TEL-SAVE HOLDINGS, INC.

                   5% Convertible Subordinated Notes Due 2004

                             REGISTRATION AGREEMENT

                                                              New York, New York
                                                               December 10, 1997

Smith Barney Inc.
As Representative of the Initial Purchasers Named in
  Schedule I to the Purchase Agreement (as defined below)

388 Greenwich Street
New York, New York 10013

Ladies and Gentlemen:

                  Tel-Save   Holdings,   Inc.,  a  Delaware   corporation   (the
"Company"),  proposes to issue and sell (such  issuance  and sale,  the "Initial
Placement")  to you (the  "Initial  Purchasers"),  upon the terms set forth in a
purchase   agreement  of  even  date   herewith  (the   "Purchase   Agreement"),
$200,000,000  principal amount (plus an additional  $40,000,000 principal amount
to cover over-allotments,  if any) of its 5% Convertible  Subordinated Notes Due
2004 (the  "Securities").  The  Securities  will be  convertible  into shares of
Common Stock, par value $0.01 per share (the "Common Stock"),  of the Company at
the conversion price set forth in the Offering  Memorandum.  As an inducement to
you to enter into the Purchase  Agreement and in  satisfaction of a condition to
your obligations  thereunder,  the Company agrees with you, (i) for your benefit
and (ii) for the benefit of the holders from time to time of the  Securities  or
the Common Stock  issuable upon  conversion of the  Securities  (including  you)
(each of the foregoing, a "Holder" and together, the "Holders"), as follows:

                  1.   Definitions.   Capitalized   terms  used  herein  without
definition  shall  have  the  respective  meanings  set  forth  in the  Purchase
Agreement. As used in this Agreement, the following capitalized terms shall have
the following meanings:

                  "Act" means the  Securities  Act of 1933, as amended,  and the
rules and regulations of the Commission promulgated thereunder.

                  "Affiliate"  of any  specified  person  means any other person
that,  directly or  indirectly,  is in control of, is controlled by, or is under
common control with,  such specified  person.  For purposes of this  definition,
control of a person means the power, direct or indirect,  to direct or cause the
direction of the  management  and policies of such person whether by contract or
otherwise;   and  the  terms   "controlling"   and  "controlled"  have  meanings
correlative to the foregoing.

                  "Closing  Date"  has the  meaning  set  forth in the  Purchase
Agreement.

                  "Commission" means the Securities and Exchange Commission.



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                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.

                  "Holder" has the meaning set forth in the preamble hereto.

                  "Indenture"  means the  Indenture  relating to the  Securities
dated as of December 10, 1997,  between the Company and First Trust of New York,
National  Association,  as trustee, as the same may be amended from time to time
in accordance with the terms thereof.

                  "Initial  Placement" has the meaning set forth in the preamble
hereto.

                  "Initial Purchasers" has the meaning set forth in the preamble
hereto.

                  "Majority Holders" means the Holders of a majority of the then
outstanding  aggregate  principal amount of Securities  registered under a Shelf
Registration  Statement;  provided  that  Holders of Common  Stock  issued  upon
conversion  of  Securities  shall  be  deemed  to be  Holders  of the  aggregate
principal amount of Securities from which such Common Stock was converted.

                  "Managing  Underwriters" means the Underwriter or Underwriters
that shall administer an Underwritten Offering.

                  "Offering  Memorandum"  has  the  meaning  set  forth  in  the
Purchase Agreement.

                  "Prospectus"  means  the  prospectus  included  in  any  Shelf
Registration  Statement  (including,   without  limitation,  a  prospectus  that
discloses  information  previously omitted from a prospectus filed as part of an
effective  registration  statement in reliance upon Rule 430A under the Act), as
amended or supplemented by any prospectus supplement,  with respect to the terms
of the offering of any portion of the  Securities or Common Stock  issuable upon
conversion  thereof,  covered  by such  Shelf  Registration  Statement,  and all
amendments  and  supplements  to  such  prospectus,   including   post-effective
amendments.

                  "Purchase Agreement" has the meaning set forth in the preamble
hereto.

                  "Securities" has the meaning set forth in the preamble hereto.

                  "Shelf Registration" means a registration effected pursuant to
Section 2 hereof.

                  "Shelf  Registration  Period"  has the  meaning  set  forth in
Section 2(b) hereof.

                  "Shelf  Registration  Statement" means a "shelf"  registration
statement of the Company  pursuant to the  provisions  of Section 2 hereof which
covers  some  or all of the  Securities  and  the  Common  Stock  issuable  upon
conversion thereof, as applicable, on

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<PAGE>

an  appropriate  form under Rule 415 under the Act, or any similar rule that may
be  adopted  by the  Commission,  and all  amendments  and  supplements  to such
registration  statement,  including  post-effective  amendments,  in  each  case
including  the  Prospectus  contained  therein,  all  exhibits  thereto  and all
material incorporated by reference therein.

                  "Trustee"  means the trustee  with  respect to the  Securities
under the Indenture.

