of such  Notice  of  Warrant  Exercise  and the then  Exercise  Price,
multiplied  by (2) the  number of Warrant  Shares  specified  in such  Notice of
Warrant Exercise as to which this Warrant is to be exercised, divided by (y) the
Current Market Price on the date of delivery of such Notice of Warrant  Exercise
(a "net issuance  exercise"),  in which event no payment in cash of the Exercise
Price in respect of the Warrant Shares as to which such "net issuance  exercise"
applies need be made.

     (D)  Notwithstanding  the foregoing  subparagraphs (A), (B) and (C), in the
event of a Change  of  Control  (as  defined  above),  the  Holder,  and not the
Company,  may elect in its Notice of Warrant Exercise that the exercise shall be
a  "net  issuance  exercise",  in  which  event  the  Company  shall  deliver  a
certificate  evidencing  such  number  of  Exercise  Shares  as shall  equal the
quotient of (x) the  product of (1) the  difference  between the Current  Market
Price (as defined in  Subparagraph  6(e)) on the date of delivery of such Notice
of Warrant Exercise and the then Exercise Price, multiplied by (2) the number of
Warrant  Shares  specified  in such Notice of Warrant  Exercise as to which this
Warrant is to be exercised,  divided by (y) the Current Market Price on the date
of  delivery of such  Notice of Warrant  Exercise,  in which event no payment in
cash of the  Exercise  Price in respect of the  Warrant  Shares as to which such
"net issuance exercise" applies need be made.

     Upon such exercise pursuant to a Notice of Warrant Exercise and issuance of
such  Exercise  Shares,  the number of  Warrant  Shares  automatically  shall be
reduced  by the  number of  Warrant  Shares as to which  this  Warrant  is to be
exercised specified in such Notice of Warrant Exercise.

                                       38
<PAGE>

     In the event that this Warrant shall be duly exercised in part prior to the
Termination Date, the Company shall issue a new Warrant of like tenor evidencing
the rights of the Holder  thereof  with  respect to the  balance of the  Warrant
Shares under the Warrant so surrendered.

     No  adjustments  shall be made for any cash  dividends  on Exercise  Shares
issuable upon exercise of this Warrant.

     (b)  Issuance of Exercise  Shares;  Delivery of Warrant  Certificates.  The
Company shall, as soon as practicable and in any event within three (3) business
days after the  exercise  of this  Warrant,  issue in the name of the Holder (or
such other person or persons, if any, as specifically  permitted under the terms
hereof  and as the  Holder  shall  have  designated  in the  Notice  of  Warrant
Exercise) one or more certificates representing the Exercise Shares to which the
Holder (or such other person or persons)  shall be entitled  upon such  exercise
under the terms hereof. Such certificate or certificates shall be deemed to have
been  issued and the Holder (or such other  person or persons so  permitted  and
designated)  shall be deemed to have  become the record  holder of the  Exercise
Shares as of the date of the due exercise of this Warrant  (including payment of
the Exercise Price therefor).

     (c) Exercise Shares Fully Paid and  Non-assessable.  The Company agrees and
covenants  that all Exercise  Shares  issued or delivered  upon the due exercise
(including  payment of the Exercise Price  therefor) of this Warrant will,  upon
issuance  in  accordance  with the terms  hereof,  be duly  authorized,  validly
issued,  fully paid and  non-assessable  and free and clear of all taxes  (other
than those taxes that,  pursuant to Paragraph 2 hereof, the Company shall not be
obligated to pay), liens,  charges and security interests created by or in favor
of the Company with respect to the issuance  thereof (other than the limitations
on such Exercise  Shares imposed by applicable  securities  laws and limitations
expressly  included in this Warrant).  

     (d)  Fractional  Shares.  The  Company  shall  not  be  required  to  issue
fractional  shares of capital  stock  upon the  exercise  of this  Warrant or to
deliver  certificates  that evidence  fractional shares of capital stock. In the
event that any fraction of an Exercise Share would, except for the provisions of
this  Subparagraph  (d), be issuable  upon the  exercise  of this  Warrant,  the
Company shall pay to the Holder  exercising  the Warrant an amount in cash equal
to such fraction  multiplied by the Current Market Price of the Exercise  Share.



