<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 3, 1998
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CTC COMMUNICATIONS CORP.
--------------------------------------------------
(Exact name of registrant as specified in charter)
MASSACHUSETTS 0-13627 04-2731202
- ---------------------------- ------------------------ -------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
360 Second Ave., Waltham, Massachusetts 02154
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 466-8080
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This is page 1 of 4 pages.
Exhibit Index appears on page 4.
<PAGE>
ITEM 5. OTHER EVENTS.
On June 2, 1998, CTC Communications Corp. ("CTC" or the "Company") issued
press releases announcing a proposed offering of $125 million gross proceeds of
units consisting of senior notes and warrants to purchase common stock pursuant
to Rule 144A, CTC's results of operations for the fourth quarter and fiscal year
ending March 31, 1998 and changes in CTC's business strategy including proposed
expansion into six additional states in the Boston-Washington D.C. corridor and
proposed deployment of a data-centric network. The information contained in the
press releases, which are attached as Exhibits 99.1, 99.2 and 99.3 hereto, is
incorporated herein by reference.
The press releases contain certain "forward looking statements" relating to
proposed financing, future expansion and network deployment, future operations
and future financial results. No assurance can be given that the future results
implied or expressed by the forward looking statements will be achieved. Such
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors"
contained in Exhibit 99.4 hereto, which is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
99.1 Press release issued by CTC Communications Corp. on June 2, 1998 with
respect to proposed private placement.
99.2 Press release issued by CTC Communications Corp. on June 2, 1998 with
respect to financial results.
99.3 Press release issued by CTC Communications Corp. on June 2, 1998 with
respect to strategy changes.
99.4 Risk Factors
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CTC COMMUNICATIONS CORP.
By: /s/ Steven C. Jones
_______________________________________
Name: Steven C. Jones
Title: Chief Financial Officer
Date: June 3, 1998
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Page
- -------------- --------------------------------------------------- ----
<C> <S> <C>
99.1 Press release issued by CTC Communications Corp.
on June 2, 1998 with respect to proposed private
placement.
99.2 Press release issued by CTC Communications Corp.
on June 2, 1998 with respect to financial results.
99.3 Press release issued by CTC Communications Corp.
on June 2, 1998 with respect to strategy changes.
99.4 Risk Factors
</TABLE>
<PAGE>
EXHIBIT 99.1
[CTC LOGO]
News Release
For Further Information Contact
John D. Pittenger
Executive Vice President,
Finance & Administration
781-466-1302
Internet: http://www.ctcnet.com
June 2, 1998
FOR IMMEDIATE RELEASE
CTC COMMUNICATIONS CORP. PLANS
144A PLACEMENT OF NOTES AND WARRANTS
------------------------------------
Waltham, Massachusetts--CTC Communications Corp. (NASDAQ-CPTL), announced today
that it plans to offer $125 million gross proceeds of units consisting of Senior
Notes and Warrants to purchase Common Stock through a Rule 144A private
offering. The proceeds of the offering would be used to fund the Company's
planned expansion within its existing markets and into six additional states in
the Boston-Washington, DC corridor, deploy the Company's proposed data-centric
Integrated Communications Network in its existing markets, enhance the CTC
Information System and repay its credit facility.
The units have not been, and will not be, registered pursuant to the Securities
Act of 1933, as amended, and may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirements.
CTC Communications Corp. is a rapidly growing provider of integrated
communications solutions to small and medium sized business customers in the
Northeastern U.S. It provides an extensive array of voice and data services
including local, long distance, frame relay, Internet access, and T1 and ISDN
services. The Company markets its services through its 175 member direct sales
force throughout Massachusetts, New York, Connecticut, New Hampshire, Vermont,
Rhode Island and Maine. CTC's headquarters is in Waltham, MA, and CTC can be
found on the worldwide web at http://www.ctcnet.com.
The statements in this press release that relate to future plans, events or
performance are forward-looking statements that involve risk and uncertainties
that could cause actual results to differ materially from those reflected in the
forward-looking statements. Readers are, accordingly, cautioned not to place
undue reliance on these forward-looking statements, which speak only as to the
date hereof. Additional information about these risks and uncertainties is set
forth in the Company's most recent report on Form 10-K. CTC undertakes no
obligation to release publicly the results of any revisions to these
forward-looking statements that may be made to reflect results, events or
circumstances after the date hereof.