                  "Underwriter"  means any  underwriter  of Securities or Common
Stock issuable upon conversion  thereof in connection  with an offering  thereof
under a Shelf Registration Statement.

                  "Underwritten   Offering"  means  an  offering  in  which  the
Securities or Common Stock are sold to an  Underwriter or with the assistance of
an Underwriter for reoffering to the public.

                  2.       Shelf Registration; Suspension of Use of Prospectus.

                  (a) The Company  shall  prepare  and,  not later than 120 days
         following  the  Closing  Date,  shall  file  with  the  Commission  and
         thereafter,  but no later than 180 days  following  the  Closing  Date,
         shall use its best efforts to cause to be declared  effective under the
         Act a Shelf  Registration  Statement  relating to the offer and sale of
         the Securities and the Common Stock issuable upon conversion thereof by
         the  Holders  from  time to time in  accordance  with  the  methods  of
         distribution  elected  by such  Holders  and set  forth  in such  Shelf
         Registration Statement.

                  (b) The Company  shall use its best  efforts to keep the Shelf
         Registration  Statement  continuously  effective in order to permit the
         Prospectus  forming  part  thereof  to be usable by  Holders  until the
         earliest of (i) the second  anniversary  of the Closing Date,  (ii) the
         date on which the Securities or Common Stock  issuable upon  conversion
         thereof  may be sold  pursuant  to  paragraph  (k) of Rule  144 (or any
         successor  provision)  promulgated by the Commission  under the Act and
         (iii)  such date as of which all the  Securities  or the  Common  Stock
         issuable upon  conversion  thereof have been sold pursuant to the Shelf
         Registration  Statement (in any such case, such period being called the
         "Shelf Registration  Period").  The Company shall be deemed not to have
         used  its  best  efforts  to  keep  the  Shelf  Registration  Statement
         effective  during  the  requisite  period if it  voluntarily  takes any
         action that would result in Holders of Securities  covered  thereby not
         being able to offer and sell such Securities during that period, unless
         such  action is  required  (x) by  applicable  law or (y)  pursuant  to
         Section  2(c)  hereof,  and,  in either  case,  so long as the  Company
         promptly  thereafter  complies  with the  requirements  of Section 3(i)
         hereof, if applicable.

                  (c) The Company may  suspend the use of the  Prospectus  for a
         period  not to  exceed 30 days in any  three-month  period or for three
         periods  not to  exceed  an  aggregate  of 90 days in any  twelve-month
         period for valid business reasons, to

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<PAGE>

         be  determined  by the  Company in its sole  reasonable  judgment  (not
         including avoidance of the Company's obligations hereunder), including,
         without  limitation,  the acquisition or divestiture of assets,  public
         filings with the Commission, pending corporate developments and similar
         events; provided that the Company promptly thereafter complies with the
         requirements of Section 3(i) hereof, if applicable.

                  3.  Registration  Procedures.  In  connection  with any  Shelf
Registration Statement, the following provisions shall apply:

                  (a) The  Company  shall  furnish  to you,  prior to the filing
         thereof  with  the  Commission,   a  copy  of  any  Shelf  Registration
         Statement, and each amendment thereof and each amendment or supplement,
         if any,  to the  Prospectus  included  therein  and  shall use its best
         efforts  to  reflect  in each  such  document,  when so filed  with the
         Commission, such comments as Smith Barney Inc. reasonably may propose.

                  (b) The Company  shall ensure that (i) any Shelf  Registration
         Statement and any  amendment  thereto and any  Prospectus  forming part
         thereof and any amendment or supplement  thereto comply in all material
         respects with the Act and the rules and  regulations  thereunder,  (ii)
         any Shelf  Registration  Statement and any amendment  thereto does not,
         when it becomes  effective,  contain an 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 not misleading and (iii) any
         Prospectus  forming part of any Shelf Registration  Statement,  and any
         amendment or supplement to such Prospectus,  does not include an untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the statements  therein, in light of the circumstances
         under  which  they  were  made,  not   misleading;   provided  that  no
         representation  or agreement is made hereby with respect to information
         with  respect to you,  any  Underwriter  or any Holder  required  to be
         included in any Shelf Registration or Prospectus pursuant to the Act or
         the rules and regulations thereunder.

                  (c) (1) The Company  shall  advise you and the Holders and, if
         requested by you or any such Holder, confirm such advice in writing:

                           (i)  when a  Shelf  Registration  Statement  and  any
                  amendment  thereto has been filed with the Commission and when
                  the  Shelf   Registration   Statement  or  any  post-effective
                  amendment thereto has become effective; and

                           (ii) of any request by the  Commission for amendments
                  or  supplements  to the Shelf  Registration  Statement  or the
                  Prospectus included therein or for additional information.