2.   Payment of Taxes.  The  Company  will pay all  documentary  stamp taxes and
original  issue or  similar  taxes,  if any,  attributable  to the  issuance  of
Exercise Shares upon the exercise of this Warrant;  provided,  however, that the
Company  shall not be  required  to pay any tax or taxes  that may be payable in
respect of any transfer of this Warrant or any transfer involved in the issue of
any Warrant Certificates or any certificates for Exercise Shares in a name other
than that of the Holder of this  Warrant,  and the Company shall not be required
to issue or  deliver  such  certificates  unless or until the  person or persons
requesting  the  issuance  thereof  shall have paid to the Company the amount of
such tax  required to be withheld or shall have  established  to the  reasonable
satisfaction of the Company that such tax has been paid.

3.   Mutilated  or Missing  Warrant.  In case this Warrant  shall be  mutilated,
lost, stolen or destroyed,  the Company may in its discretion issue, in exchange
and substitution for and upon cancellation of, this Warrant, if mutilated, or in
lieu of and in substitution for this Warrant if lost, 




                                       39
<PAGE>

stolen or  destroyed,  a new  Warrant  of like  tenor and in the same  aggregate
denomination  (but  reflecting  the  number of  Warrant  Shares as to which this
Warrant  was then  exercisable),  but  only  (i) in the  case of loss,  theft or
destruction,  upon receipt of evidence reasonably satisfactory to the Company of
such loss,  theft or  destruction of this Warrant and, in the case of AOL as the
Holder,  AOL's  indemnity,  and, in the case of any other  Person as the holder,
indemnity or bond, if requested,  in each case also  reasonably  satisfactory to
the Company, and (ii) in the case of mutilation, upon surrender of this Warrant.
The  applicant  for such  substitute  Warrant  shall also comply with such other
reasonable  regulations and pay such other reasonable  charges as the Company or
its counsel may prescribe.  

4.   Rights of Holder.  The Holder shall not, by virtue of anything contained in
this Warrant or otherwise, be entitled to any right whatsoever, either in law or
equity,  of a stockholder of the Company,  including,  without  limitation,  the
right to receive  dividends  or to vote or to consent or to receive  notice as a
shareholder  in respect of the  meetings  of  shareholders  or the  election  of
directors of the Company or any other matter. 

5.   Notices of Corporate  Action. In the event of a proposal by the Company (or
of which the Company shall have knowledge) for: (a) any taking by the Company of
a  record  of the  holders  of any  class  of  securities  for  the  purpose  of
determining  the holders thereof who are entitled to receive any dividend (other
than a regular periodic dividend payable in cash) or other distribution,  or any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, or

     (b) any capital  reorganization  of the Company,  any  reclassification  or
recapitalization  of the capital stock of the Company,  any statutory  exchange,
consolidation  or merger  involving  the  Company  and any  other  Person or any
transfer  of all or  substantially  all the  assets of the  Company to any other
Person,  or  

     (c) any voluntary or involuntary dissolution,  liquidation or winding-up of
the Company,

the  Company  will  deliver  to the Holder a notice  specifying  (i) the date or
expected  date on which any such  record is to be taken for the  purpose of such
dividend,  distribution or right, and the amount and character of such dividend,
distribution  or  right,  or (ii) the date or  expected  date on which  any such
reorganization,   reclassification,    recapitalization,   statutory   exchange,
consolidation,  merger, transfer,  dissolution,  liquidation or winding-up is to
take  place  and the  time,  if any such  time is to be  fixed,  as of which the
holders of record of Common Stock shall be entitled to exchange  their shares of
Common  Stock  for the  securities  or  other  property  deliverable  upon  such
reorganization,   reclassification,    recapitalization,   statutory   exchange,
consolidation,  merger, transfer,  dissolution,  liquidation or winding-up. Such
notice shall with respect to Subparagraphs  (a) and (b) hereof,  be furnished at
least  20 days  prior  to the  date  therein  specified  and,  with  respect  to
Subparagraph  (c) hereof,  be furnished  promptly upon the  commencement  of any
event described therein.