<PAGE>
EXHIBIT 99.2
[CTC LOGO]
News Release
For Further Information Contact
John D. Pittenger
Executive Vice President,
Finance & Administration
781-466-1302
Internet: http://www.ctcnet.com
June 2, 1998
FOR IMMEDIATE RELEASE
CTC COMMUNICATIONS CORP.
REPORTS YEAR END RESULTS
------------------------
Waltham, Massachusetts--CTC Communications Corp. (NASDAQ-CPTL), today reported
results for the fourth quarter and year ended March 31, 1998.
The Company announced a net loss of $2,884,000 or $0.29 per share, on revenues
of $40,947,000 for the fiscal year ended March 31, 1998, as compared to net
income of $4,683,000 or $0.43 per share, on revenues of $40,290,000 for the
fiscal year ended March 31, 1997.
For the fourth quarter ended March 31, 1998, the Company reported revenues of
$6,287,000 and a net loss of $6,008,000 or $0.60 per share, as compared to
revenues of $11,472,000 and net income of $1,281,000 or $0.12 per share, for the
comparable period of Fiscal 1997.
The results for the quarter and year ended March 31, 1998, reflect the Company's
decision to terminate its agency relationship with Bell Atlantic in December
1997 and commence operation as an integrated communications provider (ICP). As a
result of this transition, gross margins for the fourth quarter were negatively
impacted due to fixed costs associated with the sale of local telecommunications
services, lower long distance rates extended to customers in advance of
decreases from its long distance supplier, increased costs associated with
adding new customers and services, and costs associated with the termination of
its debit card program. The company believes that gross margins for the fourth
quarter are not representative and expects gross margins to improve in future
quarters.
Robert Fabbricatore, Chairman and Chief Executive Officer of CTC Communications
Corp. stated that he was pleased with the progress made during the Company's
first quarter as an ICP.
<PAGE>
"In our first three months on this platform, we sold 21,613 and provisioned
17,637 access line equivalents to primarily new customers for CTC," said Mr.
Fabbricatore. "There is a tremendous market opportunity in our footprint that is
growing each year. We believe that our fourteen years of telecommunications
experience uniquely positions us as an integrated communications provider in our
markets."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Network Service Revenue
Commissions $ 194,050 $ 8,353,961
Resale 6,093,391 3,117,823
-------------- --------------
Total Revenues $ 6,287,441 $ 11,471,784
Cost of resale revenues 5,943,479 2,615,084
Selling, general and administrative expenses 10,121,930 6,761,888
Income/(Loss) from Operations (9,777,968) 2,094,812
Income/(Loss) before income taxes (9,683,451) 2,158,717
EBITDA (9,110,102) 2,330,707
Net Income (Loss) $ (6,008,451) $ 1,280,917
Earnings Per Share $ (0.60) $ 0.12
Weighted Shares Outstanding 9,976,915 10,654,661
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Network Service Revenue
Commissions $ 24,775,420 $ 29,195,261
Resale 16,171,716 11,094,838
-------------- --------------
Total Revenues $ 40,947,136 $ 40,290,099
Cost of resale revenues 14,038,565 8,709,122
Selling, general and administrative expenses 31,491,963 23,819,714
Income/(Loss) from Operations (4,583,392) 7,761,263
Income/(Loss) before income taxes (4,370,450) 7,959,931
EBITDA (3,165,526) 8,504,158
Net Income (Loss) $ (2,884,450) $ 4,682,931
Earnings Per Share $ (0.29) $ 0.43
Weighted Shares Outstanding 9,886,000 10,773,000
</TABLE>
CTC Communications Corp. is a rapidly growing provider of integrated
communications solutions to small and medium sized business customers in the
Northeastern U.S. It provides an extensive array of voice and data services
including local, long distance, enhanced telephone services, frame relay,
Internet access, and T1 and ISDN services. The Company markets its services
through its 175 member direct sales force throughout Massachusetts, New York,
Connecticut, New Hampshire, Vermont, Rhode Island and Maine. CTC's headquarters
is in Waltham, MA, and CTC can be found on the World Wide Web at ctcnet.com.
The statements in this press release that relate to future plans, events or
performance are forward-looking statements that involve risk and uncertainties
that could cause actual results to differ materially from those reflected in the
forward-looking statements. readers are, accordingly, cautioned not to place
undue reliance on these forward-looking statements, which speak only as to the
date hereof. Additional information about these risks and uncertainties is set
forth in the Company's most recent report on Form 10-K. CTC undertakes no
obligation to release publicly the results of any revisions to these
forward-looking statements that may be made to reflect results, events or
circumstances after the date hereof.
