Document:

EXHIBIT 10.2
                       TALK AMERICA HOLDINGS, INC.

                      REGISTRATION RIGHTS AGREEMENT

         This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered
into as of September 19, 2001 by and among TALK AMERICA HOLDINGS, INC., a
Delaware corporation (the "Company"), and AMERICA ONLINE, INC., a
Delaware corporation ("Investor").

                                 RECITALS

         WHEREAS, the Company and the Investor have entered into a
Restructuring and Note Agreement of even date herewith (the
"Restructuring Agreement"), pursuant to which the Investor will acquire
3,078,628 shares (the "Newly Acquired Shares") of common stock, par value
$.01 per share, of the Company ("Common Stock"), will retain 4,121,372
shares of Common Stock (the "Existing Shares") and $54,000,000 in face
amount of Secured Convertible Notes of the Company (the "Convertible
Notes"), convertible initially at a rate of $5.00 per share of Common
Stock, upon the terms and conditions set forth therein;

         WHEREAS, in order to induce the Investor to enter into the
Restructuring Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement for the benefit of
Investor and its direct and indirect transferees upon the terms and
conditions set forth herein; and

         WHEREAS, the execution and delivery of this Agreement is a
condition to the Investor's obligations pursuant to the Restructuring
Agreement.

         NOW, THEREFORE, in consideration of the mutual premises,
covenants and conditions set forth herein, the parties hereby agree as
follows:

         1.       Definitions.  For the purposes of this Agreement:

         "Affiliate" means any individual or entity directly or
indirectly controlling, controlled by or under common control with, a
party to this Agreement. Without limiting the foregoing, the direct or
indirect ownership of 50% or more of the outstanding voting securities of
an entity, or the right to receive 50% or more of the profits or earnings
of an entity, shall be deemed to constitute control.

         "Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or
required to close.

         "Commission" means the U.S. Securities and Exchange Commission
or any other governmental authority from time to time administering the
Securities Act.

         "Common Stock" means the common stock, par value $.01 per share,
of the Company.

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         "Conversion Shares" means any shares of Common Stock issuable
upon conversion of the Convertible Notes.

         "DTC" means the Depository Trust Company.

         "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute and the rules and the
regulations of the Commission promulgated thereunder, all as the same
shall be in effect from time to time.

         "Existing Shares" has the meaning set forth in the first recital
of this Agreement

         "Holder" means any Person that is a signatory to this Agreement
or has otherwise agreed to be bound by the terms hereof and that owns or
has the right to acquire Registrable Securities, including an Affiliate
or any successor, assignee or transferee of Investor or a Holder that has
received Registrable Securities in accordance with Section 11 hereof.

         "NASD" means the National Association of Securities Dealers, Inc.

         "Newly Acquired Shares" has the meaning set forth in the first
recital of this Agreement.

         "Old Registration Agreement" means the Registration Rights
Agreement, dated as of January 5, 1999, between the Company and Investor,
pursuant to which the Existing Shares were registered on a "shelf"
registration statement for sale by Investor.

         "Person" means any natural person, firm, partnership,
association, corporation, company, trust, business trust, government
entity, limited liability company or other entity.

         "Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with
respect to the terms of the offering or any portion of the Registrable
Securities covered by such Registration Statement and all other
amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.

         "Registrable Securities" means (a) the Newly Acquired Shares,
the Existing Shares and the Conversion Shares and (b) any capital stock
or other securities of the Company issued or issuable with respect to
such shares (i) upon any conversion or exchange thereof, (ii) by way of
stock dividend or other distribution, stock split or reverse stock split,
or (iii) in connection with a combination of shares, recapitalization,
merger, consolidation, exchange offer or other reorganization. As to any
particular Registrable Securities, once issued, such securities shall
cease to be Registrable Securities when (A) a Registration Statement with
respect to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed of in
accordance with such Registration Statement, (B) such securities shall
have been distributed to the public in reliance upon Rule 144 (or any
successor provision) under the Securities Act, provided that at the time
such securities are proposed to be disposed of, they may be sold under

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Rule 144 without any limitation on the amount of such securities which
may be sold or (c) they shall have ceased to be outstanding.

         "Registration Expenses" means all fees and expenses incident to
the performance of or compliance with the provisions of this Agreement,
whether or not any Registration Statement is filed or becomes effective,
including, without limitation, all (a) registration and filing fees
(including, without limitation, (i) fees with respect to filings required
to be made and other expenses associated with the NASD and any other
applicable exchange in connection with an underwritten offering, and (ii)
fees and expenses of compliance with state securities or blue sky laws
(including, without limitation, fees and distributions of counsel for the
underwriter or underwriters in connection with blue sky qualifications of
the Registrable Securities and determination of eligibility of the
Registrable Securities for investment under the laws of such
jurisdictions as are provided in Section 4(e)), (b) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities in a form eligible for deposit with DTC and
expenses of printing prospectuses), (c) fees and disbursements of all
independent certified public accountants referred to in Sections 4 and 5
(including, without limitation, the reasonable expenses of any special
audit and "cold comfort" letters required by or incident to such
performance), (d) the fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to the NASD Rules of Conduct and the corresponding rules of any
other applicable exchange, (e) liability insurance under the Securities
Act or any other securities laws, if the Company desires such insurance,
(f) fees and expenses of all attorneys, advisers, appraisers and other
persons retained by the Company or any Subsidiary of the Company, (g)
internal expenses of the Company and its Subsidiaries (including, without
limitation, all salaries and expenses of officers and employees of the
Company and its Subsidiaries, other general overhead expenses of the
Company and its Subsidiaries, and other expenses for the performance of
legal or accounting duties), (h) the expense of any annual audit and the
preparation of historical and pro forma financial statements or other
data normally prepared by the Company in the ordinary course of business,
(i) the expenses relating to printing, word processing and distributing
all Registration Statements, underwriting agreements, securities sales
agreements, and any other documents necessary in order to comply with
this Agreement, and (j) any fees and disbursements of any other
underwriters and broker-dealers customarily paid by issuers or sellers of
securities; provided, however, that in all cases in which the Company is
required to pay Registration Expenses hereunder, Registration Expenses
shall exclude any underwriting discounts, selling commissions or any
transfer taxes payable in respect of the sale of the Registrable
Securities by the Holders thereof.

         "Registration Statement" means any registration statement of the
Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, and all amendments and supplements to any
such registration statement, including post-effective amendments, in each
case including the Prospectus, all exhibits and all material incorporated
by reference or deemed to be incorporated by reference in such
registration statement.

         "Requisite Percentage of Outstanding Holders" means the Holders
of Registrable Securities who, assuming conversion of all of the then
outstanding Convertible Notes held by the Holders into

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Conversion Shares, would hold 20% or more of the total Registrable Securities
(other than the Existing Shares) that would then be outstanding.

         "Requisite Percentage of Participating Holders" means Holders of
Registrable Securities participating in the registration who, assuming
conversion of all then outstanding Convertible Notes held by such Holders
into Conversion Shares, would hold a majority of the total Registrable
Securities that would then be held by all Holders participating in the
registration.

         "Restructuring Agreement" has the meaning set forth in the first
recital of this Agreement

         "Rule 144" means Rule 144 (or any successor provision) under the
Securities Act.

         "Securities Act" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect
from time to time.

         "Underwritten registration" or "underwritten offering" means a
registration in which Registrable Securities are sold to an underwriter
for reoffering to the public.

         2.       Registration.

         2.1.     Demand Registrations.

                  (a) Request for Registration. Subject to Section
2.1(d), at any time and from time to time commencing after March 19,
2002, one or more Holders of Registrable Securities representing the
Requisite Percentage of Outstanding Holders shall have the right to
require the Company to file a registration statement under the Securities
Act covering all or any part of their respective Registrable Securities,
by delivering a written request therefor to the Company specifying the
number of Registrable Securities to be included in such registration by
such Holder(s) and the intended method of distribution thereof, including
an underwritten offering. All such requests pursuant to this Section
2.1(a) are referred to herein as "Demand Registration Requests", and the
registrations so requested are referred to herein as "Demand
Registrations" (with respect to any Demand Registration, the Holder(s)
making such demand for registration being referred to as the "Initiating
Holders"). As promptly as practicable, but no later than 15 days after
receipt of a Demand Registration Request, the Company shall give written
notice (the "Demand Exercise Notice") of such Demand Registration Request
to all Holders of Registrable Securities.

                  (b) Registration of Other Securities. The Company shall
include in a Demand Registration (i) the Registrable Securities requested
to be included therein by the Initiating Holders and (ii) the Registrable
Securities of any other Holder which shall have made a written request to
the Company for inclusion thereof in such registration (which request
shall specify the maximum number of Registrable Securities intended to be
disposed of by such Holder(s)) within 30 days after their receipt of the
Demand Exercise Notice.

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                  (c) Registration. The Company shall, as expeditiously
as possible following a Demand Registration Request, use its best efforts
to effect such registration under the Securities Act (including, without
limitation, by means of a shelf registration pursuant to Rule 415 under
the Securities Act if so requested and if the Company is then eligible to
use such a registration) of the Registrable Securities that the Company
has been so requested to register, for distribution in accordance with
such intended method of distribution.

                  (d) Limitations on Requested Registrations. The rights
of Holders of Registrable Securities to request Demand Registrations
pursuant to Section 2.1(a) are subject to the following limitations: (i)
the Company shall not be obligated to effect a Demand Registration within
a period, not to exceed 135 days, after the effective date of any other
registration of securities of the Company (other than pursuant to a
registration on Form S-4 or Form S-8 or any successor or similar form(s)
which is then in effect) but only if and to the extent the underwriter(s)
of such other registration of securities requires that such Demand
Registration not be effected during such period and (ii) in no event
shall the Company be required to effect a Demand Registration after the
Company has effected two Demand Registrations and such Demand
Registrations have been declared or ordered effective by the SEC;
provided that as to (ii) above if the underwriter in a Demand
Registration restricts the number of Registrable Securities for inclusion
in what would otherwise be the final Demand Registration under this
Section 2.1, such Demand Registration shall not be deemed to be a Demand
Registration for purposes of the limitation to two (2) Demand
Registrations under this Section 2.1(d)(ii).

                  (e) Cutbacks. If the managing underwriter of any
underwritten offering shall advise the Holders participating in a Demand
Registration that the Registrable Securities covered by the registration
statement cannot be sold in such offering within a price range acceptable
to the Requisite Percentage of Participating Holders, then the Holders
representing the Requisite Percentage of Participating Holders shall have
the right to notify the Company in writing that they have determined that
the registration statement be abandoned or withdrawn, in which event the
Company shall abandon or withdraw such registration statement. If the
managing underwriter of any underwritten offering shall advise the
Company in writing that, in its opinion, the number of securities
requested to be included in a Demand Registration exceeds the number
which can be sold in such offering within a price range acceptable to the
Requisite Percentage of Participating Holders and Holders representing
the Requisite Percentage of Participating Holders do not elect to abandon
or withdraw the registration, the Company will include in such
registration, to the extent of the number which the Company is so advised
can be sold in such offering, Registrable Securities requested to be
included in such registration, pro rata among the Holders requesting such
registration in accordance with the number of Registrable Securities so
requested to be registered.

                  (f)      Postponements; Suspensions.

                  (i) If at the time of any request to register
Registrable Securities pursuant to this Section 2 the Company is engaged
or has fixed plans to engage within ninety (90) days of the time of the
request in a registered public offering as to which the Holders may
include Registrable Securities pursuant to Section 2.2, then the Company
may at its option direct that such request be delayed for a period not in
excess of ninety (90) days from the earlier of the effective date of such
offering or the

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date of commencement of such other material activity, provided that in no
event shall such right to delay a request to be exercised by the Company
more than once in any one-year period.

                  (ii) If the Board of Directors of the Company, in its
good faith judgment, determines that any registration under the
Securities Act of Registrable Securities should not be made or continued
because it would materially interfere with any material financing,
acquisition, corporation reorganization, merger, or other transaction
involving the Company or any of its subsidiaries (a "Valid Business
Reason"), (i) the Company may postpone filing a Registration Statement
until such Valid Business Reason no longer exists, but in no event for
more than sixty (60) days, and (ii) in case a Registration Statement has
been filed, if the Valid Business Reason has not resulted from actions
taken by the Company, the Company may postpone amending or supplementing
such Registration Statement until such Valid Business Reason no longer
exists, but in no event for more than sixty (60) days (the "Postponement
Period"); provided, however, that in no event shall the Company be
permitted to postpone filing, amending or supplementing a Registration
Statement within one hundred twenty (120) days after the expiration of
any Postponement Period.

         2.2.     Piggyback Registrations.

                  (a) Piggyback Registrations. If, at any time, the
Company proposes or is required to register any of its equity securities
under the Securities Act (other than pursuant to (i) registrations on
Form S-4 or Form S-8 or such form or similar form(s) solely for
registration of securities in connection with an employee benefit plan or
dividend reinvestment plan or a merger, consolidation or acquisition or
(ii) a Demand Registration under Section 2.1) on a registration statement
on Form S-1, Form S-2 or Form S-3 (or an equivalent general registration
form then in effect), whether for its own account or the account of other
security holders, the Company shall give prompt written notice of its
intention to do so to each of the Holders of Registrable Securities. Upon
the written request of any Holder, made within 15 days following the
receipt of any such written notice (which request shall specify the
maximum number of Registrable Securities intended to be disposed of by
such Holder and the intended method of distribution thereof), the Company
shall use, subject to Sections 2.2(b) and 2.2(d) hereof, its best efforts
to cause all such Registrable Securities, the Holders of which have so
requested the registration thereof, to be registered under the Securities
Act (with the securities which the Company at the time proposes to
register) to permit the sale or other disposition by the Holders (in
accordance with the intended method of distribution thereof) of the
Registrable Securities to be so registered. There is no limitation on the
number of such piggyback registrations pursuant to the preceding sentence
which the Company is obligated to effect.

                  (b) Abandonment or Delay. If, at any time after giving
written notice of its intention to register any equity securities and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such equity
securities, the Company may, at its election, give written notice of such
determination to all Holders of record of Registrable Securities and (i)
in the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
abandoned registration, without prejudice, however, to the rights of
Holders under Section 2.1, and (ii) in the case of a determination to
delay such registration of its equity securities,

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shall be permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering such other
equity securities.