                          (2) The Company  shall advise you and the Holders and,
         if requested by you or any such Holder, confirm such advice in writing:

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<PAGE>

                           (i) of the  issuance  by the  Commission  of any stop
                  order suspending the  effectiveness of the Shelf  Registration
                  Statement  or the  initiation  of  any  proceedings  for  that
                  purpose;

                           (ii)  of  the   receipt   by  the   Company   of  any
                  notification   with   respect   to  the   suspension   of  the
                  qualification   of  the  Securities   included  in  any  Shelf
                  Registration  Statement  for sale in any  jurisdiction  or the
                  initiation or threat of any proceeding for such purpose; and

                           (iii) of the  suspension of the use of the Prospectus
                  pursuant  to Section  2(c) hereof or of the  happening  of any
                  event that  requires  the  making of any  changes in the Shelf
                  Registration  Statement or the  Prospectus so that, as of such
                  date,  the  statements  therein are not  misleading and do not
                  omit to state a material fact required to be stated therein or
                  necessary to make the  statements  therein (in the case of the
                  Prospectus,  in light of the  circumstances  under  which they
                  were made) not  misleading  (which advice shall be accompanied
                  by an instruction  to suspend the use of the Prospectus  until
                  the requisite changes have been made).

                           (d) The Company  shall use its best efforts to obtain
         the withdrawal of any order  suspending the  effectiveness of any Shelf
         Registration Statement at the earliest possible time.

                  (e) The Company  shall furnish to each Holder of Securities or
         the Common Stock issued upon  conversion  thereof  included  within the
         coverage of any Shelf Registration Statement,  without charge, at least
         one copy of such Shelf  Registration  Statement and any  post-effective
         amendment thereto,  including financial statements and schedules,  and,
         if the Holder so requests in writing,  all  exhibits  (including  those
         incorporated by reference).

                  (f) The Company shall,  during the Shelf Registration  Period,
         deliver to each Holder of  Securities  or the Common  Stock issued upon
         conversion   thereof   included   within  the  coverage  of  any  Shelf
         Registration   Statement,   without  charge,  as  many  copies  of  the
         Prospectus  (including each  preliminary  Prospectus)  included in such
         Shelf Registration Statement and any amendment or supplement thereto as
         such Holder may reasonably request; and the Company consents to the use
         of the Prospectus or any amendment or supplement thereto by each of the
         selling  Holders  in  connection  with  the  offering  and  sale of the
         Securities or the Common Stock issued upon  conversion  thereof covered
         by the Prospectus or any amendment or supplement thereto.

                  (g) Prior to any  offering of  Securities  or the Common Stock
         issued  upon  conversion  thereof  pursuant  to any Shelf  Registration
         Statement,  the Company shall register or qualify or cooperate with the
         Holders  of  Securities  or the Common  Stock  issued  upon  conversion
         thereof  included  therein and their  respective  counsel in connection
         with the registration or qualification of such

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<PAGE>

         Securities  or Common Stock for offer and sale under the  securities or
         blue sky laws of such  jurisdictions  as any  such  Holders  reasonably
         request in writing and do any and all other acts or things necessary or
         advisable  to enable  the offer and sale in such  jurisdictions  of the
         Securities and the Common Stock issued upon conversion  thereof covered
         by such  Shelf  Registration  Statement;  provided,  however,  that the
         Company will not be required to qualify generally to do business in any
         jurisdiction  where it is not then so  qualified  or to take any action
         which would subject it to general  service of process or to taxation in
         any such jurisdiction where it is not then so subject.

                  (h) The Company shall cooperate with the Holders to facilitate
         the  timely  preparation  and  delivery  of  certificates  representing
         Securities  or the Common  Stock issued upon  conversion  thereof to be
         sold  pursuant  to  any  Shelf  Registration   Statement  free  of  any
         restrictive  legends and in such  denominations  and registered in such
         names as Holders may request prior to sales of Securities or the Common
         Stock   issued  upon   conversion   thereof   pursuant  to  such  Shelf
         Registration Statement.

                  (i) Upon the occurrence of any event contemplated by paragraph
         (c)(2)(iii)  above, the Company shall promptly prepare a post-effective
         amendment  to any  Shelf  Registration  Statement  or an  amendment  or
         supplement  to the  related  Prospectus  or  file  any  other  required
         document  so  that,  as  thereafter  delivered  to  purchasers  of  the
         Securities or the Common Stock issued upon conversion  thereof included
         therein,  the  Prospectus  will not  include an untrue  statement  of a
         material fact or omit to state any material fact  necessary to make the
         statements  therein, in the light of the circumstances under which they
         were made, not misleading.

                  (j) The  Company  shall  use its best  efforts  to  cause  The
         Depository  Trust Company  ("DTC") on the first  Business Day following
         the effective date of any Shelf Registration  Statement hereunder or as
         soon as  possible  thereafter  to remove  (i) from any  existing  CUSIP
         number assigned to the Securities any  designation  indicating that the
         Securities  are  "restricted  securities",  which efforts shall include
         delivery to DTC of a letter  executed by the Company  substantially  in
         the form of Exhibit A hereto and (ii) any other stop or  restriction on
         DTC's system with respect to the  Securities.  In the event the Company
         is unable to cause DTC to take  actions  described  in the  immediately
         preceding sentence, the Company shall take such actions as Smith Barney
         Inc. may reasonably request to provide, as soon as practicable, a CUSIP
         number for the  Securities  registered  under  such Shelf  Registration
         Statement  and  to  cause  such  CUSIP  number  to be  assigned  to the
         Securities  (or  to  the  maximum  aggregate  principal  amount  of the
         securities to which such number may be assigned).  Upon compliance with
         the  foregoing  requirements  of this Section  3(j),  the Company shall
         provide the Trustee with global certificates for such Securities,  in a
         form eligible for deposit with The Depository Trust Company.