<PAGE>
EXHIBIT 99.3
[CTC LOGO]
News Release
For Further Information Contact
John D. Pittenger
Executive Vice President,
Finance & Administration
781-466-1302
Internet: http://www.ctcnet.com
June 2, 1998
FOR IMMEDIATE RELEASE
---------------------
CTC COMMUNICATIONS CORP. ENTERS INTO STRATEGIC AGREEMENT
WITH INTERNATIONAL NETWORK SERVICES, INC. TO DEPLOY AN
INTEGRATED COMMUNICATIONS NETWORK IN NEW ENGLAND
Waltham, Massachusetts - CTC Communications Corp. (NASDAQ: CPTL) announced today
that it intends to deploy a data-centric, integrated communications network
beginning in the first quarter of 1999 which will initially span the New
York-New England region. CTC's Integrated Communications Network (ICN) initially
will have long distance and data switches capable of handling ATM, IP, Ethernet
and Frame Relay protocols interconnected by leased transmission facilities. The
Company intends to continue to lease local dialtone capabilities until these
services can be cost effectively integrated into a packet switched network
architecture.
CTC expects that its advanced, high capacity network will be able to take
advantage of the growing customer demand for data transmission capabilities and
the attractive economics that can be achieved by utilizing a combination of
Company-owned facilities and leased network elements. Once deployed, the Company
believes that its ICN will enable to it to improve margins, enhance customer
control, and broaden service offerings.
CTC also announced that it has entered into a strategic agreement with
International Network Services, Inc. (NASDAQ: INSS) to design, engineer, and
build the CTC Integrated Communications Network in the Company's existing
region, primarily on a fixed-fee basis. INS has agreed to develop the detailed
network design, assist CTC in procuring the network components from third
parties build and test the network operations center (NOC) and network switching
sites, and perform CTC's beta test operations with customers. The initial
network and NOC buildout is expected to be complete by April 30, 1999, at which
point CTC anticipates it will contract with INS to operate and maintain the
network until such time as permanent CTC personnel are hired.
<PAGE>
Bob Fabbricatore, Chairman and CEO of CTC, said, "We are pleased to enter into
this strategic relationship with INS, one of the world's leading network
integrators. We believe that our relationship with INS will give us a
significant advantage in designing and deploying the ICN. It allows us to bring
out network on-line significantly faster than we would otherwise be able to
accomplish, and it allows our team to remain focused on what we do best,
marketing local telecommunications services."
John Drew, President and Chief Operating Officers of INS commented, "INS is very
pleased to join together with CTC in this strategic agreement. This contract
represents an important milestone for both companies as CTC asserts itself as a
leader in the rapidly evolving competitive local exchange market and
demonstrates INS' unique capabilities to plan, design, implement, and manage
carrier-quality network operations."
CTC also announced today that as part of its expansion plans over the next 24
months, it intends to open more than 20 new sales offices thorughout the Boston-
Washington D.C. corridor and hire more than 200 additional sales personnel.
Fabbricatore commented, "Our 14 years of experience in selling local
telecommunications services as an agent has allowed us to develop a successful
and highly replicable approach to branch operations and we intend to
aggressively pursue branch expansion to fully take advantage of the
opportunities afforded by the Telecom Act. The effectiveness of CTC's sales
force was demonstrated during our first four months of operations as an
integrated communications provider. Through April 30, 1998, we sold 29,693
access line equivalents of which 25,931 were provisioned."
CTC Communications Corp is a rapidly growing provider of integrated
communications solutions to small and medium-sized business customers in the
Northeastern U.S. It provides an extensive array of voice and data services
including local, long distance, frame relay, Internet access, T1 and ISDN
services. The Company markets its services through its 175 member direct sales
force thorughout Massachusetts, New York, Connecticut, New Hampshire, Vermont,
and Maine. CTC's headquarters is in Waltham, MA and can be found on the
worldwide web at http://www.ctcnet.com.
International Network Services is a global provider of solutions for complex
enterprise networks. INS provides professional services for the full life cycle
of a network, including planning, design, implementation, operations and
optimization, and maintains expertise in the most complex network management
tasks, such as network monitoring and network performance reporting. As of March
31, 1998, INS had 1,169 employees and provided service from 32 locations. INS'
headquarters are located at 1213 Innsbruck Drive, Sunnyvale, CA 94089. The INS
Web site is located at http://www.ins.com.