                  (c) Holder's Right to Withdraw. Any Holder shall have
the right to withdraw its request for inclusion of its Registrable
Securities in any registration statement pursuant to this Section 2.2 by
giving written notice to the Company of its request to withdraw;
provided, however, that (i) such request must be made in writing prior to
the earlier of the execution of the underwriting agreement or the
execution of the custody agreement with respect to such registration and
(ii) such withdrawal shall be irrevocable and, after making such
withdrawal, a Holder shall no longer have any right to include
Registrable Securities in the registration as to which such withdrawal
was made.

                  (d) Cutbacks. If the managing underwriter of any
underwritten offering shall inform the Company by letter of its belief
that the number of Registrable Securities requested to be included in a
registration under this Section 2.2 would materially adversely affect
such offering, then the Company will include in such registration, first,
the securities being included in such registration by the holder(s) of
securities initiating such registration pursuant to the terms of any
contractual demand registration rights that may be granted to any Person
other than pursuant to this Agreement (or, if the Company initiates the
registration, the securities being included in such registration by the
Company), and second, the Registrable Securities to be included in such
registration to the extent of the number and type, if any, which the
Company is so advised can be sold in (or during the time of) such
offering, pro rata among the Holders requesting to participate in such
offering pursuant to this Section 2.2 in accordance with the number of
Registrable Shares held by, or issuable upon conversion of Convertible
Notes held by, each such Holder.

         2.3.  Existing Shares Registration.

        (a) Subject to its suspension rights under Section 2.1(f)(ii)
hereof, the Company shall use its best efforts to maintain the effectiveness of
the "shelf" Registration Statement (SEC File No. 333-72357) (the "Existing
Shelf") filed pursuant to the Old Registration Agreement with respect to the
Existing Shares and to comply with the obligations set forth in Section 4 hereof
with respect to such Existing Shelf.

         (b)   So long as such Existing Shelf continues to be effective,
the Holders of the Existing Shares may not request a further registration
with respect to the Existing Shares pursuant to this Agreement, provided,
however, that such Holders may request the Company to take such action as
may be necessary to permit sales of the Existing Shares together with
other Registrable Securities pursuant to an underwritten offering. To
effect such an underwritten offering, if an underwriting is not available
with respect to the Existing Shelf, then the Company shall take such
action as may be necessary to allow the Existing Shares to be sold
pursuant to an underwritten offering, including, but not limited to
terminating the Existing Shelf and filing a new registration statement or
combining the Existing Shelf with a new registration statement pursuant
to Rule 429 of the Securities Act.

         3. Allocation of Expenses. The Company will pay all reasonable
Registration Expenses of all registrations under this Agreement;
provided, however, that in an underwritten offering in which the Holders
receive net proceeds of such offering in excess of $5.00 per share, the
Holders

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participating in such offering will pay the following fees and expenses:
(a) fees with respect to filings to be made and other expenses associated
with the NASD and any other applicable exchange, (b) fees and expenses of
compliance with state securities or blue sky laws, (c) fees and expenses
of any "qualified independent underwriter" or other independent appraiser
participating in an offering pursuant to the NASD Rules of Conduct and
the corresponding rules of any other applicable exchange; (d) the
expenses relating to printing, word processing and distributing
underwriting agreements and securities sales agreements; and (e) any fees
and disbursements of underwriters and broker-dealers customarily paid by
sellers of securities.

         4. Obligations of the Company. If and whenever the Company is
required to use best efforts to effect the registration under the
Securities Act of any Registrable Securities pursuant to this Agreement,
the Company shall:

            (a) file with the Commission, as promptly as practicable, a
Registration Statement with respect to such Registrable Securities and make all
required filings with the NASD and any other applicable exchange;

            (b) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the Prospectus used in connection
therewith and such other documents as may be necessary to keep the Registration
Statement continuously effective until (i) the consummation of the disposition
by the Holders of all the Registrable Securities covered by such Registration
Statement or (ii) the date all Registrable Securities are freely salable by the
Holders pursuant to Rule 144(k);

            (c) furnish to counsel (if any) selected by the Holders of a
majority of the Registrable Securities covered by such Registration Statement
and to counsel for the underwriters in any underwritten offering copies of all
documents proposed to be filed with the Commission in connection with such
registration (other than documents to be incorporated by reference) a reasonable
time prior to the proposed filing thereof and give reasonable consideration in
good faith to any comments of such Holders, counsel and underwriters;

            (d) furnish to each Holder of such securities, without charge, such
number of conformed copies of such Registration Statement and of each such
amendment and supplement thereto (in each case, including all exhibits
(including all exhibits incorporated by reference), financial statements,
schedules, and all documents incorporated therein, deemed to be incorporated
therein by reference or filed therewith, except that the Company shall not be
obligated to furnish any Holder of securities with more than two copies of such
exhibits and documents), such numbers of copies of the Prospectus included in
such Registration Statement (including each preliminary prospectus) in
conformity with the requirements of the Securities Act, and such other
documents, as such Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder;

            (e) use its best efforts to register or qualify and cooperate with
the Holders of Registrable Securities, the underwriters and their respective
counsels in connection with the

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registration or qualification (or exemption from such registration or
qualification) of the securities covered by such Registration Statement under
such other securities or blue sky laws of such jurisdictions as each Holder
shall request; provided, however, that where Registrable Securities are offered
other than through an underwritten offering, the Company agrees to cause its
counsel to perform blue sky investigations and file registrations and
qualification required to be filed pursuant to this Section 4(e); keep each such
registration or qualification (or exemption therefrom) effective during the
period such Registration Statement is required to be effective hereunder and do
any and all other acts and things which may be necessary or advisable to enable
such Holder to consummate the disposition in such jurisdictions of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified, subject itself to taxation
in any jurisdiction wherein it is not so subject, or take any action which would
subject it to general service of process in any jurisdiction wherein it is not
so subject;

            (f) notify each Holder of Registrable Securities subject to such
Registration Statement if a Prospectus included in such Registration Statement,
as then in effect, includes an untrue statement of a material fact or omits 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 upon discovery by the Company of such material misstatement or
omission or upon the discovery by the Company of the happening of any event as a
result of which the Company believes that there would be a material misstatement
or omission, and, as promptly as is practicable, prepare and furnish to such
Holder a reasonable number of copies of a supplement to or an amendment of such
Prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such Prospectus shall not include 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, in light of the
circumstances under which they were made, not misleading;

            (g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement of the Company
complying with the provisions of Section 11(a) of the Securities Act and Rule
158 under the Securities Act (or any similar rule promulgated under the
Securities Act);

            (h) promptly notify each Holder of Registrable Securities covered by
such Registration Statement, their counsel and the underwriters (i) when such
Registration Statement, or any post-effective amendment to such Registration
Statement, shall have become effective, or any amendment of or supplement to the
Prospectus used in connection therewith shall be filed, (ii) of any request by
the Commission to amend such Registration Statement or to amend or supplement
such Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation or threatening of any proceedings for any of such
purposes, (iv) of the suspension of the qualification of such securities for
offering or sale in any jurisdiction, or of the institution of any proceedings
for any of such purposes and (v) if, at any time when a Prospectus is to be
required by the Securities Act to be delivered in connection with the sale

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of the Registrable Securities, the representations and warranties of the Company
contained in any the underwriting agreement contemplated in Section 5(b) below,
to the knowledge of the Company, cease to be true and correct in any material
respect;

            (i) use its best efforts to prevent the issuance of any order
suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Securities covered
thereby for sale in any jurisdiction, and, if any such order is issued, to
obtain the withdrawal of any such order at the earliest possible moment;

            (j) if requested by the managing underwriter, if any, or the Holders
of a majority of the Registrable Securities being sold in connection with an
underwritten offering, (i) promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter, if any,
or such Holders reasonably request to be included therein to comply with
applicable law, and (ii) make all required filings of such prospectus supplement
or such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment;

            (k) use its best efforts to cause the Registrable Securities covered
by a Registration Statement to be registered with, and to obtain the consent or
approval of, each governmental agency or authority, whether federal, state,
local or foreign, which may be required to effect such registration or the
offering or sale in connection therewith or to enable the Holders to offer, or
to consummate the disposition of, the Registrable Securities subject to such
Registration Statement, except as may be required solely as a consequence of the
nature of such Holder's business, in which case the Company will cooperate with
all reasonable respects with the filing of the Registration Statement and the
granting of such approvals;

            (l) cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to the Registration Statement and not bearing any Securities Act
legend, and cause certificates for such Registrable Securities to be issued for
such numbers of shares and registered in such names as the Holders may
reasonably request at least two (2) Business Days prior to any sale of
Registrable Securities;

            (m) agree not to file or make any amendment to any Registration
Statement with respect to any Registrable Securities, or any amendment of or
supplement to the Prospectus used in connection therewith, which refers to any
Holder of any securities covered thereby by name, or otherwise identifies such
Holder as the holder of any securities of the Company, without the consent of
such Holder, such consent not to be unreasonably withheld, except that no such
consent shall be required for (i) any disclosure that is necessary to comply
with federal and state securities laws, (ii) any disclosure that is necessary to
avoid or correct a misstatement or omission in any Registration Statement or
Prospectus, (iii) the release of information that is ordered pursuant to a
subpoena or other order from a court or governmental body of competent
jurisdiction, or (iv) such other information as has been made generally
available to the public other than by violation of this agreement;

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            (n) upon reasonable notice, make its officers available to
participate in a standard securities offering "road show" of not longer than 7
days' duration (or such other period as may be agreed to by the Company and the
Requisite Percentage of Participating Holders) in connection with an
underwriter's efforts to offer the Registrable Securities as part of an
underwritten offering under this Agreement, provided that the Company may delay
such participation for up to 30 days if the Board of Directors of the Company
determines that the requested time of such participation would cause undue
hardship on the Company.

         5. Underwritten Offerings. The provisions of this Section 5 do
not establish additional registration rights or give the Holders any
right to participate in any Company-initiated offering, underwritten or
otherwise, but instead set forth procedures applicable, in addition to
those set forth in Sections 2 and 4, to any registration that is an
underwritten offering.

            (a) Underwriting Agreement. If requested by the underwriters
for any underwritten offering by Holders, the Company shall enter into an
underwriting agreement with such underwriters for such offering, such
agreement to be reasonably satisfactory in substance and form to the
Holders of a majority of the Registrable Securities to be covered by such
registration and to the underwriters and to contain such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in agreements of this type, including, but not
limited to, indemnities to the effect and to the extent provided in
Section 8, provisions for the delivery of officers' certificates,
opinions of counsel and accountants' "cold comfort" letters, and
hold-back arrangements. The Holders of Registrable Securities to be
distributed by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the agreements on the part of, the
Company to and for the benefit of such underwriters be made to and for
the benefit of such Holders and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreements shall also be conditions precedent to the obligations of such
Holders. No such Holders shall be required by the Company to make any
representations or warranties to, or agreements with, the Company or the
underwriters other than representations, warranties or agreements
regarding such Holder and such Holder's intended method of distribution.

            (b) Selection of Underwriters. The Holders of a majority of
the Registrable Securities to be registered pursuant to such offering
shall have the right to select one or more underwriters to administer the
offering, subject to the consent of the Company, which shall not be
unreasonably withheld.

            (c) Inclusion of Securities in an Underwritten Offering. No
securities of any selling stockholder (other than a Holder) shall be
included in an underwritten offering initiated by a Holder without the
prior written consent of Holders of not less than 75% of the Registrable
Securities proposed to be sold in such underwritten offering.

         6. Preparation, Reasonable Investigation. In connection with the
preparation and filing of each Registration Statement registering
Registrable Securities under the Securities Act, upon

                                      -11-

<PAGE>

receipt of reasonable assurances of confidentiality, the Company shall give the
Holders of Registrable Securities to be so registered and their underwriters, if
any, and their respective counsel and accountants, the opportunity to
participate in the preparation of such Registration Statement, each Prospectus
included therein (other than documents to be incorporated by reference) or filed
with the Commission, and each amendment thereof or supplement thereto, and shall
give each of them such access to all pertinent financial, corporate, and other
documents and properties of the Company and its Subsidiaries, and such
opportunities to discuss the business of the Company with its officers,
directors, employees and the independent public accountants who have issued
audit reports on its financial statements as shall be necessary, in the opinion
of such Holders' and such underwriters' respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act.

         7. Certain Obligations of Holders.

            (a) The Company may require each Holder of any Registrable
Securities as to which any registration is being effected to furnish to
the Company such information regarding such Holder and the intended
method of disposition of such securities as the Company may from time to
time reasonably request in writing and as shall be required to effect the
registration of such Holder's Registrable Securities. Each such Holder
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the
Company by such Holder not materially misleading.

            (b) Each Holder of Registrable Securities covered by a
Registration Statement agrees that, upon receipt of any notice from the
Company pursuant to Section 4(f), such Holder will promptly discontinue
the disposition of Registrable Securities pursuant to such Registration
Statement until such Holder shall have received either notice from the
Company that (i) such Registration Statement has been amended and has
received copies of the supplemented or amended Prospectus or (ii) use of
the Prospectus or Prospectus Supplement may be resumed. If so directed by
the Company, each Holder will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, in such Holder's
possession of the Prospectus covering such Registrable Securities at the
time of receipt of such notice.

         8. Indemnification and Contribution.

            (a) In the event of any registration of any of the Registrable
Securities under the Securities Act pursuant to this Agreement (including for
these purposes the Existing Shelf), the Company will indemnify and hold harmless
the Holder of such securities, its directors, officers, and employees, each
other Person who participates as an underwriter, broker or dealer in the
offering or sale of such securities, and each other Person, if any, who controls
such Holder, underwriter, broker, dealer or any such participating Person within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities, joint or several, to which such Holder or any
such director, officer, employee, underwriter, broker, dealer, participating
Person, or controlling Person may become subject, insofar as such losses,
claims, damages, or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement under which such
Registrable

                                       12

<PAGE>

Securities were registered under the Securities Act or Prospectus contained in
the Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company shall reimburse such Holder
and each such director, officer, employee, underwriter, broker, dealer,
participating Person, and controlling Person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding as such
expenses are incurred; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon any untrue statement or omission made in
such Registration Statement or Prospectus, or any such amendment or supplement,
in reliance upon and in conformity with information furnished to the Company, in
writing, by or on behalf of such Holder, underwriter, participating Person or
controlling Person specifically for use in the preparation thereof; provided,
further, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or Prospectus contained therein or any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if (i) such untrue
statement or omission is corrected in an amendment or supplement to the
Prospectus or Prospectus supplement and the seller of the Registrable Securities
thereafter fails to deliver the Prospectus or Prospectus supplement as so
amended or supplemented prior to or concurrently with the sale of the
Registrable Securities to the person asserting such loss, claim, damage or
liability after the Company has furnished such seller with a sufficient number
of copies of the same or (ii) if the seller received written notice from the
Company of the existence of such an untrue statement or an omission and the
seller continued to dispose of Registrable Securities prior to the time of the
receipt of either (A) an amended or supplemented Prospectus or Prospectus
supplement or (B) a notice from the Company that the use of the existing
Prospectus or Prospectus supplement may be resumed.