                  (k) The Company  shall use its best efforts to comply with all
         applicable  rules and  regulations  of the  Commission  and shall  make
         generally  available  to its

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<PAGE>

         security holders as soon as practicable after the effective date of the
         applicable   Shelf   Registration   Statement  an  earnings   statement
         satisfying  the  provisions  of  Section  11(a) of the Act and Rule 158
         promulgated by the Commission thereunder.

                  (l) The  Company  shall  use its best  efforts  to  cause  the
         Indenture to be  qualified  under the Trust  Indenture  Act in a timely
         manner.

                  (m) The Company may require each Holder of  Securities  or the
         Common Stock issued upon conversion  thereof to be sold pursuant to any
         Shelf Registration Statement to furnish to the Company such information
         regarding the Holder and the  distribution of such Securities or Common
         Stock as may,  from time to time,  be required by the Act and the rules
         and  regulations  promulgated  thereunder,  and the  obligations of the
         Company to any Holder  hereunder shall be expressly  conditioned on the
         compliance of such Holder with such request.

                  (n) The Company shall,  if requested,  use its best efforts to
         promptly  incorporate  in a  Prospectus  supplement  or  post-effective
         amendment to a Shelf Registration Statement (i) such information as the
         Majority  Holders  provide or, if the  Securities  or Common  Stock are
         being sold in an Underwritten  Offering,  as the Managing  Underwriters
         and the Majority  Holders  reasonably  agree should be included therein
         and  provide  to the  Company  in writing  for  inclusion  in the Shelf
         Registration  Statement or Prospectus,  and (ii) such  information as a
         Holder may  provide  from time to time to the  Company  in writing  for
         inclusion  in  a  Prospectus  or  any  Shelf   Registration   Statement
         concerning such Holder and the distribution of such Holder's Securities
         and Common Stock and, in either case,  shall make all required  filings
         of such Prospectus  supplement or  post-effective  amendment as soon as
         practicable  after  being  notified  in  writing  of the  matters to be
         incorporated in such Prospectus supplement or post-effective amendment.

                  (o) The Company  shall enter into such  agreements  (including
         underwriting  agreements) and take all other appropriate actions as may
         be  reasonably  requested  in  order  to  expedite  or  facilitate  the
         registration  or the  disposition of the Securities or the Common Stock
         issuable upon conversion thereof,  and in connection  therewith,  if an
         underwriting  agreement  is  entered  into,  cause the same to  contain
         indemnification  provisions and procedures no less favorable than those
         set  forth  in  Section  5 (or such  other  provisions  and  procedures
         acceptable to the Majority  Holders and the Managing  Underwriters,  if
         any, with respect to all parties to be indemnified  pursuant to Section
         5  from  Holders  of  Securities  or the  Common  Stock  issuable  upon
         conversion thereof to the Company).

                  (p) The  Company  shall  (i)  make  reasonably  available  for
         inspection by the Holders of Securities or the Common Stock issued upon
         conversion   thereof  to  be  registered  under  a  Shelf  Registration
         Statement, any Underwriter participating in any disposition pursuant to
         such Shelf  Registration  Statement,  and any  attorney,  accountant or
         other  agent  retained  by the  Holders or any such