The statements in this press release that relate to future plans, events or
performance are forward-looking statements that involve risk and uncertainties
that could cause actual results to differ materially from those reflected in the
forward-looking statements, which speak only as to the date hereof. Additional
information about these risks and uncertainties is set forth in the Company's
most recent report on Form 10-K. CTC undertakes no obligations to release
publicly the results of any revisions to these forward-looking statements that
may be made to reflect results, events or circumstances after the date hereof.
<PAGE>
EXHIBIT 99.4
RISK FACTORS
LIMITED HISTORY AS AN INTEGRATED COMMUNICATIONS PROVIDER; RISKS RELATING TO
IMPLEMENTATION OF NEW STRATEGY
Although the Company has sold integrated telecommunications services for over
14 years, it sold local telephone services as an agent for Bell Atlantic
Corporation ("Bell Atlantic") until December 1997 and only began offering such
services as an integrated communications provider (an "ICP") under its own brand
name after that time. As a result of the Company terminating its agency
relationship with Bell Atlantic, agency revenues which accounted for
approximately 71% of the Company's revenues for the nine-month period ended
December 31, 1997 are no longer generated by the Company. For the fourth quarter
ended March 31, 1998, agency revenues decreased from $8.4 million to $194,000
and total revenues decreased from $11.5 million to $6.2 million. There can be no
assurance that the Company's prior experience in the sale of telecommunications
services as a sales agent will result in the Company generating sufficient cash
flow to service its debt obligations or competing successfully under its new
strategy.
The Company plans to deploy its own Integrated Communications Network ("ICN").
The Company has no experience in deploying, operating and maintaining a
telecommunications network. The Company's ability to successfully deploy its ICN
will require the negotiation of interconnection agreements with incumbent local
exchange carriers ("ILECs"), which can take considerable time, effort and
expense and which are subject to federal, state and local regulation. There can
be no assurance that the Company will be able to successfully negotiate such
agreements or to effectively deploy, operate or maintain its facilities or
increase or maintain its cash flow from operations by deploying a network.
Further, there can be no assurance that the packet-switched design of the
network will provide the expected functionality in serving its target market or
that customers will be willing to migrate the provision of their services onto
CTC's network.
If the Company fails to effectively transition to an ICP platform, fails to
obtain or retain a significant number of customers or is unable to effectively
deploy, operate or maintain its network, such failure could have an adverse
effect on the Company's business, results of operations and financial
condition. In addition, the implementation of its new strategy and the
deployment of its network has increased and will continue to increase the
Company's expenses significantly. Accordingly, the Company expects to incur
significant negative cash flow during the next several years as it implements
its business strategy, penetrates its existing markets as an ICP, enters new
markets, deploys its ICN and expands its service offerings. There can be no
assurance that the Company will achieve and sustain profitability or positive
net cash flow.
CAPITAL REQUIREMENTS AND UNCERTAINTY OF FINANCING
The implementation of the Company's business plan to further penetrate its
existing markets, deploy the ICN in its existing markets, expand its sales
presence into six additional states in the Boston-Washington, D.C. corridor and
enhance the CTC Information System will require significant capital. The Company
currently contemplates financing implementation of this plan by consummation of
the Proposed Offering. The Company believes that the estimated net proceeds of
the proposed Rule 144A private placement of units consisting of notes and
warrants (the "Proposed Offering"), together with cash on hand at May 31, 1998,
would be sufficient to repay the Fleet Credit Facility and to fund CTC's capital
expenditures, operating losses and working capital requirements for the next 24
months. However, there can be no assurance that the Company will be able to
consummate the Proposed Offering in the amount, on the terms and on the
schedule, if at all, required to implement the Company's business plan.
Further the Company's actual capital requirements may be greater than
anticipated and may be materially affected by many factors, including the rate
and extent of deployment of the ICN, the timing and actual cost of expansion
into new markets, the extent of competition and pricing of telecommunications
services in its markets, acceptance of the Company's services, technological
change and potential acquisitions. Sources of funding the Company's capital
requirements may include the Proposed Offering, public offerings or private
placements of equity or debt securities, vendor financing and bank loans. There
can be no assurance that financing will be available to the Company or, if
available, that it can be obtained on a timely basis and on terms acceptable to
the Company. Failure to obtain financing when required could result in the
delay or abandonment of the Company's business plans which could in turn have a
material adverse effect on the Company.