            (b) In the event of any registration of any of the Registrable
Securities under the Securities Act pursuant to this Agreement, each Holder of
such securities, severally and not jointly, will indemnify and hold harmless the
Company, each of its directors and officers and each underwriter (if any) and
each person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities, joint or several, to which the Company, such directors
and officers, underwriters, or controlling Persons may become subject, insofar
as such losses, claims, damages, or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such securities were registered under the Securities Act or
Prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such Holder furnished in writing to the Company by or on
behalf of such Holder expressly for use in connection with the preparation of
such Registration Statement, Prospectus, amendment, or supplement; provided,
however, that the liability of each such Holder hereunder shall be in proportion
to and limited to the net amount received by

                                      -13-

<PAGE>

such Holder (after deducting any underwriting discount and expenses) from the
sale of Registrable Securities sold in connection with such registration.

            (c) Promptly after receipt by a person entitled to indemnification
pursuant to this Section 8 ("Indemnitee") of notice of the commencement of any
action or the written assertion of any claim subject to indemnification under
this Section 8, the Indemnitee shall notify the Person obligated to provide
indemnification pursuant to this Agreement (the "Indemnifying Person"), in
writing of the commencement or the written assertion thereof. Failure by an
Indemnitee to so notify the Indemnifying Person shall relieve the Indemnifying
Person from the obligation to indemnify such Indemnitee only to the extent that
the Indemnifying Person suffers actual and material prejudice as a result of
such failure but in no event shall such failure to notify the Indemnifying
Person (i) constitute prejudice suffered by the Indemnifying Person if it has
otherwise received notice of the actions giving rise to such obligation to
indemnify or (ii) relieve it from any liability or obligation that it may
otherwise have to such Indemnitee. In case any such action or claim shall be
brought or asserted against any Indemnitee and it shall notify the Indemnifying
Person of the commencement or assertion thereof, the Indemnifying Person shall
assume the defense of such action or claim, including employment of counsel to
be chosen by the Indemnifying Party (which counsel shall be reasonably
satisfactory to the Indemnitee) and payment of expenses. The Indemnitee shall be
entitled to employ its own counsel in any such case, but the legal fees and
expenses of such counsel shall be at the expense of the Indemnitee, unless the
employment of such counsel shall have been authorized in writing by the
Indemnifying Party in connection with the defense of such action, or the
Indemnifying Party shall not have employed counsel to take charge of the defense
of such action or the Indemnitee shall have reasonably concluded that there may
be defenses available to it or them which are different from or in addition to
those available to the Indemnifying Party, in any of which events such fees and
expenses shall be borne by the Indemnifying Party. Without the prior consent of
the Indemnitee, no Indemnifying Party shall enter into any settlement of any
such action or claim that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnitee of a release from all
liability in respect to such claim or litigation.

            (d) If for any reason the foregoing indemnity is unavailable, or is
insufficient to hold harmless an Indemnitee, other than by reason of the
exceptions provided in this Section 8, then the Indemnifying Person shall
contribute to the amount paid or payable by the Indemnifying Person as a result
of such losses, claims, damages liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Person on the one
hand and the Indemnitee on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, or liabilities, as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Holders of
Registrable Securities covered by the Registration Statement in question and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

            (e) The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method

                                      -14-
<PAGE>

of allocation which does not take account of the equitable considerations
referred to in Section 8(d). The amount paid or payable by an Indemnitee as a
result of the losses, claims, damages and liabilities referred to in Section
8(d) shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such Indemnitee in connection
with investigating or defending any such claim or litigation. Notwithstanding
anything to the contrary in this Section 8, (A) no such Holder will be required
to contribute any amount in excess of the proceeds it received from the sale of
its Registrable Securities pursuant to such Registration Statement, (B) no
Person guilty of fraudulent misrepresentation, within the meaning of Section
11(f) of the Securities Act, shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation and (c) no party shall
be liable for contribution under this Section 8 except to the extent and under
such circumstances as such party would have been liable to indemnify under this
Section 8 if such indemnification were enforceable under applicable law.

        9.  [Reserved]

        10. Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated
under the Securities Act and any other rule or regulation of the
Commission that may at any time permit a Holder to sell Registrable
Securities of the Company to the public without registration and to
making Form S-3 under the Securities Act available for the registration
of Registrable Securities, the Company agrees to:

            (a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;

            (b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and

            (c) furnish to any Holder, so long as such Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 under
the Securities Act, any other such applicable reporting requirements under the
Securities Act and all applicable reporting requirements under the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the Commission which permits the selling of any such securities
without Registration or pursuant to such form.

         11. Successors, Assigns and Transferees. This Agreement shall be
binding upon and shall inure to the benefit of each party hereto, and
their respective successors, assigns and transferees. The Investor or any
other Holder under this Agreement may assign its rights under this
Agreement to any Affiliate or to other successors, assigns and
transferees of the Investor or any such Holder; provided, however, that
the Company is given written notice from the Investor or any such Holder
at the time of such transfer stating the name and address of the
transferee or assign and identifying the securities with respect to which
the rights hereunder are being transferred. As a condition to the
effectiveness of any transfer permitted hereunder (i) the transferee or
assignee shall agree, in writing, upon request

                                      -15-

<PAGE>

of the Company, to be bound by the provisions of this Agreement, and (ii) the
Company shall be given written notice at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assign and identifying the securities with respect to which such
registration rights are being assigned. This Agreement shall survive any
transfer of Registrable Securities to and shall inure to the benefit of an
Affiliate or such other successors, assigns and transferees of the Investor or
any such Holder. In addition, and whether or not any express transfer or
assignment shall have been made, the provisions of this Agreement which are for
the benefits of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent Holder or Registrable Securities.

        12. Transfer Restrictions.

        Investor understands that:

        (a) The offer and sale of the Newly Acquired Shares, the Convertible
Note and the Conversion Shares (together, the "Securities") have not been
registered under the Securities Act, or under the securities laws of any state
of the United States or of any foreign jurisdiction;

        (b) No resales of the Securities may be effected unless the resale
of any such shares is registered under the Securities Act or an exemption
therefrom is available and all applicable state and foreign securities laws are
complied with;

        (c) The following restrictive legend shall be placed on the certificates
representing the Securities (other than the Convertible Note):

                                    THE SHARES REPRESENTED BY THIS
                           CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
                           SECURITIES ACT OF 1933, AS AMENDED, OR ANY
                           OTHER SECURITIES LAWS. SUCH SHARES MAY NOT BE
                           SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN
                           THE ABSENCE OF SUCH REGISTRATION OR AN
                           EXEMPTION FROM SAID ACT OR SUCH OTHER LAWS
                           AND, IF REQUESTED BY THE ISSUER, AN OPINION OF
                           COUNSEL REASONABLY SATISFACTORY TO THE ISSUER
                           THAT SUCH REGISTRATION IS NOT REQUIRED, OR IS
                           EXEMPT FROM SAID ACT OR SUCH OTHER LAWS.

                  Appropriate stop-transfer instructions will be issued
                  to the Company's transfer agent with respect to the
                  Newly Acquired Shares and the Conversion Shares until
                  such time as the foregoing legend is removed from the
                  Newly Acquired Shares and the Conversion Shares
                  pursuant to the next paragraph.

        (d) The Company covenants and agrees that, with respect to the Newly
Acquired Shares and any Conversion Shares issued, stop-transfer instructions and
the restrictive legend shall be promptly removed by delivery of substitute
certificates without such legend for such shares upon (i)

                                      -16-

<PAGE>

delivery to the Company of evidence of the transfer of such shares represented
by such certificate pursuant to a registration statement under the Securities
Act or in accordance with the applicable provisions of Rule 144 under the
Securities Act, or (ii) the delivery by Investor to the Company of a letter from
the staff of the SEC, or an opinion of counsel in form and substance reasonably
satisfactory to the Company, to the effect that such shares do not require
further registration under the Securities Act for subsequent transfer by the
holders thereof.

        13. Miscellaneous.

        (a) Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to its securities
that would adversely affect the ability of the Holders to include such
Registrable Securities in a registration undertaken pursuant to this Agreement.

        (b) No Waivers. No failure or delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.

        (c) Amendments. Any provision of this Agreement may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by the
Company and the Investor.

        (d) Severability. If any term or provision of this Agreement is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms and provisions shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.

        (e) Notices. All notices, requests and other communications to any party
hereunder shall be given in writing (including on telecopier or similar writing)
and shall be given to such party at its address, or telecopier number set forth
on the signature pages hereof, or such other address, or telecopier number as
such party may hereafter specify for such purpose. Each such notice, request or
other communication shall be effective (i) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified on the signature page
hereto and the appropriate answer back (i.e., machine confirmation or telephone
confirmation) is received, (ii) if given by mail, by registered mail only 72
hours after such communication is deposited in the mail with first class postage
prepaid, addressed as aforesaid, or (iii) if given by any other means, when
received at the address specified on the signature page hereto.

        (f) Entire Agreement. This Agreement and the Transaction Documents (as
defined in the Restructuring Agreement) constitute the entire agreement and
understanding among the parties hereto with respect to the transactions
contemplated hereby and supersedes any and all prior agreements and
understandings, written or oral, relating to the subject matter hereof.

                                      -17-

<PAGE>

        (g) Governing Law. The laws of the State of New York shall govern the
interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under applicable principles of
conflicts of laws.

        (h) Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original with the same effect as if the signatures thereto
and hereto were upon the same instrument.

        (i) No Third Party Beneficiaries. Except as provided by Sections 8 and
11, nothing in this Agreement shall confer any rights upon any Person other than
the parties hereto, each such party's respective successors and permitted
assigns and transferees.

                            [Signature page follows]

                                      -18-

<PAGE>

             IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers or
representatives, as of the date first above written.

TALK AMERICA HOLDINGS, INC.

By:    /s/ Aloysius T. Lawn, IV          Address:
   ---------------------------------     -------
   Name:  Aloysius T. Lawn, IV           Talk America Holdings, Inc.
   Title: Executive Vice President,      6805 Route 202
          GeneralCounsel and Secretary   New Hope, Pennsylvania  18938
                                         Fax: 215-862-1515
                                         Attention: Chief Financial Officer

AMERICA ONLINE, INC.

By:    /s/ Lynda Clarizio                Address:
   --------------------------------      -------
   Name:  Lynda Clarizio                 America Online, Inc.
   Title: Senior Vice President          22000 AOL Way
                                         Dulles, Virginia  20166
                                         Fax:  (703) 265-2208
                                         Attention:  General Counsel

                                             with a copy to:
                                             America Online, Inc
                                             22000 AOL Way
                                             Dulles, Virginia  20166
                                             Fax:  (703) 265-1202
                                             Attention:  Senior Vice President,
                                               Head of Business Affairs

                                  - 19 -EXHIBIT 10.3

                          SECURITY AND PLEDGE AGREEMENT

                                      AMONG

                    TALK AMERICA HOLDINGS, INC., AS GRANTOR,

                   STATE STREET BANK AND TRUST COMPANY, N.A.,

             AS COLLATERAL AGENT ON BEHALF OF AMERICA ONLINE, INC.,

                                       AND

                              AMERICA ONLINE, INC.

                                   DATED AS OF

                               SEPTEMBER 19, 2001

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                      <C>
ARTICLE I Definitions....................................................................................1

         Section 1.01      Definition of Terms Used Herein...............................................1

         Section 1.02      Definition of Certain Terms Used Herein.......................................1

         Section 1.03      Rules of Interpretation.......................................................5

ARTICLE II Security Interest.............................................................................6

         Section 2.01      Security Interest.............................................................6

         Section 2.02      No Assumption of Liability....................................................7

         Section 2.03      Power of Attorney.............................................................7

ARTICLE III Representations and Warranties...............................................................7

         Section 3.01      Organization, Standing, etc...................................................7

         Section 3.02      Authorization; Binding Effect.................................................8

         Section 3.03      No Violations; Consents and Approvals.........................................8

         Section 3.04      Title, No Liens and Authority.................................................9

         Section 3.05      Filings.......................................................................9

         Section 3.06      Possession...................................................................10

         Section 3.07      Control..................................................................... 10

         Section 3.08      Marking of Chattel Paper.....................................................10

         Section 3.09      Validity of Security Interest................................................10

         Section 3.10      Recourse.....................................................................10

ARTICLE IV Covenants....................................................................................11

         Section 4.01      Change of Name; Location of Collateral; Records; Place of Business...........11

         Section 4.02      Protection of Collateral Agent's Security....................................11

         Section 4.03      Modification of Terms, etc...................................................11

         Section 4.04      Collection...................................................................12

         Section 4.05      Financing Statements.........................................................12

         Section 4.06      Further Assurances...........................................................12

         Section 4.07      Additional Shares............................................................12

ARTICLE V Remedies......................................................................................13

         Section 5.01      Rights of Grantor............................................................13
</TABLE>

                                       i

<PAGE>

<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                     <C>

         Section 5.02      Remedies upon Occurrence of Event of Default.................................13

         Section 5.03      Remedies; Disposition of the Collateral......................................15

         Section 5.04      Restrictions.................................................................16

         Section 5.05      Waiver of Claims.............................................................17

         Section 5.06      Application of Proceeds......................................................18

         Section 5.07      Remedies Cumulative..........................................................18

         Section 5.08      Discontinuance of Proceedings................................................18

ARTICLE VI Collateral Agent Duties; Indemnity...........................................................19

         Section 6.01      Limitation of Liability......................................................19

         Section 6.02      Grantor Indemnity............................................................21

         Section 6.03      Indemnity Obligations Secured by Collateral; Survival........................22

         Section 6.04      Fees and Indemnity...........................................................22

ARTICLE VII Miscellaneous...............................................................................23

         Section 7.01      Notices......................................................................23

         Section 7.02      Entire Agreement.............................................................24

         Section 7.03      Binding Effect; Assignment; Several Agreement................................24

         Section 7.04      Governing Law................................................................24

         Section 7.05      Waivers; Amendment...........................................................24

         Section 7.06      Severability.................................................................25

         Section 7.07      Counterparts.................................................................25

         Section 7.08      Headings.....................................................................25

         Section 7.09      Obligations Absolute.........................................................25

         Section 7.10      Grantor's Duties.............................................................25

         Section 7.11      Action by Investor...........................................................26

         Section 7.12      Termination..................................................................26

         Section 7.13      Dispute Resolution...........................................................26

         Section 7.14      Consent to Jurisdiction and Service..........................................26

         Section 7.15      Force Majeure................................................................26

         Section 7.16      Reproduction of Documents....................................................26

         Section 7.17      Releases.....................................................................27

         Section 7.18      Representations and Warranties...............................................27

Schedule I to the Security and Pledge Agreement.........................................................29

Schedule II to the Security and Pledge Agreement........................................................30

</TABLE>

                                       ii

<PAGE>

<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>                                                                                                     <C>

Schedule III to the Security and Pledge Agreement.......................................................32

</TABLE>

                                      iii

<PAGE>

         SECURITY AND PLEDGE AGREEMENT dated as of September 19, 2001 (the
"Security Agreement") among Talk America Holdings, Inc., a Delaware corporation
(the "Grantor"), and State Street Bank and Trust Company, N.A., as collateral
agent (the "Collateral Agent") on behalf of America Online, Inc. ("AOL") and its
successors and assigns, as holders of the Convertible Note (AOL and such
successors and assigns, the "Investor") and AOL.