                                       40
<PAGE>

6.   Adjustment  of Exercise  Price,  Warrant  Shares and Exercise  Shares.  The
Exercise  Price,  the number of Warrant Shares,  the Vesting  Multiplier and the
kind of Exercise  Shares  issuable  upon the exercise of this  Warrant  shall be
subject to  adjustment  from time to time upon the  happening of certain  events
after the date hereof as hereinafter  provided.  The Exercise Price in effect at
any time, the number of Warrant Shares and the kind of securities  issuable upon
exercise of this Warrant shall be subject to adjustment as follows:

     (a) If the Company shall after the date hereof (i) pay a dividend or make a
distribution  on its  shares of Common  Stock in  shares of Common  Stock,  (ii)
subdivide or classify  its  outstanding  Common  Stock into a greater  number of
shares,  or (iii)  combine or  reclassify  its  outstanding  Common Stock into a
smaller number of shares, the Exercise Price in effect at the time of the record
date  for  such  dividend  or  distribution  or of the  effective  date  of such
subdivision, combination or reclassification shall be proportionally adjusted so
that the Holder of this Warrant  exercised  after such date shall be entitled to
receive the  aggregate  number and kind of shares that, if this Warrant had been
exercised by such Holder  immediately prior to such date, such Holder would have
owned  upon such  exercise  and been  entitled  to receive  upon such  dividend,
subdivision,  combination  or  reclassification.  For  example,  if the  Company
declares  a  2-for-1  stock  dividend  or stock  split  and the  Exercise  Price
immediately prior to such event was $5.00 per share, the adjusted Exercise Price
immediately  after such event would be $2.50 per share. Such adjustment shall be
made successively whenever any event listed above shall occur.

     (b) In case the  Company  shall  after  the date  hereof  issue  rights  or
warrants to all holders of its Common Stock  entitling  them to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock) at
a price (or having a  conversion  price per share) less than the Current  Market
Price of the Common  Stock (as  defined in  Subparagraph  (e) of this  Paragraph
below) on the record date mentioned  below, the Exercise Price shall be adjusted
so that the same shall equal the price  determined by  multiplying  the Exercise
Price in effect  immediately  prior to the date of such  issuance by a fraction,
the  numerator of which shall be the sum of the number of shares of Common Stock
outstanding  on the record  date  mentioned  below and the number of  additional
shares of Common Stock that the aggregate  offering price of the total number of
shares of Common  Stock so offered  (or the  aggregate  conversion  price of the
convertible  securities so offered)  would  purchase at the Current Market Price
per share of the Common Stock,  and the denominator of which shall be the sum of
the number of shares of Common  Stock  outstanding  on such  record date and the
number  of  additional  shares of  Common  Stock  offered  for  subscription  or
purchases (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively  whenever such rights or warrants are
issued and shall  become  effective  immediately  after the record  date for the
determination of shareholders entitled to receive such rights or warrants;  and,
to the extent  that  shares of Common  Stock are not  delivered  (or  securities
convertible  into Common Stock are not  delivered)  after the expiration of such
rights  or  warrants,  the  Exercise  Price  for  Warrant  Shares as to which no
exercise has been made shall be readjusted to the Exercise Price that would then
be in  effect  had the  adjustment  made  upon the  issuance  of such  rights or
warrants  been made upon the basis of  delivery  of only the number of shares of
Common Stock (or securities  convertible into Common Stock) actually  delivered.

     (c) If, after the date hereof, there shall be any reclassification, capital
reorganization  or  change  of the  Common  Stock  (other  than as a result of a
subdivision,  combination or stock 




                                       41
<PAGE>

dividend  provided for in Subparagraph (a) and (b) above),  or any consolidation
of the Company with, or merger of the Company into, another corporation or other
business organization (other than a consolidation or merger in which the Company
is the continuing  corporation and that does not result in any  reclassification
or change of the outstanding Common Stock), or any sale or conveyance to another
corporation or other business  organization of all or  substantially  all of the
assets  of  the   Company   (referred   to  in  this   Subparagraph   (c)  as  a
"Reclassification"),  then,  as a  condition  of such  Reclassification,  lawful
provisions shall be made, and duly executed  documents  evidencing the same from
the Company or its  successor  shall be  delivered  to the  Holder,  so that the
Holder  shall  thereafter  have the right to  purchase,  at a total price not to
exceed that  payable  upon the  exercise of this  Warrant in full,  the kind and
amount of shares of stock and other securities and property receivable upon such
Reclassification  by a holder of the number of shares of Common Stock that might
have been purchased by the Holder  immediately  prior to such  Reclassification,
and in any such case  appropriate  provisions  shall be made with respect to the
rights  and  interest  of the  Holder  to the end  that  the  provisions  hereof
(including,  without  limitation,  provisions for the adjustment of the Exercise
Price  and  the  number  of  shares  issuable  hereunder)  shall  thereafter  be
applicable in relation to any shares of stock or other  securities  and property
thereafter  deliverable  upon exercise  hereof.  