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         Underwriter  all  relevant  financial  and  other  records,   pertinent
         corporate documents and properties of the Company and its subsidiaries;
         (ii) cause the  Company's  officers,  directors and employees to supply
         all  relevant  information  reasonably  requested by the Holders or any
         such Underwriter,  attorney, accountant or agent in connection with any
         such Shelf  Registration  Statement  as is  customary  for  similar due
         diligence examinations; provided, however, that any information that is
         designated  in  writing  by the  Company,  in its sole  discretion,  as
         confidential at the time of delivery of such information  shall be kept
         confidential  by  the  Holders  or  any  such  Underwriter,   attorney,
         accountant or agent,  unless  disclosure  thereof is made in connection
         with a court  proceeding  or required by law, or such  information  has
         become available to the public generally through the Company or through
         a third party without an  accompanying  obligation of  confidentiality;
         (iii)  make such  representations  and  warranties  to the  Holders  of
         Securities  or  the  Common  Stock  issued  upon   conversion   thereof
         registered thereunder and the Underwriters,  if any, in form, substance
         and  scope as are  customarily  made by  issuers  to  Underwriters  and
         covering matters including,  but not limited to, those set forth in the
         Purchase Agreement;  (iv) obtain opinions of counsel to the Company and
         updates  thereof  (which  counsel  and  opinions,  in form,  scope  and
         substance,   shall  be   reasonably   satisfactory   to  the   Managing
         Underwriters,  if  any)  addressed  to  each  selling  Holder  and  the
         Underwriters,  if any, covering such matters as are customarily covered
         in opinions requested in underwritten  offerings and such other matters
         as may be reasonably  requested by such Holders and  Underwriters;  (v)
         obtain "cold comfort"  letters and updates thereof from the independent
         certified  public  accountants  of the Company (and, if necessary,  any
         other independent certified public accountants of any subsidiary of the
         Company or of any business  acquired by the Company for which financial
         statements and financial  data are, or are required to be,  included in
         the Shelf Registration Statement),  addressed to each selling Holder of
         Securities  or  the  Common  Stock  issued  upon   conversion   thereof
         registered  thereunder  (provided such Holder furnishes the accountants
         with such  representations  as the accountants  customarily  require in
         similar situations) and the Underwriters, if any, in customary form and
         covering  matters of the type  customarily  covered  in "cold  comfort"
         letters in connection  with primary  underwritten  offerings;  and (vi)
         deliver such documents and certificates as may be reasonably  requested
         by  the  Majority  Holders  and  the  Managing  Underwriters,  if  any,
         including  those to evidence  compliance with Section 3(i) and with any
         customary conditions  contained in the underwriting  agreement or other
         agreement entered into by the Company.  The foregoing actions set forth
         in clauses  (iii),  (iv),  (v) and (vi) of this  Section  3(p) shall be
         performed at (A) the effectiveness of such Shelf Registration Statement
         and each  post-effective  amendment  thereto and (B) each closing under
         any  underwriting  or similar  agreement as and to the extent  required
         thereunder.

                  4. Registration  Expenses. The Company shall bear all expenses
incurred in connection with the performance of its obligations  under Sections 2
and 3 hereof  and  shall  reimburse  the  Holders  for the  reasonable  fees and
disbursements  of one firm or counsel  designated by the Majority Holders to act
as counsel for the Holders in



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<PAGE>

connection  therewith.  Notwithstanding  the  provisions of this Section 4, each
Holder  shall  bear  the  expense  of any  broker's  commission,  agency  fee or
Underwriter's discount or commission.

                  5.       Indemnification and Contribution.

                  (a) (i) In connection with any Shelf  Registration  Statement,
         the  Company  agrees to  indemnify  and hold  harmless  each  Holder of
         Securities  or Common  Stock  issued upon  conversion  thereof  covered
         thereby (including the Initial  Purchasers),  the directors,  officers,
         employees  and agents of each such Holder and each person who  controls
         any such Holder  within the  meaning of either the Act or the  Exchange
         Act against any and all losses, claims,  damages or liabilities,  joint
         or several,  to which they or any of them may become  subject under the
         Act,  the  Exchange  Act or other  Federal  or state  statutory  law or
         regulation, at common law or otherwise, insofar as such losses, claims,
         damages or liabilities (or actions in respect  thereof) arise out of or
         are based upon any untrue  statement or alleged  untrue  statement of a
         material  fact  contained  in  the  Shelf  Registration   Statement  as
         originally  filed or in any amendment  thereof,  or in any  preliminary
         Prospectus or  Prospectus,  or in any  amendment  thereof or supplement
         thereto,  or arise out of or are based  upon the  omission  or  alleged
         omission to state therein a material fact required to be stated therein
         or necessary to make the statements therein not misleading,  and agrees
         to reimburse each such indemnified party, as incurred, for any legal or
         other  expenses   reasonably   incurred  by  them  in  connection  with
         investigating or defending any such loss, claim,  damage,  liability or
         action;  provided,  however, that the Company will not be liable in any
         case to the  extent  that any such  loss,  claim,  damage or  liability
         arises out of or is based upon (A) any such untrue statement or alleged
         untrue  statement  or  omission  or alleged  omission  made  therein in
         reliance upon and in conformity with written  information  furnished to
         the Company by or on behalf of any such Holder or any Initial Purchaser
         specifically  for inclusion  therein,  (B) use of a Shelf  Registration
         Statement or the related  Prospectus  during a period when a stop order
         has  been  issued  in  respect  of  such  Shelf   Registration  or  any
         proceedings for that purpose have been initiated or use of a Prospectus
         when use of such  Prospectus  has been  suspended  pursuant  to Section
         2(c);  provided,  further,  in each case,  that Holders  received prior
         notice of such stop order,  initiation of  proceedings or suspension or
         (C) if the Holder  fails to deliver a  Prospectus  or the then  current
         Prospectus.  This  indemnity  agreement  will  be in  addition  to  any
         liability which the Company may otherwise have.