         Reference is made to the Restructuring and Note Agreement dated as of
September 19, 2001, (the "Restructuring Agreement"), between the Grantor and the
Investor pursuant to which, inter alia, the Grantor is delivering to the
Investor one or more 8% senior convertible promissory notes of the Grantor in
the initial aggregate principal amount of $54,000,000 (collectively, the
"Convertible Note"). The Restructuring Agreement provides that, as a condition
to the Investor's agreement to accept the Convertible Note, the Grantor is to
execute a security and pledge agreement for the benefit of the Investor to
secure its obligations to the Investor under the Convertible Note.

         Accordingly, the Grantor, the Collateral Agent and the Investor (for
themselves and their respective permitted successors or assigns) for good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged) and intending to be legally bound, hereby agree as follows:

                                   ARTICLE I

                                   Definitions

        Section 1.01 Definition of Terms Used Herein. Unless the context
otherwise requires, all capitalized terms used but not defined herein shall have
the meanings set forth in the Restructuring Agreement. Upon execution hereof,
the Grantor shall provide a complete and accurate copy of the Restructuring
Agreement to the Collateral Agent. Reference in this Security Agreement to the
defined terms therein is for convenience only and shall not obligate the
Collateral Agent to interpret, determine compliance with or otherwise become
bound by, the Restructuring Agreement.

        Section 1.02 Definition of Certain Terms Used Herein. As used herein,
the following terms shall have the following meanings:

         "Accounts" shall mean all "accounts" and "deposit accounts" as such
terms are defined in the UCC and, to the extent not included within such
definitions, all accounts receivable, book debts and other forms of obligations,
whether arising out of goods sold or services rendered by Grantor or from any
other transaction, including, without limitation, any such obligation that might
be characterized as an account or contract right under the UCC, and all of
Grantor's rights in, to and under all purchase orders or receipts for goods or
services, all of Grantor's rights to any goods represented by any of the
foregoing, all moneys due or to become due to Grantor under all contracts for
the sale of goods or the performance of services or both by Grantor (whether or
not yet earned by performance on the part of Grantor or in any other
transaction), now in existence or

<PAGE>

hereafter occurring, and expressly including, without limitation, rights to
receive the proceeds of, from or in connection with purchase orders or contracts
for the provision of telephone and other communication services, including,
without limitation, all agreements with and sums due from customers and other
persons, and all books and records recording, evidencing or relating to such
rights or any part thereof, and all collateral security and guarantees of any
kind given by any person with respect to any of the foregoing.

         "Collateral" shall mean all (a) Accounts, (b) Contracts and Leases, (c)
Equipment and Licenses, (d) Furniture and Fixtures, (e) General Intangibles, (f)
Inventory, (g) cash and cash accounts, (h) Miscellaneous Items, (i) Pledged
Collateral and (j) Proceeds, if any.

         "Contracts and Leases" shall mean all contracts, undertakings, leases
or other agreements in or under which Grantor may now or hereafter have any
right, title or interest including, without limitation, (a) construction
contracts, subscriber contracts, customer service agreements, management
agreements, rights of way, easements, tower agreements, cell site agreements,
pole attachment agreements, transmission capacity agreements, public utility
contracts and other agreements to which the Grantor is a party, whether now
existing or hereafter arising; (b) lease agreements for real or personal
property to which the Grantor is a party, whether now existing or hereafter
arising; and (c) other contracts and contractual rights, remedies or provisions,
whether now existing or hereafter arising, in favor of the Grantor, including,
with respect to an Account, any agreement relating to the terms of performance
thereof.

         "Equipment and Licenses" shall mean all "equipment" as such term is
defined in the UCC and, to the extent not included within such definition, all
machinery, equipment, furnishings, vehicles, fixtures, and supplies (installed
and uninstalled), and any and all additions, substitutions and replacements of
any of the foregoing, wherever located, together with all attachments,
components, parts, equipment and accessories installed or to be installed
thereon or affixed or to be affixed thereto, including, without limitation, all
equipment located at telephone switching office facilities; any distribution
systems and all components thereof, including but not limited to hardware,
cables, fiber optic cables, switches, computer equipment, amplifiers, and
associated devices; and any other equipment used in connection with the
Grantor's business; and all franchises, licenses, permits and operating rights
authorizing or relating to the Grantor's rights to operate and maintain
telecommunications or other related business, whether now owned or hereafter
acquired by Grantor.

         "Event of Default" shall have the meaning set forth in the
Restructuring Agreement.

         "Furniture and Fixtures" shall mean all of the Grantor's right, title
and interest in and to all furniture and fixtures in which the Grantor has an
ownership, leasehold or similar legal interest, whether now owned or hereafter
acquired by Grantor.

                                       2

<PAGE>

         "General Intangibles" shall mean all "general intangibles" as such term
is defined in the UCC and, to the extent not included within such definition,
all personal property, goodwill, permits, customer lists, patents, copyrights,
proprietary or confidential information, inventions (whether patented or
patentable or not), technical information, procedures, trademarks, trademark
applications, trade names, trade secrets, designs, knowledge, know-how, payment
intangibles (as defined in the UCC), software (as defined in the UCC), data,
databases, skill, expertise, experience, processes, models, drawings, materials
and records, industrial or intellectual property or rights therein, whether
under license or otherwise, all right, title and interest in any of the
foregoing, including, without limitation, all rights to receive payment or
property upon or in connection with any transfer of any license, claims for tax
refunds, tax refund amounts and rights of indemnification, in each case, whether
now owned or hereafter acquired by the Grantor.

         "Indebtedness" shall mean and include, as of any date as of which the
amount thereof is to be determined, (i) all obligations of such person to repay
money borrowed (including, without limitation, all notes payable and drafts
accepted representing extensions of credit, all obligations evidenced by bonds,
debentures, notes or other similar instruments and all obligations upon which
interest charges are customarily paid), (ii) the principal amount of all
monetary obligations that are secured by any perfected lien or security interest
existing on property owned by such person whether or not the obligations secured
thereby shall have been assumed by such person, and (iii) all guaranties of
Indebtedness of any other person.

         "Inventory" shall mean all "inventory" as such term is defined in the
UCC and to the extent not included within such definition, all inventory,
supplies, merchandise, goods and other personal property of whatsoever nature
and kind, and wherever situated, including, without limitation, any inventory
held for lease or sale or that are furnished or are to be furnished under a
contract of service, or that constitute raw materials, components, work in
process, finished goods, goods in transit, materials used or consumed or to be
used or consumed in the Grantor's business, packing and shipping materials, and
all accretions and accessions thereto, trust receipts and similar documents
covering the same products, whether now owned or hereafter acquired by Grantor.

         "Investment Property" shall mean all "investment property" as such term
is defined in the UCC.

         "Lien" shall have the meaning set forth in Section 3.03 hereof.

         "Material Adverse Effect" shall mean a material adverse effect on (a)
the business, properties, operations, financial condition, income or business
prospects of the Grantor and its Subsidiaries, taken as a whole, as presently
conducted or (b) the validity or enforceability of this Security Agreement or
the Subsidiary Guarantee and Security Agreement.

         "Miscellaneous Items" shall mean all goods, chattel paper, documents,
instruments, supplies, choses in action, claims, money, cash accounts, deposits,
letter of

                                       3

<PAGE>

credit rights, certificates of deposit, stock or share certificates (including,
without limitation, the stock of any Subsidiaries of the Grantor now existing or
hereafter created or acquired) and licenses and other rights in intellectual
property not otherwise included as "collateral" hereunder and including, without
limitation, all other investment property of Grantor to the extent not otherwise
included above, including all securities, security entitlements, securities
accounts and commodity contracts, whether now owned or hereafter acquired by
Grantor.

         "Obligations" shall mean: (a) all payment obligations and liabilities
(including, without limitation, guarantees and other contingent liabilities) of
the Grantor to the Investor arising under the Convertible Note; (b) any and all
sums advanced by the Investor or the Collateral Agent in order to preserve the
Collateral or preserve their Security Interests in the Collateral; and (c) in
the event of any proceeding for the collection or enforcement of any payment
obligations or liabilities of the Grantor referred to in clause (a), after an
Event of Default shall have occurred and be continuing, the reasonable expenses
of re-taking, holding, preparing for sale or lease, selling or otherwise
disposing or realizing on the Collateral, or of any exercise by the Collateral
Agent of its rights hereunder, together with reasonable attorneys' fees and
court costs.

         "Perfection Certificate" shall mean a certificate substantially in the
form of Schedule II hereto, completed and supplemented with the schedules and
attachments, contemplated thereby, and duly executed by an authorized officer of
the Grantor.

         "Person" shall mean any natural person, corporation, partnership,
unincorporated association, trust, governmental entity, joint venture, trade
group or other entity, or any entity or group that is a part of, or associated
with any of the foregoing.

         "Pledged Collateral" shall mean, collectively, (a) the shares of
capital stock directly owned by Grantor and listed on Schedule I hereto and any
shares of capital stock or derivative securities of any Person acquired in the
future by the Grantor, (b) any debt securities in the future issued to the
Grantor, (c) all payments of principal or interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of, in exchange for, or upon the conversion of, the
securities referred to in clauses (a) and (b) above.

         "Pledged Stock" shall mean, collectively the shares of capital stock
and derivative securities issued by the Subsidiaries, whether currently owned by
Grantor or acquired in the future by the Grantor.

         "Proceeds" shall mean, to the extent not otherwise included as
"Collateral" hereunder, all "proceeds", as such term is defined in the UCC, of
each item of Collateral, and, to the extent not included within such definition,
any and all proceeds of any loss of, damage to or destruction of the above,
whether insured or not insured, and all other proceeds of any sale, lease,
license, exchange or other disposition of any property or interest therein
referred to herein, together with all proceeds of any policies of insurance
covering any item of Collateral, any and all proceeds of any award with respect
to the requisition, confiscation, condemnation, seizure or forfeiture of all or
any part of the

                                       4

<PAGE>

property or assets of the Grantor, any and all proceeds of any insurance,
indemnity, warranty or guarantee payable to Grantor from time to time with
respect to any property or assets of the Grantor, any rebates or refunds,
whether for taxes or otherwise, and any and all other amounts from time to time
paid or payable (in whatever form) under, in connection with or with respect to
any property or assets of the Grantor, and all proceeds of any such proceeds,
whether now existing or hereafter arising.

         "Restructuring Agreement" shall have the meaning assigned to such term
in the preliminary statement of this Security Agreement.

         "Security Interest" shall have the meaning assigned to such term in
Section 2.01(a).

         "Subsidiary" shall mean, as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership, limited liability company or other entity, are at
the time owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Collateral Agreement shall refer to a Subsidiary or Subsidiaries of a
Grantor.

         "Subsidiary Grantors" shall mean those Subsidiaries that are grantors,
from time to time, under the Subsidiary Guarantee and Security Agreement.

         "Subsidiary Guarantee and Security Agreement" shall mean the Master
Subsidiary Guarantee, Security Agreement, Collateral Assignment and Equity
Pledge, dated as of September 19, 2001, among certain of the Grantor's
Subsidiaries, as grantors, and the Junior Agent as collateral agent on behalf of
AOL.

         "UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Collateral Agent's interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, or by the laws of a jurisdiction other than a state
of the United States, the term "UCC" shall mean the Uniform Commercial Code as
in effect in such other jurisdiction or such other laws, as the case may be, for
purposes of the provisions hereof relating to such attachment, perfection or
priority.

        Section 1.03 Rules of Interpretation. The definitions in Section 1.02
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
All references herein to Articles, Sections, Exhibits and

                                       5

<PAGE>

Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, this Security Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, (a) any reference in
this Security Agreement to the Restructuring Agreement or the Convertible Note
shall mean the Restructuring Agreement or the Convertible Note, in each case as
the same may be amended, restated, supplemented, replaced or otherwise modified
from time to time and (b) all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time.

                                   ARTICLE II

                                Security Interest

    Section 2.01  Security Interest.

            (a) As security for the prompt and full payment when due of all of
the Obligations, whether now existing or hereinafter incurred, the Grantor
hereby grants to the Collateral Agent as collateral agent on behalf of the
Investor, a continuing security interest of first priority in all of the
Grantor's right, title and interest in, to and under the Collateral, whether now
existing or hereafter from time to time acquired (the "Security Interest").
Without limiting the foregoing, the Collateral Agent is hereby authorized (but
not obligated) to file one or more financing statements (including fixture
filings), continuation statements, or other documents for the purpose of
perfecting, confirming, continuing, enforcing or protecting the Security
Interest granted by the Grantor, without the signature of the Grantor, and
naming the Grantor as the debtor and the Collateral Agent as the secured party.

            (b) As security for the prompt and full payment when due of all of
the Obligations, the Grantor hereby (i) pledges and deposits as security with
the Collateral Agent, as agent on behalf of the Investor (except as otherwise
permitted below), the Pledged Collateral owned by the Grantor on the date
hereof, which Pledged Collateral is listed on Schedule I attached hereto, and
delivers to the Collateral Agent certificates therefor accompanied by undated
stock powers duly executed in blank by the Grantor in the case of capital stock,
or such other instruments of transfer as are acceptable to the Collateral Agent;
and (ii) hereby assigns, transfers, hypothecates, mortgages, charges and sets
over to the Collateral Agent as collateral agent on behalf of the Investor all
of the Grantor's right, title and interest in and to such Pledged Collateral
(and in and to the certificates or instruments evidencing such Pledged
Collateral), to be held by the Collateral Agent upon the terms and conditions
set forth in this Security Agreement. If any Pledged Collateral (whether now
owned or hereafter acquired) is evidenced by an uncertificated security, the
Grantor shall promptly notify the Collateral Agent thereof in writing and shall
promptly take all actions required to perfect the Security Interest of the
Collateral Agent, as agent on behalf of the Investor under applicable law
(including the UCC). All deliveries to and deposits with the Collateral Agent
made pursuant to this subsection (b) shall be made within 24 hours of the time
at which this Security Agreement becomes effective.