     (d) Whenever the Exercise  Price  payable upon  exercise of this Warrant is
adjusted pursuant to Subparagraphs (a), (b) and (c) above, the number of Warrant
Shares that have vested as of such time,  the maximum  number of Warrant  Shares
that  may  then be  issuable  pursuant  to this  Warrant  and the  then  Vesting
Multiplier applicable to the calculation of the number of shares of Common Stock
that will vest after the date of such adjustment  shall each  simultaneously  be
adjusted by multiplying (x) each such number and the Vesting Multiplier by (y) a
fraction,  the numerator of which is the Exercise  Price in effect just prior to
such adjustment and the denominator of which is the Exercise Price, as adjusted.

     (e) For the purpose of any computation in this Warrant,  the Current Market
Price per share of Common Stock at any date shall be deemed to be the average of
the daily closing prices for 10 consecutive  business days before such date. The
closing  price for each day shall be the last sale price regular way or, in case
no such  reported sale takes place on such day, the average of the last reported
bid and lowest  reported  asked prices as reported by NASDAQ,  or other  similar
organizations  if NASDAQ is no longer reporting such  information,  or if not so
available,  the fair market  price as  determined  in good faith by the Board of
Directors. 

     (f) No  adjustment  in the  Exercise  Price shall be  required  unless such
adjustment  would  require an increase or decrease of at least ten cents ($0.10)
in such price;  provided,  however,  that any adjustments that by reason of this
Subparagraph  (f) are not required to be made shall be carried forward and taken
into account in any subsequent  adjustment  required to be made  hereunder.  All
calculations  under this Paragraph 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Paragraph
6 to the contrary notwithstanding,  the Company shall be entitled, but shall not
be  required,  to make such  additional  reductions  in the Exercise  Price,  in
addition to those required by this  Paragraph 6, as it, in its sole  discretion,
shall  determine to be advisable in order that any dividend or  distribution  in
shares of Common Stock,  subdivision,  reclassification or combination of Common
Stock,  issuance  of  warrants  to  purchase  Common  Stock or  distribution  of
evidences of indebtedness or other assets (excluding cash dividends) referred to
hereinabove  in this Paragraph 6 hereafter 



                                       42
<PAGE>

made by the Company to the  Holders of its Common  Stock shall not result in any
tax to the Holders of its Common  Stock or  securities  convertible  into Common
Stock.


     (g) Whenever the Exercise Price is adjusted as herein provided, the Company
shall  promptly  cause a notice,  setting forth the adjusted  Exercise Price and
adjusted  number of Warrant Shares as to which a Notice of Warrant  Exercise may
be given  under  this  Warrant,  to be  mailed  to the  Holders,  at their  last
addresses  appearing  in the books of the  Company,  and shall cause a certified
copy thereof to be mailed to its transfer  agent, if any. The Company may retain
a firm of  independent  certified  public  accountants  selected by the Board of
Directors (who may be the regular  accountants  employed by the Company) to make
any computation  required by this Paragraph 6, and a certificate  signed by such
firm shall be conclusive evidence of the correctness of such adjustment.  


     (h) In the  event  that at any  time,  as a result  of an  adjustment  made
pursuant to Subparagraph 6(a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly  equivalent as practicable to the provisions with respect to the
Common Stock contained in Subparagraphs  (a) to (e),  inclusive,  of Paragraph 6
above.  


     (i)  Irrespective of any  adjustments in the Exercise Price,  the number of
Warrant  Shares or kind of Exercise  Shares  purchasable  upon  exercise of this
Warrant,  Warrants  theretofore or thereafter issued in exchange or substitution
for this  Warrant or any part thereof may continue to express the same price and
number and kind of shares as are stated in this Warrant.

     (j)  Whenever  the  Exercise  Price  shall be  adjusted  as required by the
provisions  hereof,  the  Company  shall  forthwith  file in the  custody of its
Secretary or an Assistant  Secretary at its principal  office and with its stock
transfer agent, if any, an officer's  certificate  showing the adjusted Exercise
Price  determined  as herein  provided  and,  in the case of an  Exercise  Price
adjustment,  setting  forth  in  reasonable  detail  the  facts  requiring  such
adjustment,  including a statement of the number of additional  shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such  adjustment.  Each such  officer's  certificate
shall be made available at all reasonable times for inspection by the Holder and
the  Company  shall,  forthwith  after  each  such  adjustment,  mail a copy  by
certified   mail  or  such   certificate   to  the   Holder.   