                         (ii) The Company also agrees to indemnify or contribute
         to  Losses,  as  provided  in  Section  5(d),  of any  Underwriters  of
         Securities  or  the  Common  Stock  issued  upon   conversion   thereof
         registered  under a Shelf  Registration  Statement,  their officers and
         directors   and  each  person  who  controls   such   Underwriters   on
         substantially  the  same  basis as that of the  indemnification  of the
         Initial  Purchasers  and the selling  Holders  provided in this Section
         5(a) and shall,



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<PAGE>

         if  requested  by any  Holder,  enter  into an  underwriting  agreement
         reflecting such agreement, as provided in Section 3(o) hereof.

                           (b) Each Holder of  Securities or Common Stock issued
         upon  conversion  thereof  covered  by a Shelf  Registration  Statement
         (including the Initial  Purchasers)  severally  agrees to indemnify and
         hold harmless (i) the Company,  (ii) each of its directors,  (iii) each
         of its officers who signs such Shelf  Registration  Statement  and (iv)
         each person who controls  the Company  within the meaning of either the
         Act or the Exchange Act to the same extent as the  foregoing  indemnity
         from the  Company  to each  such  Holder,  but only with  reference  to
         written information relating to such Holder furnished to the Company by
         or on behalf of such Holder specifically for inclusion in the documents
         referred to in the foregoing  indemnity.  This indemnity agreement will
         be in addition  to any  liability  which any such Holder may  otherwise
         have.

                  (c) Promptly after receipt by an indemnified  party under this
         Section 5 of notice of the commencement of any action, such indemnified
         party  will,  if a claim in respect  thereof is to be made  against the
         indemnifying  party under this Section 5, notify the indemnifying party
         in writing of the  commencement  thereof;  but the failure so to notify
         the  indemnifying  party (i) will not relieve it from  liability  under
         paragraph  (a) or  (b)  above  unless  and to  the  extent  it did  not
         otherwise  learn  of  such  action  and  such  failure  results  in the
         forfeiture by the indemnifying party of substantial rights and defenses
         and (ii) will not, in any event,  relieve the  indemnifying  party from
         any obligations to any indemnified party other than the indemnification
         obligation  provided in paragraph  (a) or (b) above.  The  indemnifying
         party shall be entitled to appoint counsel of the indemnifying  party's
         choice at the indemnifying party's expense to represent the indemnified
         party in any action for which  indemnification is sought (in which case
         the indemnifying party shall not thereafter be responsible for the fees
         and expenses of any separate counsel retained by the indemnified  party
         or parties  except as set forth below);  provided,  however,  that such
         counsel  shall be reasonably  satisfactory  to the  indemnified  party.
         Notwithstanding the indemnifying party's election to appoint counsel to
         represent the indemnified  party in an action,  the  indemnified  party
         shall have the right to employ separate



                                       10
<PAGE>

         counsel  (including local counsel),  and the  indemnifying  party shall
         bear the reasonable  fees,  costs and expenses of such separate counsel
         (and  local   counsel)  if  (i)  the  use  of  counsel  chosen  by  the
         indemnifying  party to represent  the  indemnified  party would present
         such counsel with a conflict of interest,  (ii) the actual or potential
         defendants  in,  or  targets  of,  any  such  action  include  both the
         indemnified party and the indemnifying  party and the indemnified party
         shall  have  reasonably  concluded  that  there  may be legal  defenses
         available to it and/or other  indemnified  parties  which are different
         from or additional to those available to the indemnifying  party, (iii)
         the indemnifying party shall not have employed counsel  satisfactory to
         the  indemnified  party to  represent  the  indemnified  party within a
         reasonable  time after notice of the institution of such action or (iv)
         the indemnifying  party shall authorize the indemnified party to employ
         separate  counsel at the expense of the  indemnifying  party;  provided
         further,  that the indemnifying  party shall not be responsible for the
         fees and  expenses of more than one  separate  counsel  (together  with
         appropriate  local counsel)  representing  all the indemnified  parties
         under paragraph  (a)(i),  paragraph  (a)(ii) or paragraph (b) above. An
         indemnifying  party will not,  without the prior written consent of the
         indemnified  parties,  settle or  compromise or consent to the entry of
         any judgment with respect to any pending or threatened  claim,  action,
         suit or proceeding in respect of which  indemnification or contribution
         may be sought  hereunder  (whether or not the  indemnified  parties are
         actual or  potential  parties  to such  claim or  action)  unless  such
         settlement,  compromise or consent includes an unconditional release of
         each  indemnified  party from all liability  arising out of such claim,
         action, suit or proceeding.