                                       6

<PAGE>

            (c) The security interests of the Collateral Agent under this
Security Agreement extend to all Collateral that the Grantor may acquire at any
time during the continuation of this Security Agreement. If the Grantor shall
acquire (by purchase, stock dividend or otherwise) any additional Pledged
Collateral at any time or from time to time after the date hereof, the Grantor
will forthwith pledge and deposit such Pledged Collateral as security with the
Collateral Agent, as collateral agent on behalf of the Investor, and deliver to
the Collateral Agent certificates therefor accompanied by stock powers duly
executed in blank by the Grantor or such other instruments of transfer as are
acceptable to the Collateral Agent, and will promptly thereafter deliver to the
Collateral Agent a certificate executed by any of the President, any Vice
President, or the Treasurer of the Grantor describing such Pledged Collateral
and certifying that the same have been duly pledged with the Collateral Agent,
as collateral agent on behalf of the Investor.

        Section 2.02 No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Collateral Agent or the
Investor to, or in any way alter or modify, any obligation or liability of the
Grantor with respect to or arising out of the Collateral. Without limiting the
foregoing, the Collateral Agent shall have no duty or obligation to preserve,
protect, vote or otherwise exercise any rights of the Grantor in the Pledged
Stock; the Collateral Agent shall be responsible only to take reasonable actions
for the physical safekeeping of such stock certificates as are delivered to it
evidencing the Pledged Collateral (and otherwise to perform the specific duties
expressly set forth in this Security Agreement on its part to be performed).

        Section 2.03 Power of Attorney. The Grantor hereby constitutes and
appoints the Collateral Agent as collateral agent on behalf of the Investor as
the Grantor's true and lawful attorney, irrevocably, with full power after
receiving written notice from Investor of an Event of Default (in the name of
the Grantor or otherwise) to act, require, demand, receive, compound and give
acquittance for any and all monies and claims for monies due or to become due to
the Grantor under or arising out of the Collateral, to transfer, sell, assign,
convey, pledge and otherwise dispose of any Collateral, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings that the Collateral Agent may deem
to be necessary or advisable in the premises, which appointment as attorney is
coupled with an interest.

                                  ARTICLE III

                         Representations and Warranties

         The Grantor represents and warrants to the Collateral Agent and the
Investor that:

        Section 3.01 Organization, Standing, etc. The Grantor and its
Subsidiaries are each a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Grantor's exact legal name
is as set forth in the preliminary statement of this Security Agreement. The
Grantor and its Subsidiaries are each duly qualified or licensed and, if
applicable, is in good standing as a foreign corporation, in each jurisdiction
in which the properties owned, leased or operated, or the

                                       7

<PAGE>

business conducted, by it require such qualification or licensing, except for
any such failure so to qualify or be in good standing that, individually or in
the aggregate, would not have a Material Adverse Effect. The Grantor has the
requisite power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, except to the extent that the failure
to comply would not, individually or in the aggregate, have a Material Adverse
Effect.

        Section 3.02 Authorization; Binding Effect. The Grantor has the
corporate power and authority to execute, deliver and perform this Security
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Security Agreement by the Grantor have been
duly authorized by all necessary corporate action on the part of the Grantor.
This Security Agreement constitutes the valid and legally binding obligation of
the Grantor, enforceable against the Grantor in accordance with its terms,
except as such may be limited by bankruptcy, insolvency, fraudulent conveyance,
moratorium or other similar laws affecting creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity,
regardless of whether enforcement is sought in a proceeding at law or in equity.

        Section 3.03 No Violations; Consents and Approvals.

                (a) The execution, delivery or performance by the Grantor of
this Security Agreement; the consummation by the Grantor of the transactions
contemplated hereby; and the performance by the Grantor of its obligations
hereunder (i) will not result in a violation or breach of the Grantor's
Certificate of Incorporation or its By-laws and (ii) will not result in a
violation or breach of (or give rise to any right of termination, revocation,
cancellation or acceleration under or increased payments under), or constitute a
default (with or without due notice or lapse of time or both) under, or result
in the creation of any lien, mortgage, charge, encumbrance or security interest
of any kind (a "Lien") upon any of the properties or assets of the Grantor
under, (A) any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, contract, agreement, obligation, instrument, offer,
commitment, understanding or other arrangement (each a "Contract") or of any
license, waiver, exemption, order, franchise, permit or concession (each a
"Permit") to which the Grantor is a party or by which any of its properties or
assets may be bound, or (B) subject to the governmental filings and other
matters referred to in clause (b) below, any judgment, order, decree, statute,
law, regulation or rule applicable to the Grantor, except, in the case of clause
(ii), for violations, breaches, defaults, rights of cancellation, termination,
revocation or acceleration or Liens that would not, individually or in the
aggregate, have a Material Adverse Effect.

                (b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any government or any court,
administrative agency or commission or other governmental authority or agency,
federal, state, local or foreign is required with respect to the Grantor in
connection with the execution, delivery or performance by the Grantor of this
Security Agreement, the consummation by the Grantor of the transactions
contemplated hereby or the performance by the Grantor of its

                                       8

<PAGE>

obligations hereunder, except as may be required in connection with the sale,
transfer or disposition of Pledged Collateral.

        Section 3.04 Title, No Liens and Authority. The Grantor is the owner of,
and has good and valid rights in and title to the Collateral with respect to
which it has purported to grant a Security Interest hereunder, and will be the
owner of, and will have good and valid rights in and title to the Collateral
acquired by it from time to time after the date hereof with respect to which it
will purport to grant a Security Interest hereunder. The Grantor is the legal,
record and beneficial owner of, and has good and marketable title, to all of the
Pledged Collateral, subject to no Lien (except the Lien created by this Security
Agreement, any Lien permitted under Section 4.05 hereof and Section 5.9 of the
Restructuring Agreement and any encumbrance on any Pledged Collateral created
solely by operation of law). All the shares of capital stock of the Pledged
Collateral have been duly and validly issued, are fully paid and nonassessable.
Subject to Section 4.05 hereof and Section 5.9 of the Restructuring Agreement,
the Collateral, whether now owned or existing or hereafter acquired or arising
by the Grantor from time to time after the date hereof will be free from any
Lien granted by the Grantor after the date hereof, or other right, title or
interest of any Person granted by the Grantor after the date hereof, and the
Grantor shall defend the Collateral against all claims and demands of all
Persons at any time claiming the same or any interest therein adverse to the
Collateral Agent or the Investor. The Grantor has full power and authority to
grant to the Collateral Agent the Security Interest in such Collateral pursuant
hereto and to execute, deliver and perform its obligations in accordance with
the terms of this Security Agreement, without the consent or approval of any
other person other than any consent or approval that has been obtained.

        Section 3.05 Filings. The Perfection Certificate has been duly prepared,
completed and executed and the information set forth therein is correct and
complete. Fully executed UCC financing statements (including fixture filings, as
applicable) ("Financing Statements") containing a description of the Collateral
have been filed in the governmental office of the Grantor's state of
incorporation as specified in Schedule II to this Security Agreement (the
"Filing Office"), which are all the filings, recordings and registrations that
are necessary to publish notice of and protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
as agent on behalf of the Investor superior and prior to the rights of all other
Persons and subject to no other Liens in respect of all Collateral in which the
Security Interest may be perfected by filing, recording or registration in the
United States (or any political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling, recording,
rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements. The Grantor hereby (i) acknowledges and consents to
the delivery by the Collateral Agent to the Investor of such Financing
Statements, and to the filing thereof by the Investor with the Filing Office
specified in Schedule II to this Security Agreement, and (ii) covenants and
agrees that it shall prepare and deliver to the Collateral Agent, with a copy to
the Investor, not less than forty-five days prior to the date when the same are
required to be filed under the UCC, duly completed and appropriate UCC
continuation statements for each of such Financing Statements together

                                       9
<PAGE>

with written notice to the Collateral Agent making reference to this Section of
this Security Agreement and instructing the Collateral Agent to sign and file
such continuation statements with the Filing Office.

        Section 3.06 Possession.

                (a) The Grantor shall have possession of the Collateral, except
where expressly otherwise provided in this Security Agreement or where the
Collateral Agent, at the written request of the Investor, or the Investor
chooses to perfect its security interest by possession in addition to the filing
of a financing statement, provided, however, if the Investor shall deliver a
written request to the Collateral Agent to request possession of any Collateral,
the Investor shall be responsible for arranging the delivery of such Collateral
to the Collateral Agent.

                (b) Where Collateral is in the possession of a third party, the
Grantor will notify the third party of the Collateral Agent's security interest
and use its commercially reasonable best efforts to obtain an acknowledgment
from the third party that it is holding the Collateral for the benefit of
Collateral Agent. The Grantor shall prepare any such notice to be delivered to
the third party and provide the Collateral Agent with a copy of the notice.

        Section 3.07 Control. The Grantor will cooperate with the Collateral
Agent in obtaining control with respect to Collateral consisting of:

                (a) Deposit Accounts; and

                (b) Investment Property;

                (c) Letter-of-credit rights; and

                (d) Electronic chattel paper.

        Section 3.08  Marking of Chattel Paper. The Grantor will not create any
Chattel Paper without placing a legend on the Chattel Paper acceptable to
Collateral Agent indicating that the Collateral Agent, on behalf of the
Investor, has a security interest in the Chattel Paper.

        Section 3.09 Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid continuing security interest of first priority
(or second, only with respect to any Indebtedness permitted under Section 5.9 of
the Restructuring Agreement) in all the Collateral securing the Obligations and
(b) subject to the filings described in Section 3.05 above, a perfected security
interest in all Collateral in which a security interest may be perfected by
filing, recording or registering a financing statement or analogous document in
the United States (or any political subdivision thereof) and its territories and
possessions pursuant to the UCC or other applicable law in such jurisdictions.

        Section 3.10 Recourse. This Security Agreement is made with full
recourse to the Grantor and pursuant to and upon all the warranties,
representations, covenants and

                                       10
<PAGE>

agreements on the part of the Grantor contained herein, in the Restructuring
Agreement, and otherwise in writing in connection herewith or therewith.

                                   ARTICLE IV

                                    Covenants

        Section 4.01 Change of Name; Location of Collateral; Records; Place of
Business.

                (a) The Grantor agrees to notify the Collateral Agent no less
than 20 days in advance in writing of any change (i) in its corporate name or in
any trade name used to identify it in the conduct of its business or in the
ownership of its properties, (ii) in the state in which it is organized, (iii)
in its identity or corporate structure or (iv) in its Federal Taxpayer
Identification Number. The Grantor agrees to reasonably assist the Collateral
Agent and the Investor in the event it effects or permits any change referred to
in the preceding sentence with all filings to be made under the UCC or otherwise
that are required in order for the Collateral Agent as collateral agent for the
Investor to continue at all times to have a valid, legal and perfected
continuing security interest of first priority in all the Collateral. The
Grantor agrees promptly to notify the Collateral Agent if any material portion
of the Collateral owned or held by such Grantor is damaged or destroyed.

                (b) The Grantor agrees to maintain, at its own cost and expense,
such complete and accurate records with respect to the Collateral owned by it as
is consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which the Grantor is engaged, but in any event to include complete accounting
records indicating all payments and proceeds received with respect to any part
of the Collateral, and, at such time or times as the Collateral Agent may
reasonably request, promptly prepare and deliver to the Collateral Agent a duly
certified schedule or schedules in form and detail reasonably satisfactory to
the Collateral Agent showing the identity, amount and location of any and all
Collateral.

        Section 4.02 Protection of Collateral Agent's Security. The Grantor will
do nothing to impair the rights of the Collateral Agent (or the Investor) in the
Collateral. The Grantor assumes all liability and responsibility in connection
with the Collateral acquired by it and the liability of the Grantor to pay its
Obligations shall in no way be affected or diminished by reason of the fact that
such Collateral may be lost, destroyed, stolen, damaged or for any reason
whatsoever unavailable to the Grantor.

        Section 4.03 Modification of Terms, etc. The Grantor shall not rescind
or cancel any indebtedness evidenced by any Account or under any Contract, or
modify any term thereof or make any adjustment with respect thereto, or extend
or renew the same, or compromise or settle any dispute, claim, suit or legal
proceeding relating thereto, or sell any Account or Contract, or interest
therein, without the prior written consent of the Collateral Agent, as
instructed in writing by the Investor, except as permitted by Section 4.04. The
Grantor will duly fulfill all obligations on its part to be fulfilled under or
in

                                       11
<PAGE>

connection with the Accounts and Contracts and will do nothing to impair the
rights of the Collateral Agent (or the Investor) in the Accounts or Contracts.

        Section 4.04 Collection. The Grantor shall endeavor to cause to be
collected from the account debtor named in each of its Accounts or obligor under
any Contract, as and when due (including, without limitation, amounts that are
delinquent, such amounts to be collected in accordance with generally accepted
lawful collection procedures) any and all amounts owing under or on account of
such Account or Contract, and apply forthwith upon receipt thereof all such
amounts as are so collected to the outstanding balance of such Account or under
such Contract, except that, prior to the occurrence of an Event of Default, the
Grantor may allow in the ordinary course of business as adjustments to amounts
owing under its Accounts and Contracts (i) an extension or renewal of the time
or times of payment, or settlement for less than the total unpaid balance, that
the Grantor finds appropriate in accordance with sound business judgment and
(ii) a refund or credit due as a result of returned or damaged merchandise or
improperly performed services. The costs and expenses (including, without
limitation, attorneys' fees) of collection, whether incurred by the Grantor or
the Collateral Agent, shall be borne by the Grantor.