7.   Restrictions on Transferability; Restrictive Legends; Indemnification

     (a)  Neither  this  Warrant nor the right to  exercise  this  Warrant or to
receive  Exercise  Shares  upon  any such  exercise  may be  sold,  assigned  or
transferred  by the  Holder,  except  that this  Warrant  and such rights may be
transferred,  upon compliance with the other  Subparagraphs of this Paragraph 7,
by AOL,  as the  Holder,  to (i) any  successor  to AOL by  reason  of a merger,
consolidation  or  statutory  exchange  of  AOL  or  any  successor  to  all  or
substantially  all of AOL's  assets if such  successor  assumes in writing  this
Warrant  and all of  AOL's  liabilities  and  obligations  under  the  Marketing
Agreement  (ii) to any  subsidiary  or affiliate of AOL;  provided 



                                       43
<PAGE>

that AOL owns voting stock of such  subsidiary or affiliate  entitling AOL to at
least 80% of the voting powers  thereof at the election of directors.  Any sale,
assignment or transfer of this Warrant in violation of this  Paragraph 7 is null
and void as of the time of such transfer.

     (b) No  Exercise  Share  may be  offered  for  sale or sold,  or  otherwise
transferred  or sold in any  transaction  that would  constitute  a sale thereof
within the meaning of the  Securities  Act,  unless (i) such  security  has been
registered for sale under the  Securities Act and registered or qualified  under
applicable  state  securities laws relating to the offer and sale of securities,
or (ii) an exemption from the  registration  requirements  of the Securities Act
and the registration or qualifications requirements of all such state securities
laws are  available  and the Company  shall have  received an opinion of counsel
(which  may  be an  opinion  that  covers  multiple  or  all  subsequent  sales)
satisfactory to the Company that the proposed sale or other  disposition of such
securities may be effected without  registration  under the Securities Act, such
counsel and such  opinion to be  reasonably  satisfactory  to the  Company.  

     (c) Except as otherwise permitted by this Paragraph 7, this Warrant and any
Warrant issued upon direct or indirect  transfer of or in substitution  for this
Warrant  or any part  thereof  shall be stamped or  otherwise  imprinted  with a
legend  substantially  in the  form  of the  legend  with  respect  to  transfer
limitation  and  securities  acts at the head of this  Warrant.  

     (d) Except as otherwise permitted by this Paragraph 7, each certificate for
an Exercise  Share issued upon  exercise of this  Warrant or any Warrant  issued
upon direct or indirect  transfer of or in substitution  for this Warrant or any
part  thereof  shall  be  stamped  or  otherwise  imprinted  with  a  legend  in
substantially the following form:

              The  shares   represented  by  this  certificate  are  subject  to
          restrictions  imposed  by  the  federal  Securities  Act of  1933,  as
          amended,  and applicable  state securities laws. The shares may not be
          sold or  transferred  in the absence of  registration  or an exemption
          therefrom under such Securities Act of 1933 and such applicable  state
          securities  laws.  All  shares  represented  by this  certificate  are
          subject  to  the  terms  and   conditions  of  a   Warrantholder   and
          Stockholders  Agreement,  dated as of February 22, 1997,  and a Voting
          Trust  Agreement,  dated as of the  same  date,  both of which  may be
          examined  at  the  offices  of  Tel-Save  Holdings,  Inc.,  New  Hope,
          Pennsylvania.

     (e) The  Company  shall,  at the  request  of any  registered  holder of an
Exercise  Share,  exchange  the  certificate  representing  such  security for a
certificate  representing  the same security not bearing the restrictive  legend
required by Subparagraph  7(d) if the Exercise Shares may be sold or transferred
pursuant to the  provisions  of Rule 144(k)  and, in the  reasonable  opinion of
counsel to the Company, such restrictive legend is no longer necessary.

     (f) The Holder agrees to indemnify  and hold  harmless the Company  against
any loss, damage, claim or liability arising solely from the disposition of this
Warrant or any  Exercise  Share held by such Holder or any  interest  therein in
violation of the  provisions of this paragraph 7. 