                  (d) In the event that the indemnity  provided in paragraph (a)
         or (b) of this  Section 5 is  unavailable  to or  insufficient  to hold
         harmless  an  indemnified  party for any reason,  then each  applicable
         indemnifying  party, in lieu of indemnifying  such  indemnified  party,
         shall  have  a  joint  and  several  obligation  to  contribute  to the
         aggregate losses,  claims,  damages and liabilities (including legal or
         other expenses  reasonably incurred in connection with investigating or
         defending same) (collectively "Losses") to which such indemnified party
         may be subject in such  proportion  as is  appropriate  to reflect  the
         relative benefits received by such indemnifying party, on the one hand,
         and such  indemnified  party,  on the  other  hand,  from  the  Initial
         Placement and the Shelf  Registration  Statement which resulted in such
         Losses; provided, however, that in no case shall the Initial Purchasers
         be  responsible,  in the  aggregate,  for any  amount  in excess of the
         purchase  discount or commission  applicable to such  Security,  as set
         forth on the  cover  page of the  Offering  Memorandum,  nor  shall any
         Underwriter be responsible for any amount in excess of the underwriting
         discount or commission  applicable to the  Securities  and Common Stock
         issued upon conversion  thereof purchased by such Underwriter under the
         Shelf  Registration  Statement  which  resulted in such Losses.  If the
         allocation   provided  by  the   immediately   preceding   sentence  is
         unavailable for any reason,  the indemnifying party and the indemnified
         party shall  contribute in such proportion as is appropriate to reflect
         not only such  relative  benefits but also the  relative  fault of such
         indemnifying party, on the one hand, and such indemnified party, on the
         other hand,  in  connection  with the  statements  or  omissions  which
         resulted  in  such  Losses  as  well as any  other  relevant  equitable
         considerations.  Benefits received by the Company shall be deemed to be
         equal  to the  sum of (x) the  total  net  proceeds  from  the  Initial
         Placement (before deducting expenses) as set forth on the cover page of
         the Offering Memorandum and (y) the total amount of additional interest
         which the  Company was not  required to pay as a result of  registering
         the Securities and Common Stock issued upon conversion  thereof covered
         by the Shelf  Registration  Statement  which  resulted in such  Losses.
         Benefits received by the Initial Purchasers shall be deemed to be equal
         to the total  purchase  discounts and  commissions  as set forth on the
         cover page of the Offering  Memorandum,  and  benefits  received by any
         other Holders shall be deemed to be equal to the value of



                                       11
<PAGE>

         receiving  Securities  or the Common  Stock  issuable  upon  conversion
         thereof  registered under the Act. Benefits received by any Underwriter
         shall be  deemed to be equal to the total  underwriting  discounts  and
         commissions, as set forth on the cover page of the Prospectus forming a
         part of the Shelf Registration Statement which resulted in such Losses.
         Relative  fault shall be determined by reference to whether any alleged
         untrue  statement or omission  relates to  information  provided by the
         indemnifying  party, on the one hand, or by the  indemnified  party, on
         the  other  hand.  The  parties  agree  that it  would  not be just and
         equitable if contribution were determined by pro rata allocation or any
         other method of allocation which does not take account of the equitable
         considerations  referred to above.  Notwithstanding  the  provisions of
         this  paragraph  (d), no person guilty of fraudulent  misrepresentation
         (within the  meaning of Section  11(f) of the Act) shall be entitled to
         contribution  from any  person  who was not  guilty of such  fraudulent
         misrepresentation.  For  purposes  of this  Section 5, each  person who
         controls a Holder  within the meaning of either the Act or the Exchange
         Act and each director, officer, employee and agent of such Holder shall
         have the same rights to  contribution  as such Holder,  and each person
         who  controls  the Company  within the meaning of either the Act or the
         Exchange  Act,  each  officer of the  Company who shall have signed the
         Shelf  Registration  Statement  and each  director of the Company shall
         have the same rights to  contribution  as the Company,  subject in each
         case to the applicable terms and conditions of this paragraph (d).

                  (e) The provisions of this Section 5 will remain in full force
         and effect, regardless of any investigation made by or on behalf of any
         Holder or the Company or any of the officers,  directors or controlling
         persons referred to in Section 5 hereof, and will survive the sale by a
         Holder of Securities covered by a Shelf Registration Statement.

                  6.       Miscellaneous.

                  (a) No Inconsistent Agreements. The Company has not, as of the
         date  hereof,  entered  into nor shall it, on or after the date hereof,
         enter  into,  any  agreement  with  respect to its  Securities  that is
         inconsistent with the rights granted to the Holders herein or otherwise
         conflicts with the provisions hereof.

                  (b) Amendments and Waivers.  The provisions of this Agreement,
         including  the  provisions  of  this  sentence,  may  not  be  amended,
         qualified,  modified  or  supplemented,  and  waivers  or  consents  to
         departures  from the  provisions  hereof  may not be given,  unless the
         Company has  obtained  the  written  consent of the  Majority  Holders;
         provided  that with respect to any matter that  directly or  indirectly
         affects the rights of the  Initial  Purchasers  hereunder,  the Company
         shall  obtain the  written  consent of the Initial  Purchasers  against
         which such amendment,  qualification,  supplement, waiver or consent is
         to be effective.  Notwithstanding  the foregoing  (except the foregoing
         proviso),  a waiver or consent to departure from the provisions  hereof
         with  respect to a matter  that  relates  exclusively  to the rights of
         Holders   whose   Securities   are  being  sold  pursuant  to  a


                                       12
<PAGE>

         Shelf  Registration  Statement and that does not directly or indirectly
         affect  the  rights  of other  Holders  may be  given  by the  Majority
         Holders,  determined on the basis of Securities  being sold rather than
         registered under such Shelf Registration Statement.