        Section 4.05 Financing Statements. The Grantor agrees to execute and
deliver to the Collateral Agent such financing statements, instruments and
documents in form acceptable to the Investor, as the Collateral Agent or the
Investor may from time to time reasonably request or as are necessary or
desirable to establish and maintain a valid, enforceable, first priority (or
second, only with respect to any Indebtedness permitted under Section 5.9 of the
Restructuring Agreement) Security Interest in the Collateral as provided herein
and the other rights and security contemplated herein, all in accordance with
the UCC as enacted in any and all relevant jurisdictions or any other relevant
law. The Grantor will pay any applicable filing fees and related expenses. The
Grantor authorizes the Collateral Agent and the Investor to file any such
financing statements without the signature of the Grantor. Notwithstanding
anything herein to the contrary, the Collateral Agent shall not be responsible
for taking any action to protect or perfect a valid enforceable security
interest in the Collateral, including but not limited to, the timely filing of
any UCC financing or continuation statements.

        Section 4.06 Further Assurances. The Grantor agrees, at its own expense,
to make, execute, endorse, acknowledge, deliver and cause to be duly filed all
such further instruments and documents and take all such actions as the
Collateral Agent or the Investor may from time to time reasonably request to
ensure the preservation and continuous perfection of its Security Interest in
the Collateral, or to effectuate the rights granted to the Collateral Agent or
Investor herein, in accordance with the terms of this Security Agreement,
including the payment of any fees and taxes required in connection with the
execution and delivery of this Security Agreement, the granting of the Security
Interest and the filing of any financing statements (including fixture filings)
or other documents in connection herewith or therewith.

        Section 4.07 Additional Shares. The Grantor shall cause each Subsidiary
to (a) not issue any stock or other securities (including debt securities and
derivative

                                       12
<PAGE>

securities) in addition to or in substitution for the Pledged Collateral issued
by such issuer, except to the Grantor (or, if such Subsidiary is a Subsidiary of
a Subsidiary Grantor, to the Grantor or a Subsidiary Grantor) and (b) pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all additional shares of stock or other securities of each issuer of the
Pledged Collateral.

                                   ARTICLE V

                                    Remedies

        Section 5.01 Rights of Grantor. So long as no Event of Default shall
have occurred and be continuing, the Grantor shall have the right to (i) receive
all dividends, interest and other payments and distributions made upon or with
respect to the Pledged Collateral, (ii) receive all proceeds of any sale of the
Pledged Collateral in accordance with Section 5.14 of the Restructuring
Agreement and (iii) vote and give consents, ratifications and waivers, with
respect to the Pledged Collateral. The Grantor waives any right it may have to
require the Collateral Agent or Investor to pursue any third person for any of
the Obligations.

        Section 5.02 Remedies upon Occurrence of Event of Default. If the
Collateral Agent shall at any time receive written notice from the Investor that
an Event of Default shall have occurred and be continuing, the Collateral Agent
shall, subject to the provisions of Section 5.04 hereof, upon request of the
Investor, (i) deliver the Collateral to the Investor (or its designee), (ii)
execute and deliver to the Investor an instrument satisfactory to the Collateral
Agent assigning to the Investor (without recourse against, and without
representation or warranty of any kind by, the Collateral Agent) all of the
Collateral Agent's rights, title and interests in and to the Collateral
hereunder, and (iii) execute and deliver to the Investor UCC assignments (as
shall have been duly completed and provided to the Collateral Agent by the
Investor) for each of the Financing Statements; provided, however, that the
Collateral Agent's obligation to deliver the foregoing shall be subject to the
Investor's payment to the Collateral Agent of all amounts owing to the
Collateral Agent hereunder, to the extent remaining unpaid by the Investor or
the Grantor (and the Investor shall be subrogated to the rights of the
Collateral Agent to the extent of such payment and such obligations of the
Grantor shall become part of the Obligations secured hereby). Upon such
assignment and delivery to the Investor, the Collateral Agent shall immediately
and automatically be released from all obligations hereunder. Unless and until
the Investor shall have made such request to the Collateral Agent, the
Collateral Agent shall have no duty or obligation to take any action pursuant to
the preceding sentence; and except for the taking of such action pursuant to the
preceding sentence upon receipt of such request, the Collateral Agent shall be
under no duty or obligation to take any other action of any kind hereunder with
respect to the Collateral or such Event of Default (including, without
limitation, no duty to enforce, foreclose, protect, preserve or otherwise
exercise any rights or remedies as a secured party with respect to the
Collateral, including without limitation the sale or other disposition of
Collateral or other exercise of rights or remedies pursuant to or as
contemplated by this Article V). Notwithstanding the foregoing, the Collateral
Agent thereafter may exercise such rights or remedies or take such actions as
may be requested

                                       13
<PAGE>

by the Investor, to the extent and upon such terms as may be agreed to by the
Collateral Agent, at its reasonable discretion (which terms may, if the
Collateral Agent deems necessary, include such additional compensation as the
Collateral Agent reasonably determines to be necessary). In any and every such
case, upon the occurrence and during the continuance of any Event of Default,
subject to any mandatory requirements of applicable law then in effect, the
Collateral Agent, on behalf of the Investor, or the Investor upon the delivery
of the Collateral to the Investor, as the case may be, in addition to any rights
now or hereafter existing under applicable law, shall have all rights as a
secured creditor under the UCC or other applicable law in all relevant
jurisdictions and may:

                (a) personally, or by agents or attorneys, immediately retake
possession of the Collateral or any part thereof, from the Grantor or any other
Person who then has possession of any part thereof with or without notice or
process of law, and for that purpose may enter upon the Grantor's premises where
any of the Collateral is located and remove the same and use in connection with
such removal any and all services, supplies, aids and other facilities of the
Grantor; and

                (b) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the Accounts)
constituting the Collateral to make any payment required by the terms of such
instrument or agreement directly to the Collateral Agent or the Investor, as
appropriate; and

                (c) sell, assign or otherwise liquidate, or direct the Grantor
to sell, assign or otherwise liquidate, any or all of the Collateral or any part
thereof, and take possession of the proceeds of any such sale or liquidation;
and

                (d) take possession of the Collateral or any part thereof, by
directing the Grantor in writing to deliver the same to the Collateral Agent or
the Investor, as appropriate, at any place or places designated by the
Collateral Agent or the Investor, as appropriate, in which event the Grantor
shall, at its own expense:

                    (i) forthwith cause the same to be moved to the place or
                places so designated by the Collateral Agent or the Investor, as
                appropriate, and there delivered to the Collateral Agent or the
                Investor, as appropriate,

                    (ii) store and keep any Collateral so delivered to the
                Collateral Agent or the Investor, as appropriate, at such place
                or places pending further action by the Collateral Agent or the
                Investor, as appropriate, as provided in Section 5.03, and

                    (iii) while the Collateral shall be so stored and kept,
                provide such guards and maintenance services as shall be
                reasonably necessary to protect the same and to preserve and
                maintain them in good condition; and

                (e) with respect to the Pledged Collateral and subject to the
provisions of Section 5.04 hereof:

                                       14
<PAGE>

                    (i) receive all amounts payable in respect of the Pledged
                Collateral otherwise payable to the Collateral Agent or the
                Investor, as appropriate;

                    (ii) transfer all or any part of the Pledged Collateral into
                the Collateral Agent's or the Investor's name, as appropriate,
                or the name of its nominee or nominees; and

                    (iii) vote all or any part of the Pledged Collateral
                (whether or not transferred into the name of the Collateral
                Agent or the Investor, as appropriate) and give all consents,
                waivers and ratifications in respect of the Collateral and
                otherwise act with respect thereto as though it were the
                outright owner thereof (the Grantor hereby irrevocably
                constituting and appointing the Collateral Agent or the
                Investor, as appropriate, the proxy and attorney-in-fact of the
                Grantor, with full power of substitution to do so);

it being understood that the Grantor's obligation so to deliver the Collateral
is of the essence of this Security Agreement and that, accordingly, upon
application to a court of equity having jurisdiction, the Collateral Agent or
the Investor, as appropriate, shall be entitled to a decree requiring specific
performance by the Grantor of such obligation.

        Section 5.03 Remedies; Disposition of the Collateral.

                (a) Any Collateral repossessed by the Collateral Agent or the
Investor, as appropriate, under or pursuant to Section 5.02, and any other
Collateral whether or not so repossessed by the Collateral Agent or the
Investor, as appropriate, may, subject to Section 5.04, be sold, assigned,
leased or otherwise disposed of under one or more contracts or as an entirety,
and without the necessity of gathering at the place of sale the property to be
sold, and in general in such manner, at such time or times, at such place or
places and on such terms as the Collateral Agent or the Investor, as
appropriate, may, in compliance with any mandatory requirements of applicable
law, determine to be commercially reasonable. Any of the Collateral may be sold,
leased or otherwise disposed of, in the condition in which the same existed when
taken by the Collateral Agent or the Investor, as appropriate, or after any
overhaul or repair that the Collateral Agent or the Investor, as appropriate,
shall determine to be commercially reasonable. Any such disposition which shall
be a private sale or other private proceeding permitted by such requirements
shall be made upon not less than 10 days' written notice to the Grantor
specifying the time at which such disposition is to be made and the intended
sale price or other consideration therefore, and shall be subject, for the 10
days after the giving of such notice, to the right of the Grantor or any nominee
of the Grantor to acquire the Collateral involved at a price or for such other
consideration at least equal to the intended sale price or other consideration
so specified. Any such disposition which shall be a public sale permitted by
such requirements shall be made upon not less than 10 days' written notice to
the Grantor specifying the time and place of such sale and, in the absence of
applicable requirements of law, shall be by public auction (which may, at the
Collateral Agent's or the Investor's option, be subject to reserve), after
publication of

                                       15
<PAGE>

notice of such auction not less than 10 days prior thereto in two newspapers in
general circulation in New York City. To the extent permitted by any such
requirement of law, the Collateral Agent or the Investor, as appropriate, may
bid for and become the purchaser of the Collateral or any item thereof, offered
for sale in accordance with this Section 5.03 without accountability to the
Grantor (except to the extent of surplus money received as provided in Section
5.05). If, under mandatory requirements of applicable law, the Collateral Agent
or the Investor, as appropriate, shall be required to make disposition of the
Collateral within a period of time that does not permit the giving of notice to
the Grantor as hereinabove specified, the Collateral Agent or the Investor, as
appropriate, need give the Grantor only such notice of disposition as shall be
reasonably practicable in view of such mandatory requirements of applicable law.

                (b) With respect to the Pledged Collateral and subject to the
provisions of Section 5.04 hereof, after an Event of Default, the Collateral
Agent or the Investor, as appropriate, may, at any time or from time to time,
sell, assign and deliver, or grant options to purchase, all or any part of the
Pledged Collateral, or any interest therein, at any public or private sale,
without demand of performance, advertisement or notice of intention to sell or
of the time or place of sale or adjournment thereof or to redeem or otherwise
(all of which are hereby waived by the Grantor), for cash, on credit or for
other property, for immediate or future delivery without any assumption of
credit risk, and for such price or prices and on such terms as the Collateral
Agent or the Investor, as appropriate, in its absolute discretion may determine,
provided that at least 10 days' notice of the time and place of any such sale
shall be given to the Grantor. The Grantor hereby waives and releases to the
fullest extent permitted by law any right or equity of redemption with respect
to the Pledged Collateral, whether before or after sale hereunder, and all
rights, if any, of marshaling the Pledged Collateral and any other security for
the Obligations or otherwise. At any such sale, unless prohibited by applicable
law, the Collateral Agent or the Investor, as appropriate, may bid for and
purchase all or any part of the Pledged Collateral so sold free from any such
right or equity of redemption. The Collateral Agent or the Investor, as
appropriate, shall not be liable for failure to collect or realize upon any or
all of the Pledged Collateral or for any delay in so doing nor shall it be under
any obligation to take any action whatsoever with regard thereto.

        Section 5.04 Restrictions. Notwithstanding anything to the contrary
contained in this Security Agreement, neither the Investor nor the Grantor will
take or instruct the Collateral Agent to take any action pursuant to this
Security Agreement that (i) would constitute or result in any assignment of a
Permit (as defined in Section 3.03(a)) or any transfer of control of the Grantor
or any Subsidiary of the Grantor if such assignment of a Permit or transfer of
control would require under then existing law (including the written rules and
regulations promulgated by the FCC) the prior approval of the FCC or any State
PUC or (ii) would otherwise require the prior approval of the FCC or any State
PUC, unless such approval has been obtained (as applicable) from such State PUC
or from the FCC. Without limiting the generality of the foregoing, the
Collateral Agent and the Investor each specifically agrees that (a) voting
rights with respect to the Pledged Collateral will remain with the holders of
such voting rights during the existence of an Event of Default unless and until
any required prior approvals to the transfer of such voting rights have been
obtained (as applicable) from such State PUC or from the FCC,

                                       16
<PAGE>

and (b) during the existence of any Event of Default and foreclosure upon the
Pledged Collateral by the Collateral Agent, there will be either a private or
public sale of the Pledged Collateral, and (c) prior to the exercise of voting
rights by the purchaser at any such sale, any consent of any State PUC or the
FCC required pursuant to any State Communications Act or the Federal
Communications Act (respectively) will be obtained. For the purposes of this
Section 5.04, "FCC" means the Federal Communications Commission or any other
entity or agency that succeeds to its responsibilities and powers, "State
Communications Acts" means the laws of any state in which the Grantor or any
Subsidiary of the Grantor does business that govern the provision of
communications services offered or performed by the Grantor or any Subsidiary of
the Grantor within such state and are applicable to the Grantor or such
Subsidiary of the Grantor, as amended from time to time, and as implemented by
the rules, regulations, and orders of the applicable State PUC or any court of
competent jurisdiction and "State PUC" means the public utility commission or
other regulatory agency of any state in which the Grantor or any Subsidiary of
the Grantor does business that is vested with jurisdiction over the Grantor or
such Subsidiary of the Grantor and over State Communications Acts or the
provision of communication services within such state.

        Section 5.05 Waiver of Claims. Except as otherwise provided in this
Security Agreement, THE GRANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL
AGENT'S OR THE INVESTOR'S, AS APPROPRIATE, TAKING POSSESSION OR THE COLLATERAL
AGENT'S OR THE INVESTOR'S, AS APPROPRIATE, DISPOSITION OF ANY OF THE COLLATERAL,
INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT GRANTOR WOULD OTHERWISE
HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE,
and the Grantor hereby further waives, to the extent permitted by law:

                (a) all damages occasioned by such taking of possession except
any damages that are the direct result of the Collateral Agent's or Investor's
gross negligence or willful misconduct;

                (b) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the Collateral
Agent's or Investor's rights hereunder; and

                (c) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law in
order to prevent or delay the enforcement of this Security Agreement or the
absolute sale of the Collateral or any portion thereof, and the Grantor, for
itself and all who may claim under it, insofar as it or they now or hereafter
lawfully may, hereby waives the benefit of all such laws.

Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the Grantor therein and thereto, and
shall be a perpetual bar both at law

                                       17
<PAGE>

and in equity against the Grantor and against any and all Persons claiming or
attempting to claim the Collateral so sold, optioned or realized upon, or any
part thereof, from, through and under the Grantor.

        Section 5.06 Application of Proceeds. The Collateral Agent or the
Investor, as appropriate, shall apply the proceeds of any collection or sale of
the Collateral, as well as any Collateral consisting of cash, as follows:

                (a) First, to the payment of all costs and expenses incurred by
the Collateral Agent and the Investor, as the case may be, in connection with
any action or proceeding taken to enforce the rights of the Collateral Agent and
the Investor under this Security Agreement, including, without limitation, the
initiation of any non-judicial action or any action in any court or before any
administrative or regulatory agency or tribunal to enforce such rights,
including reasonable attorneys fees and expenses;

                (b) Second, to the payment of the Obligations to the Collateral
Agent, to the extent remaining unpaid, until all such Obligations are satisfied
in full;

                (c) Third, to the payment of the Obligations to the Investor,
until all such Obligations are satisfied in full; and

                (d) Fourth, to the Grantor, or its representative or as a court
of competent jurisdiction may direct, of any surplus then remaining from such
proceeds, or as otherwise permitted by law.

        Section 5.07 Remedies Cumulative. No failure or delay on the part of the
Collateral Agent or the Investor in exercising any right, power or privilege
hereunder, under the Restructuring Agreement and no course of dealing between
the Grantor or any Subsidiary and the Collateral Agent or the Investor shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder, under the Restructuring Agreement preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights, powers and remedies herein or
in the Restructuring Agreement expressly provided are cumulative and not
exclusive of any rights, powers or remedies that the Collateral Agent or the
Investor would otherwise have. No notice to or demand on the Grantor in any case
shall entitle the Grantor to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Collateral Agent
or the Investor to any other or further action in any circumstances without
notice or demand.

        Section 5.08 Discontinuance of Proceedings. In case the Collateral Agent
or the Investor shall have instituted any proceeding to enforce any right, power
or remedy under this Security Agreement by foreclosure, sale, entry or
otherwise, and such proceeding shall have been discontinued or abandoned for any
reason or shall have been determined adversely to the Collateral Agent or the
Investor, as appropriate, then, and in every such case, the Grantor, the
Collateral Agent or the Investor, as appropriate, and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interests created under
this Security

                                       18
<PAGE>

Agreement, and all rights, remedies and powers of the Collateral Agent and the
Investor shall continue as if no such proceeding had been instituted.

                                   ARTICLE VI

                       Collateral Agent Duties; Indemnity

        Section 6.01 Limitation of Liability.

                (a) The Collateral Agent undertakes to perform such duties and
only such duties as are specifically set forth in this Security Agreement and no
implied covenants or obligations shall be read in this Security Agreement
against the Collateral Agent. The Collateral Agent shall not be deemed to have
any knowledge of an Event of Default unless informed in writing by the Investor
or the Grantor.

                (b) The Collateral Agent shall not be required to exercise any
remedies hereunder unless requested in writing to do so by the Investor and in
such event subject to the terms of this Security Agreement and only if furnished
with indemnity satisfactory to the Collateral Agent by the Investor. The
Collateral Agent may consult with counsel and shall not be liable for any action
taken in good faith in reliance upon the advice of counsel. The Collateral Agent
makes no representation concerning the value or validity of the Pledged
Collateral or the validity or perfection of the pledge thereof.

                (c) The Collateral Agent may, at any time on 30 days' notice to
the Grantor and the Investor, resign hereunder and may be removed by a joint
writing of the Grantor and the Investor. Upon any such resignation or removal of
the Collateral Agent, the Investor shall promptly appoint another financial
institution to act as Collateral Agent hereunder, which shall be a commercial
bank organized or licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$50,000,000. To the extent that a successor Collateral Agent has not been
appointed and accepted the responsibility as successor Collateral Agent
hereunder within 30 days after the Collateral Agent's notice of resignation,
each of the Investors shall automatically succeed to and become vested with the
rights, powers, privileges and duties of the retiring Collateral Agent and the
retiring Collateral Agent shall be discharged from its duties and obligations
hereunder except that the Collateral Agent shall deliver any and all Collateral
in its possession to the Investor and assign and transfer its rights hereunder
to the Investor. The Investor agrees to cooperate in accepting the Collateral
and the assignment of the Collateral Agent's rights hereunder.

                (d) The Collateral Agent (i) shall not be obligated hereunder to
take or hold possession of any Collateral other than the Pledged Collateral,
(ii) has no responsibility for the sufficiency, contents or filing of any
financing statement or continuation statement (except that it shall reasonably
cooperate with the Investor in executing appropriate continuation statements
provided to it by the Investor and upon the Investor's request), (iii) shall
have no responsibility for the genuineness, marketability, or sufficiency of or
title to any Collateral, (iv) shall have no responsibility to take or cause to
be taken any action necessary to perfect the security interest contemplated
hereby

                                       19
<PAGE>

(other than to retain physical possession of the Pledged Collateral in
accordance with the terms hereof); and (v) shall not be under any duty or
obligation to determine, compel or enforce performance or compliance by the
Grantor with this Security Agreement or the Restructuring Agreement.

                (e) Upon receipt by the Collateral Agent from the Grantor of any
notice or request pursuant to Section 7.16, the Collateral Agent shall not be
under any obligation other than to forward the same promptly to the Investor and
to await instruction from the Investor as contemplated thereby).

                (f) No grant of power or authority to the Collateral Agent, and
no covenant, representation or warranty by the Grantor to the Collateral Agent
under this Security Agreement shall be construed to impose or imply any duty or
obligation on the part of the Collateral Agent to exercise or enforce any such
power, authority, covenant, representation or warranty.

                (g) The Collateral Agent shall be under no duty to invest (or
otherwise pay interest on) any funds it may hold from time to time hereunder.

                (h) The Collateral Agent (i) shall not be responsible for any of
the agreements referred to or described herein (including, without limitation,
the Restructuring Agreement), or for determining or compelling compliance
therewith, and shall not otherwise be bound thereby; (ii) shall not be obligated
to take any legal or other action hereunder that might, in its judgment, involve
or cause it to incur any expense or liability unless it shall have been
furnished with acceptable indemnification; (iii) may rely on and shall be
protected in acting or refraining from acting upon any written notice,
instruction (including, without limitation, wire transfer instructions, whether
incorporated herein or provided in a separate written instruction), instrument,
statement, certificate, request or other document furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the proper
person, and shall have no responsibility for determining the accuracy thereof;
and (iv) shall not be liable to anyone for any action taken or omitted to be
taken by it hereunder except in the case of the Collateral Agent's own gross
negligence or willful misconduct in breach of the terms of this Security
Agreement. In no event shall the Collateral Agent be liable for indirect,
punitive, special or consequential damage or loss (including but not limited to
lost profits) whatsoever, even if the Collateral Agent has been informed of the
likelihood of such loss or damage and regardless of the form of action.

                (i) The Collateral Agent shall have no more or less
responsibility or liability on account of any action or omission of any
book-entry depository, securities intermediary or other subescrow agent employed
by the Collateral Agent than any such book-entry depository, securities
intermediary or other subescrow agent has to the Collateral Agent, except to the
extent that such action or omission of any book-entry depository, securities
intermediary or other subescrow agent was caused by the Collateral Agent's own
gross negligence, bad faith or willful misconduct in breach of this Security
Agreement.

                                       20
<PAGE>

        Section 6.02 Grantor Indemnity.

                (a) The Grantor agrees to indemnify, reimburse and hold the
Collateral Agent and the Investor and each of their respective officers,
directors, employees, representatives and agents (hereinafter in this Section
6.02 referred to individually as "Indemnitee" and collectively as "Indemnitees")
harmless from any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses or disbursements (including
reasonable attorneys' fees and expenses) (for the purposes of this Section 6.02
the foregoing are collectively called "Expenses") of whatsoever kind or nature
that may be imposed on, asserted against or incurred by any of the Indemnitees
in any way relating to or arising out of this Security Agreement or the
documents executed in connection herewith or in any other way connected with the
transactions contemplated hereby or the enforcement of any of the terms of or
the preservation of any rights under any thereof, or in any way relating to or
arising out of the manufacture, ownership, ordering, purchase, delivery,
control, acceptance, lease, financing, possession, operation, condition, sale,
return or other disposition or use of the Collateral (including, without
limitation, latent or other defects, whether or not discoverable), the violation
of the laws of any country, state or other governmental body or unit, any tort
(including, without limitation, claims arising or imposed under the doctrine of
strict liability, or for or on account of injury to or the death of any Person
(including any Indemnitee), or for property damage) or any contract claim;
provided that no Indemnitee shall be indemnified pursuant to this Section
6.02(a) for Expenses to the extent caused by the gross negligence or willful
misconduct of such Indemnitee. The Grantor agrees that, upon written notice by
any Indemnitee of any assertion that could give rise to an expense, the Grantor
shall assume full responsibility for the defense thereof. Each Indemnitee agrees
to use its best efforts to promptly notify the Grantor of any such assertion of
which such Indemnitee has knowledge.

                (b) Without limiting the application of Section 6.02(a), the
Grantor agrees to pay, or reimburse the Collateral Agent or the Investor (as
appropriate) for (if the Collateral Agent or the Investor (as appropriate) shall
have incurred fees, costs or expenses because the Grantor shall have failed to
comply with its obligations under this Security Agreement), any and all fees,
costs and expenses of whatever kind or nature incurred in connection with the
creation, preservation or protection of the Collateral Agent's Liens on, and
Security Interests in, the Collateral, including, without limitation, all fees
and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral, premiums for insurance with respect to the
Collateral and all other fees, costs and expenses in connection with protecting,
maintaining or preserving the Collateral and the Collateral Agent's Security
Interest therein, whether through judicial proceedings or otherwise, or in
defending or prosecuting any actions, suits or proceedings arising out of or
relating to the Collateral.

                (c) Without limiting the application of Section 6.02(a) or (b),
the Grantor agrees to pay, indemnify and hold each Indemnitee harmless from and
against any expenses that such Indemnitee may suffer, expend or incur in
consequence of or growing out of any misrepresentation by the Grantor in this
Security Agreement, or in

                                       21
<PAGE>

any statement or writing contemplated by or made or delivered pursuant to or
in connection with this Security Agreement.

                (d) If and to the extent that the obligations of the Grantor
under this Section 6.02 are unenforceable for any reason, the Grantor hereby
agrees to make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law. Without limiting the
definition of "Obligations" set forth in Section 1.02, the obligations of the
Grantor under Sections 6.02(a), (b) and (c) shall be considered Obligations
pursuant to clause (b) of that definition.

        Section 6.03 Indemnity Obligations Secured by Collateral; Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of the Grantor contained in this Article VI shall continue
in full force and effect notwithstanding the full payment of all Obligations and
notwithstanding the discharge thereof.

        Section 6.04 Fees and Indemnity.

                (a) In accordance with the fee schedule attached hereto as
Schedule III, the Grantor and the Investor agree, jointly and severally, to pay,
or reimburse the Collateral Agent for, on the date of execution of this Security
Agreement, the Collateral Agent's attorney's fees and expenses, incurred in
connection with the preparation of this Security Agreement (which shall not
exceed $1,000). The Grantor and the Investor agree, jointly and severally, to
pay the Collateral Agent's compensation for its normal services hereunder in
accordance with the fee schedule attached hereto as Schedule III, which may be
subject to change hereafter on an annual basis. Without limiting the definition
of "Obligations" set forth in Section 1.02, the obligation of the Grantor to pay
the amounts set forth in this Section 6.04(a) shall be considered an Obligation
pursuant to clause (b) of that definition. Without altering or limiting the
joint and several liability of the Grantor and the Investor to the Collateral
Agent hereunder, the Grantor and the Investor agree among themselves that they
shall share one-half each of the amounts payable to the Collateral Agent
pursuant to this Section 6.04 (a).

                (b) The Investor hereby agrees to indemnify the Collateral Agent
(and its directors, officers and employees) and hold it (and such directors,
officers and employees) harmless from and against any loss, liability, damage,
cost and expense of any nature incurred by the Collateral Agent arising out of
or in connection with this Security Agreement or with the administration of its
duties hereunder, including but not limited to attorney's fees and other costs
and expenses of defending or preparing to defend against any claim of liability,
unless and except to the extent such loss, liability, damage, cost and expense
shall be caused by the Collateral Agent's gross negligence, bad faith, or
willful misconduct; provided, that, if and to the extent the Investor shall be
obligated to pay any amount to the Collateral Agent hereunder, the Grantor shall
reimburse the Investor for each such amount in full and any such amounts shall
be added to and shall become part of the Obligations secured hereby. The
foregoing

                                       22
<PAGE>

indemnification and agreement to hold harmless shall survive the termination
of this Security Agreement.

                                  ARTICLE VII

                                  Miscellaneous

        Section 7.01 Notices. Notice Addresses. Any notice permitted or required
hereunder shall be in writing, and shall be sent by personal delivery, overnight
delivery by a recognized courier or delivery service, mailed by registered or
certified mail, return receipt requested, postage prepaid, or by confirmed
telecopy accompanied by mailing of the original on the same day by first class
mail, postage prepaid, in each case to the parties at their address set forth
below (or to such other address as any such party may hereafter designate by
written notice to the other parties).

         If to the Grantor:

         Talk America Holdings, Inc.
         12020 Sunrise Valley Drive, Suite 250
         Reston, Virginia 20191
         Fax: (703) 391-7525
         Attention: General Counsel

         With a copy to:

         Talk America Holdings, Inc.
         6805 Route 202
         New Hope, PA 18938
         Fax: (215) 862-1960
         Attention: General Counsel

         If to Investor:

         America Online, Inc.
         22000 AOL Way
         Dulles, Virginia 20166
         Fax: (703) 265-2208
         Attention: General Counsel

         With a copy to:

         America Online, Inc.
         22000 AOL Way
         Dulles, Virginia 20166
         Fax: (703) 265- 1202
         Attention: Senior Vice President,
                    Head of Business Affairs

                                       23
<PAGE>

         If to Collateral Agent:

         State Street Bank and Trust Company, N.A.
         61 Broadway
         New York, New York 10006
         Attention: Corporate Trust Department
         Talk America Holdings/AOL
         Security and Pledge
         Fax:  212-612-3201

        Section 7.02 Entire Agreement. This Security Agreement and Restructuring
Agreement constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and thereof, except that this Security
Agreement shall not be deemed to amend, supplement or otherwise supersede the
rights or obligations of the parties under the Restructuring Agreement. Any
conflict between this Security Agreement and the Restructuring Agreement shall
be governed by the Restructuring Agreement.