                                       44
<PAGE>

     (g)  The  Holder  of  this  Warrant  is  entitled  to the  benefit  of such
registration  rights in respect of the Shares of Common  Stock  issuable to such
Holder upon exercise of the Warrants as are set forth in the  Warrantholder  and
Stockholders  Agreement,  dated as of  February  22,  1997,  among the  Company,
Tel-Save,  Inc., a Pennsylvania  corporation and wholly owned  subsidiary of the
Company and the Holder. 

8.   Company  Representations  and  Warranties.  Company  hereby  represents and
warrants to AOL as follows:

     (a) Due  Organization:  Good  Standing.  Company (i) is a corporation  duly
organized,  validly existing and in good standing under the laws of the State of
Delaware;  and (ii) has the corporate  power and authority to own its properties
and assets and to carry on its business as now conducted.

     (b)  Authorization.  The execution,  delivery and performance by Company of
this Warrant are within its  corporate  powers and have been duly  authorized by
all necessary  corporate action.  

     (c) No Conflict. The execution, delivery and performance by Company of this
Warrant do not  contravene  any provision of its charter or by-laws,  and do not
conflict  with,  result in a breach  of, or  constitute  a  default  under,  any
agreement,  instrument,  covenant or other restriction to which the Company is a
party or by which it or any of its assets is bound.

     (d) Enforceability. This Warrant is the legal, valid and binding obligation
of Company,  enforceable against Company in accordance with its terms, except as
such  enforceability  may  be  limited  by  applicable  bankruptcy,  insolvency,
moratorium,  reorganization, or other laws affecting creditors' rights generally
or by the availability of equitable remedies. 

     (e)  Capitalization.  As  of  February  13,  1997,  the  authorized  equity
capitalization  of Company  consists of 100,000,000  shares of Common Stock, par
value $.01 per share, of which  62,887,998  shares were issued and  outstanding,
10,503,800  shares were reserved for issuance  upon the exercise of  outstanding
options or warrants and no shares were held in treasury and 5,000,000  shares of
undesignated  Preferred Stock, par value $.01 per share, of which no shares were
issued and outstanding. The Company agrees that, prior to the expiration of this
Warrant,  the Company will at all times have authorized and in reserve, and will
keep  available,  solely for  issuance  or  delivery  upon the  exercise of this
Warrant,  the shares of the Common Stock and other  securities and properties as
from time to time shall be  receivable  upon the exercise of this  Warrant,  the
shares of the Common Stock and other  securities  and properties as from time to
time shall be receivable upon the exercise of this Warrant. Upon issuance of the
shares of Common Stock upon exercise of this Warrant, such shares will have been
duly  authorized  and  validly  issued and will be fully paid and  nonassessable
shares of Common Stock of the Company,  and not subject to preemptive  rights or
rights of first refusal.  

     (f)  Commission  Filings.  Company  has made  available  to AOL  copies  of
Company's (i) Annual Report on Form 10-K for the fiscal year ended  December 31,
1997, as amended, and (ii) filings by Company under the Securities Act and other
filings by Company  under the Exchange  Act, in each case since  January 1, 1998
and as  filed  with  the  SEC.  Company  has  filed  



                                       45
<PAGE>

all reports,  registration  statements  and other  documents (the "SEC Reports")
required  to be filed  under the  Exchange  Act and the  rules  and  regulations
thereunder,  the SEC  Reports  complied,  in all  material  respects,  with  the
requirements  of the Exchange Act,  such  compliance  to be  determined,  to the
extent  applicable,  in accordance with the standards  applied to the reports in
the following two sentences.  As of their respective  dates, the SEC Reports did
not contain any untrue  statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements  therein,
in light of the  circumstances  under  which  they were  made,  not  misleading.