                  (c) Notices. All notices and other communications provided for
         or  permitted  hereunder  shall be made in  writing  by  hand-delivery,
         first-class  mail,  telex,  telecopier,  or  air  courier  guaranteeing
         overnight delivery:

                         (1) if to you,  initially  at the  address set forth in
                  the Purchase Agreement;

                         (2) if to any other Holder, at the most current address
                  given by such  Holder to the  Company in  accordance  with the
                  provisions of this Section 6(c),  which address  initially is,
                  with  respect  to each  Holder,  the  address  of such  Holder
                  maintained by the Registrar  under the Indenture,  with a copy
                  in like manner to Smith Barney Inc.; and

                         (3) if to the  Company,  initially  at its  address set
                  forth in the Purchase Agreement.

                  All such  notices and  communications  shall be deemed to have
been duly given when  received,  if delivered  by hand or air courier,  and when
sent, if sent by first-class mail, telex or telecopier.

                  The Initial  Purchasers  or the Company by notice to the other
may  designate  additional  or different  addresses  for  subsequent  notices or
communications.

                  (d) Successors and Assigns.  This Agreement shall inure to the
         benefit of and be binding  upon the  successors  and assigns of each of
         the parties,  including,  without the need for an express assignment or
         any consent by the Company  thereto,  subsequent  Holders.  The Company
         hereby  agrees to extend the  benefits of this  Agreement to any Holder
         and any such Holder may  specifically  enforce the  provisions  of this
         Agreement as if an original party hereto.

                  (e) Counterparts. This agreement may be executed in any number
         of  counterparts  and by the parties  hereto in separate  counterparts,
         each of which when so executed  shall be deemed to be an  original  and
         all  of  which  taken  together  shall  constitute  one  and  the  same
         agreement.

                  (f)  Headings.   The  headings  in  this   agreement  are  for
         convenience of reference  only and shall not limit or otherwise  affect
         the meaning hereof.

                  (g)  Governing  Law. This  agreement  shall be governed by and
         construed  in  accordance  with  the  laws  of the  State  of New  York
         applicable  to  agreements  made  and to be  performed  in said  State,
         without regard to the conflicts of law rules thereof.



                                       13
<PAGE>

                  (h)  Severability.  In the  event  that any one of more of the
         provisions   contained  herein,  or  the  application  thereof  in  any
         circumstances, is held invalid, illegal or unenforceable in any respect
         for any reason,  the validity,  legality and enforceability of any such
         provision in every other respect and of the remaining provisions hereof
         shall not be in any way impaired or affected thereby, it being intended
         that  all  of  the  rights  and  privileges  of the  parties  shall  be
         enforceable to the fullest extent permitted by law.

                  (i) Securities Held by the Company,  etc. Whenever the consent
         or approval of Holders of a specified percentage of principal amount of
         Securities  or the Common Stock  issuable  upon  conversion  thereof is
         required  hereunder,   Securities  or  the  Common  Stock  issued  upon
         conversion  thereof held by the Company or its  Affiliates  (other than
         subsequent  Holders of  Securities  or the  Common  Stock  issued  upon
         conversion  thereof  if  such  subsequent  Holders  are  deemed  to  be
         Affiliates solely by reason of their holdings of such Securities) shall
         not be counted in  determining  whether  such  consent or approval  was
         given by the Holders of such required percentage.




                                       14
<PAGE>


         Please  confirm that the foregoing  correctly  sets forth the agreement
between the Company and you.

                                                     Very truly yours,

                                                    TEL-SAVE HOLDINGS, INC.

                                                    ----------------------------
                                                    Name:
                                                    Title:

The  foregoing  Agreement is hereby
confirmed and accepted as of the date
first above written.

SMITH BARNEY INC.
For itself and the other Initial
Purchasers named in Schedule I to the
Purchase Agreement.

BY:  SMITH BARNEY INC.

By
     -------------------------
     Name:
     Title:


<PAGE>



                                                                       EXHIBIT A

                   FORM OF LETTER TO BE PROVIDED BY ISSUER TO

                          THE DEPOSITORY TRUST COMPANY

The Depository Trust Company
7 Hanover Square, 23rd Floor

New York, NY  10004

          Re:   5% Subordinated Convertible Notes Due 2004 (the "Securities") of
                Tel-Save Holdings, Inc.

Ladies and Gentlemen:

                  Please be advised that the Securities and Exchange  Commission
has declared effective a Registration Statement on Form S-3 under the Securities
Act of 1933, as amended,  with regard to all of the Securities referenced above.
Accordingly,  there is no longer any  restriction as to whom such Securities may
be sold and any restrictions on the CUSIP designation are no longer  appropriate
and may be removed.  I understand  that upon  receipt of this  letter,  DTC will
remove any stop or restriction on its system with respect to this issue.

                  As always, please do not hesitate to call if we can of further
assistance.

Very truly yours,

Authorized Officer