        Section 7.03 Binding Effect; Assignment; Several Agreement.

                (a) This Security Agreement shall be binding upon the Grantor,
and the Collateral Agent and the Investor and their respective successors and
assigns, and shall bind all Persons who become bound as a debtor to this
Security Agreement, except to the extent any such successor or assign is not
permitted by the Restructuring Agreement.

                (b) The Investor does not consent to any assignment by the
Grantor, except as expressly provided in this Security Agreement or the
Restructuring Agreement.

                (c) In connection with any resignation or removal of the
Collateral Agent pursuant to Section 6.01(c), the Collateral Agent may assign
its rights and interests under this Security Agreement. If an assignment is
made, Grantor shall render performance under this Security Agreement to the
assignee.

        Section 7.04 Governing Law. THIS SECURITY AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

        Section 7.05 Waivers; Amendment.

                (a) No failure or delay of the Collateral Agent or the Investor
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power.

                (b) Neither this Security Agreement nor any provision hereof may
be waived, amended or modified except pursuant to an agreement or agreements in
writing

                                       24
<PAGE>

entered into by the Collateral Agent, the Investor and the Grantor and in
accordance with the terms of the Restructuring Agreement.

        Section 7.06 Severability. In the event any one or more of the
provisions contained in this Security Agreement should be held invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

        Section 7.07 Counterparts. This Security Agreement may be executed in
two or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one instrument.

        Section 7.08 Headings. Article and Section headings used herein are for
the purpose of reference only, are not part of this Security Agreement and are
not to affect the construction of, or to be taken into consideration in
interpreting, this Security Agreement.

        Section 7.09 Obligations Absolute. The obligations of the Grantor under
this Security Agreement shall be absolute and unconditional and shall remain in
full force and effect without regard to, and shall not be released, suspended,
discharged, terminated or otherwise affected by, any circumstance or occurrence
whatsoever, including, without limitation: (i) any renewal, extension, amendment
or modification of, or addition or supplement to or deletion from the
Restructuring Agreement or any assignment or transfer thereof; (ii) any waiver,
consent, extension, indulgence or other action or inaction under or in respect
of the Restructuring Agreement or this Security Agreement or any exercise or
non-exercise of any right, remedy, power or privilege under or in respect of
this Security Agreement or the Restructuring Agreement; (iii) any furnishing of
any additional security to the Collateral Agent on behalf of the Investor or any
acceptance thereof or any sale, exchange, release, surrender or realization of
or upon any security by the Collateral Agent on behalf of the Investor; or (iv)
any invalidity, irregularity or unenforceability of all or part of the
Obligations or of any security therefor.

        Section 7.10 Grantor's Duties. It is expressly agreed, anything herein
contained to the contrary notwithstanding, that the Grantor shall remain liable
to perform all of the obligations, if any, assumed by it with respect to the
Collateral and neither the Collateral Agent nor the Investor shall have any
obligations or liabilities with respect to any Collateral by reason of or
arising out of or in connection with this Security Agreement, nor shall the
Collateral Agent or the Investor be required or obligated in any manner to
perform or fulfill any of the obligations of the Grantor under or with respect
to any Collateral.

                                       25
<PAGE>

        Section 7.11 Action by Investor. In the event that there is more than
one holder of the Convertible Note, any decision, direction, notice or other
action to be made by the Investor pursuant to this agreement, shall be made by
the majority of holders in principal amount of the Convertible Note.

        Section 7.12 Termination. This Security Agreement and the Security
Interest shall terminate when all the Obligations have been paid in full or the
Restructuring Agreement shall have terminated or been terminated, whichever is
earlier, at which time the Collateral Agent shall promptly execute and deliver
to the Grantor, at the Grantor's expense, all UCC termination statements and
similar documents that the Grantor may reasonably request to evidence such
termination.

        Section 7.13 Dispute Resolution. It is understood and agreed that should
any dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Collateral, or should any claim be made upon the
Collateral Agent or the Collateral by a third party, the Collateral Agent upon
receipt of notice of such dispute or claim is authorized and shall be entitled
(at its sole option and election) to retain in its possession, without liability
to anyone, all or any of said Collateral until such dispute shall have been
settled either by the mutual written agreement of the parties involved or by a
final order, decree or judgment of a competent court in the United States of
America, the time for perfection of an appeal of such order, decree or judgment
having expired. The Collateral Agent may, but shall be under no duty whatsoever
to, institute or defend any legal proceedings that relate to the Collateral.

        Section 7.14 Consent to Jurisdiction and Service. Each of the Grantor
and Investor (together, the "Interested Parties") hereby absolutely and
irrevocably consents and submits to the jurisdiction of the courts in the State
of New York and of any Federal court located in said State of New York in
connection with any actions or proceedings brought against any of the Interested
Parties (or each of them) by the Collateral Agent arising out of or relating to
this Security Agreement. In any such action or proceeding, the Interested
Parties each hereby absolutely and irrevocably (i) waives any objection to
jurisdiction or venue, (ii) waives personal service of any summons, complaint,
declaration or other process, and (iii) agrees that the service thereof may be
made by certified or registered first-class mail directed to such party, as the
case may be, at their respective addresses in accordance with Section 7.01
hereof.

        Section 7.15 Force Majeure. The Collateral Agent shall not be
responsible for delays or failures in performance resulting from acts beyond its
control. Such acts shall include but not be limited to acts of God, strikes,
lockouts, riots, acts of war, epidemics, governmental regulations superimposed
after the fact, fire, communication line failures, computer viruses, power
failures, earthquakes or other disasters.

        Section 7.16 Reproduction of Documents. This Security Agreement and all
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications that may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The

                                       26
<PAGE>

parties agree that any such reproduction shall be admissible in evidence as
the original itself in any judicial or administrative proceeding, whether or
not the original is in existence and whether or not such reproduction was made
by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.

        Section 7.17 Releases.

                (a) At such time as the Convertible Note and the other
Obligations then due and owing shall have been paid in full in cash, all
Collateral shall be released from the Liens created hereby, and this Security
Agreement and all obligations (other than those expressly stated to survive such
termination) of the Investor, Collateral Agent and the Grantor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the Grantor. At the
request and sole expense of the Grantor following any such termination, the
Collateral Agent, in accordance with the instructions of the Investor, shall
deliver to the Grantor any Collateral held by the Collateral Agent or the
Investor hereunder, and execute and deliver to such Grantor such documents
(including, without limitation, UCC termination statements) as such Grantor
shall reasonably request to evidence such termination.

                (b) In connection with the sale or other disposition permitted
under Section 5.14 of the Restructuring Agreement and the release of the
Collateral subject to such sale or other disposition, the Collateral Agent, in
accordance with the instructions of the Investor, shall execute and deliver to
the Grantor (at the sole cost and expense of the Grantor) all releases or other
documents (including, without limitation, UCC termination statements) necessary
or reasonably desirable for the release of Liens created hereby on such
Collateral as the Grantor may reasonably request.

        Section 7.18 Representations and Warranties. The Grantor reaffirms the
representations and warranties to the Investor set forth in Article III of the
Restructuring Agreement.

            [The remainder of this page is intentionally left blank]

                                       27

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have duly executed this Security
Agreement as of the day and year first above written.

                                     TALK AMERICA HOLDINGS, INC.

                                     By:      /s/ Aloysius T. Lawn, IV
                                        --------------------------------
                                     Name:  Aloysius T. Lawn, IV
                                     Title: Executive Vice President, General
                                            Counsel and Secretary

                                     STATE STREET BANK AND
                                        TRUST COMPANY, N.A., as
                                        Collateral Agent

                                     By:   /s/ James E. Murphy
                                        --------------------------------
                                     Name:  James E. Murphy
                                     Title: Vice President

Agreed and Accepted:

AMERICA ONLINE, INC.

By:    /s/ Lynda Clarizio
    ----------------------------------
    Name:  Lynda Clarizio
    Title: Senior Vice President

                                       28

<PAGE>

Schedule I to the
Security and Pledge Agreement
Grantor:  Talk America Holdings, Inc.

                                  CAPITAL STOCK

<TABLE>
<CAPTION>
                                  State of
                              Incorporation of      Number of                               Number and Class of     Percentage of
          Issuer                   Issuer          Certificate    Registered Owner              Shares                 Shares
-------------------------   --------------------   -----------    ----------------        ---------------------     ------------
<S>                         <C>                         <C>       <C>                     <C>                           <C>

Talk America Inc.           Pennsylvania                10        Talk America            1,950 Common Stock            100%
                                                                  Holdings, Inc.

Talk America of             Virginia                    1         Talk America            100 Common Stock              100%
Virginia, Inc                                                     Holdings, Inc.

Compco, Inc.                Delaware                    2         Talk America            10 Common Stock               100%
                                                                  Holdings, Inc.

Access One                  New Jersey                  1         Talk America            100 Common Stock              100%
Communications Corp.                                              Holdings, Inc.

The Other Phone             Florida                     *         Access One              10,500 Common Stock           100%
Company, Inc.                                                     Communications Corp.

Omnicall, Inc.              South Carolina              *         Access One              12,269,000 Common Stock       100%
                                                                  Communications Corp.
</TABLE>

* Certificates are held by MCG Finance Corporation and, as of the date on which
this Secuirty Agreement becomes effective, are not pledged pursuant to this
Security Agreement and are not included in the definition of Pledged Collateral.
Certificates are pledged pursuant to the Subsidiary Guarantee and Security
Agreement. Certificates are not among those to be delivered to the Collateral
Agent pursuant to this Security Agreement.

                                 DEBT SECURITIES

<TABLE>
<CAPTION>

       Issuer           Issue        Principal Amount        Date of Note        Maturity Date
--------------------    -----        ----------------        ------------        -------------
<S>                      <C>         <C>                     <C>                 <C>

None.

</TABLE>

                                       29
<PAGE>

Schedule II to the
Security and Pledge Agreement
Grantor:  Talk America Holdings, Inc.

                             PERFECTION CERTIFICATE

         Reference is made to the Security and Pledge Agreement dated as of
September 19, 2001 (as amended, supplemented or otherwise modified from time to
time, the "Security Agreement"), among Talk America Holdings, Inc. as the
Grantor, State Street Bank and Trust Company, N.A., as collateral agent (the
"Collateral Agent") on behalf of America Online, Inc. (the "Investor"), and the
Investor.

         The undersigned, an authorized officer of Grantor, hereby certifies to
the Collateral Agent as follows:

                Names. (a) The exact corporate name of the Grantor, as such name
appears in its certificate of incorporation, is as follows:

                          Talk America Holdings, Inc.

         (b) Set forth below is each other corporate name the Grantor has had in
the past five years, together with the date of the relevant change:

                    Talk.com Inc. (name changed April 6, 2001)

               Tel-Save Holdings, Inc. (name changed November 16, 1998)

         (c) The following is a list of all other names (including trade names
or similar appellations) used by the Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:

                  Tel-Save/ Network Services/The Phone Company/

         (d) Set forth below is the Federal Taxpayer Identification Number of
the Grantor:

                     Talk America Holdings, Inc.: 23-2827736

         2.  Current Locations. (a) The chief executive office of the Grantor is
located at the address set forth below:

<TABLE>
<CAPTION>
Mailing Address                                   County                State
---------------                                   ------               -------
<S>                                               <C>                     <C>
12020 Sunrise Valley Drive, Suite 250             Fairfax                 VA
Reston, Virginia  20191

</TABLE>

                                       30
<PAGE>

          (b) Set forth below are all locations other than as set forth in
paragraph (a) above, where the Grantor maintains any books or records relating
to any Accounts (with each location at which chattel paper, if any, is kept
being indicated by an "*"):

<TABLE>
<CAPTION>
Mailing Address                                   County                State
---------------                                   ------               -------
<S>                                               <C>                     <C>

6805 Route 202                                    Bucks                         PA
New Hope, Pennsylvania 18938

</TABLE>

         (c) Set forth below are all the places of business of the Grantor not
identified in paragraph (a) or (b) above:

<TABLE>
<CAPTION>
Mailing Address                                   County                State
---------------                                   ------               -------
<S>                                               <C>                     <C>

None.

</TABLE>

         (d) Set forth below are all the locations where the Grantor maintains
any Collateral not identified above:

<TABLE>
<CAPTION>
Mailing Address                                   County                State
---------------                                   ------               -------
<S>                                               <C>                     <C>

None.

</TABLE>

         (e) Set forth below are the names and addresses of all persons other
than the Grantor that have possession of any of the Collateral of the Grantor:

<TABLE>
<CAPTION>
Mailing Address                                   County                State
---------------                                   ------               -------
<S>                                               <C>                     <C>

None.

</TABLE>

         IN WITNESS WHEREOF, the undersigned hereunto set his hand this 19th
day of September, 2001.

                                             TALK AMERICA HOLDINGS, INC.

                                             By:
                                                -----------------------------
                                             Name:  Aloysius T. Lawn, IV
                                             Title: General Counsel

                                       31

<PAGE>

Schedule III to the
Security and Pledge Agreement

                                  FEE SCHEDULE

Annual Collateral Agent Fee:                $3,500.00 per year or part thereof

The Annual Fee shall be due and payable in advance, upon signing of the Security
and Pledge Agreement; thereafter upon each anniversary date. The Annual Fee
shall be subject to an annual adjustment of up to 10% by the Collateral Agent,
upon notice.

Annual Fee Per Additional Investor:         $500 per year or part thereof

Wire Fee:                                   $25.00 per wire

Investment Fee:                             $65.00 per Book Entry buy/sell
(direct investments in treasuries, C/D's,   $100.00 per Physical buy/sell
CP, Repo's, etc.)

Sweep Fee:                                  40 basis points per annum of
(SSgA or selected other Money               the average daily net assets
Market Funds)

Out-of-Pocket Expenses:                     At Cost
(such as but not limited to, telephone, postage, insurance, shipping charges,
outside investment charges and supplies, will be charged at cost)

Legal Fee:                                  $1,000.00 (cap)

Extraordinary Administrative Expenses
In addition to the Annual Fee, fees for extraordinary services will be
determined and charged by appraisal. Such services may include, but are not
limited to, additional responsibilities and services incurred in case of
default, dispute or third party claim upon the escrow fund.

                                       32

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