Notices.  All notices or other  communications  under this  Warrant  shall be in
writing and shall be deemed to have been given if delivered by hand or mailed by
certified  mail,  postage  prepaid,  return receipt  requested,  or delivered by
facsimile  transmission  (which  shall be  followed  by  delivery of an original
copy), addressed as follows:

                          If to the Company:

                          Tel-Save Holdings, Inc.
                          6805 Route 202
                          New Hope, PA 18938
                          Facsimile No. 215-862-1083

                          with a copy to:

                          Aloysius T. Lawn, IV, Esquire
                          General Counsel and Secretary
                          Tel-Save Holdings, Inc.
                          6805 Route 202
                          New Hope, PA 18938
                          Facsimile No. 215-862-1085

                          and to the Holder:

                          American Online, Inc.
                          22000 AOL Way
                          Dulles, VA 20166

                          Attn:   General Counsel
                                  with a copy to:
                                  Head of Business Affairs

                          Facsimile No. 703-265-2208

     Either  of the  Company  or the  Holder  may from time to time  change  the
address or facsimile number to which notices to it are to be mailed hereunder by
notice in accordance with the provisions of this Paragraph 9.

10.  Supplements  and  Amendments.  Except as otherwise  provided  herein,  this
Warrant and any term hereof may be changed,  waived,  discharged  or  terminated
only by an instrument in 




                                       46
<PAGE>

writing signed by the party against which  enforcement  of such change,  waiver,
discharge or termination is sought.

11.  Severability.  If for any reason any  provision,  paragraph or term of this
Warrant is held to be  invalid  or  unenforceable,  all other  valid  provisions
herein  shall  remain in full force and effect  and all  terms,  provisions  and
paragraphs of this Warrant shall be deemed to be severable.  

12.  Governing Law. This Warrant shall be deemed to be a contract made under the
laws of the State of  Delaware  and for all  purposes  shall be  governed by and
construed in accordance with the laws of said State.

13.  Entire  Agreement.  This Warrant  consists of all the terms and  conditions
contained herein and all documents incorporated herein specifically by reference
and  constitutes  the complete  and  exclusive  statement of the  understandings
between the parties and supersedes all proposals and prior  agreements  (oral or
written)  between the parties  relating to the rights and  obligations  provided
hereunder. 

14.  Headings; Construction. Paragraph and Subparagraph headings used herein are
included  herein for  conveniences  of  reference  only and shall not affect the
construction of this Warrant nor constitute a part of this Warrant for any other
purpose. The words "herein," "hereof," "hereby," "hereto," "hereunder" and words
of similar  import  refer to this  Warrant as a whole and not to any  particular
article, section, paragraph,  subparagraph or other subdivision of this Warrant.
Defined  terms shall  include the plural and the  singular as the context  shall
require.  

15.  Consent and  Acknowledgment  of Holder.  The terms and  conditions  of this
Warrant are agreed and  consented  to by the Holder,  as  evidenced  by Holder's
signature on the line provided below. This Warrant shall bind and be enforceable
by and  against  the  Holder  and  such  Holder's  successors,  heirs,  estates,
representatives and assigns and the Company and its successors and assigns.


                                       47
<PAGE>


     IN WITNESS  WHEREOF,  the Company and the Holder have caused these presents
to be duly executed as of the day and year written above.

                                               TEL-SAVE HOLDINGS, INC.

                                               By:/s/ Daniel Borislow
                                                  -----------------------
                                                  Name:  Daniel Borislow
                                                  Title:  Chairman & CEO

Accepted by:

AMERICA ONLINE, INC.

By:/s/ David M. Colburn
   ----------------------
   Name:  David M. Colburn
   Title:  Senior Vice President


                                       48
<PAGE>


                                   APPENDIX A

                           NOTICE OF WARRANT EXERCISE

     Pursuant  to  the  attached  Warrant   ("Warrant"),   by  and  between  the
undersigned and Tel-Save Holdings, Inc., a Delaware corporation (the "Company"),
dated as of February  22,  1997(as  amended and  restated as of [ ], 1998),  the
undersigned  hereby  irrevocably  elects to exercise the Warrant with respect to
___________________  Warrant  Shares (as such term is defined in the Warrant) as
provided  for  therein.  [The  undersigned  hereby also elects that the exercise
shall be a "net issuance exercise" as provided in Section 1(a) of the Warrant.]

     The  undersigned  requests  that a  certificate  for  the  Exercise  Shares
issuable  in  accordance  with the terms of the  Warrant  upon the  exercise  as
requested above be issued in the name of:

------------------------------------------------------

--------------------------------------------------------------------------------
(Please print name, address and social security number)

Dated:
             -------------------------------------------------------------
Address:
             -------------------------------------------------------------

             -------------------------------------------------------------
 
             -------------------------------------------------------------
Signature:
             -------------------------------------------------------------





                                       49