HIGH LEVERAGE; POSSIBLE INABILITY TO SERVICE INDEBTEDNESS
If the Proposed Offering is consummated, the Company will be highly leveraged.
The degree to which the Company is leveraged could have important consequences
to the Company's future prospects, including the following: (i) limiting the
ability of the Company to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes; (ii) limiting the flexibility of the Company in planning for, or
reacting to, changes in its business; (iii) leveraging the Company more highly
than some of its competitors, which may place it at a competitive disadvantage;
(iv) increasing its vulnerability in the event of a downturn in its business or
the economy generally; and (v) requiring that a substantial portion of the
Company's cash flow from operations be dedicated to the payment of principal and
interest on the Notes and not be available for other purposes.
The Company's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. There can be no assurance that
the Company's business will generate sufficient cash flow from operations or
that anticipated revenue growth and operating improvements will be realized or
will be sufficient to enable the Company to service its indebtedness, or to fund
its other liquidity needs. There can be no assurance that the Company will be
able to refinance all or a portion of its indebtedness on commercially
reasonable terms or at
<PAGE>
all. If the Company does not generate sufficient cash flow to meet its debt
service and working capital requirements, the Company may need to examine
alternative strategies that may include actions such as reducing or delaying
capital expenditures, restructuring or refinancing its indebtedness, the sale
of assets or seeking additional equity and/or debt financing. There can be no
assurance that any of these strategies could be effected on satisfactory
terms, if at all.
DEPENDENCE ON IN-HOUSE BILLING AND INFORMATION SYSTEM
The accurate and prompt billing of the Company's customers is essential to
the Company's operations and future profitability. The Company's expected
growth and deployment of its ICN could give rise to additional demands on the
CTC Information System, and there can be no assurance that it will perform as
expected. The failure of the Company to adequately identify all of its
information and processing needs (including Year 2000 compliance), the failure
of the CTC Information System or the failure of the Company to upgrade the CTC
Information System as necessary could have a material adverse effect on the
Company and its results of operations.
DEPENDENCE ON NETWORK INFRASTRUCTURE AND PRODUCTS AND SERVICES OF OTHERS
The Company does not currently own any part of a local exchange or long
distance network and depends entirely on facilities-based carriers for the
transmission of customer traffic. After the deployment of the ICN, it will
still rely, at least initially, on others for circuit switching of local voice
calls and on fiber optic backbone transmission facilities. There can be no
assurance that such switching or transmission facilities will be available to
the Company on a timely basis or on terms acceptable to the Company. The
Company's success in marketing its services requires that the Company provide
superior reliability, capacity and service. Although the Company can exercise
direct control of the customer care and support it provides, most of the
services that it currently offers are provided by others. Such services are
subject to physical damage, power loss, capacity limitations, software
defects, breaches of security (by computer virus, break-ins or otherwise) and
other factors, certain of which have caused, and will continue to cause,
interruptions in service or reduced capacity for the Company's customers. Such
problems, although not the result of failures by the Company, can result in
dissatisfaction among its customers.
In addition, the Company's ability to provide complete telecommunications
services to its customers will be dependent to a large extent upon the
availability of telecommunications services from others on terms and
conditions that are acceptable to the Company and its customers. There can be
no assurance that government regulations will continue to mandate the
availability of some or all of such services or that the quality or terms on
which such services are available will be acceptable to the Company or its
customers.
RELIANCE ON INS; INS AGREEMENT
The Company has engaged International Network Services, Inc. ("INS") to
design, engineer and build the Company's ICN in the Company's existing markets.
Any failure or inability by INS to perform these functions could cause delays or
additional costs in providing services to customers and building out the
Company's ICN in specific markets. The Company anticipates that it will also
contract with INS to operate and maintain the ICN upon completion of the
buildout
<PAGE>
until such time as payment CTC personnel are hired. Any such failure could
materially and adversely affect the Company's business and results of
operations.
ABILITY TO MANAGE GROWTH; RAPID EXPANSION OF OPERATIONS
The Company is pursuing a new business plan that, if successfully
implemented, will result in rapid growth and expansion of its operations,
which will place significant additional demands upon the Company's current
management. If this growth is achieved, the Company's success will depend, in
part, on its ability to manage this growth and enhance its information,
management, operational and financial systems. There can be no assurance that
the Company will be able to manage expanding its operations. The Company's
failure to manage growth effectively could have a material adverse effect on
the Company's business, operating results and financial condition.
POTENTIAL IMPACT OF THE BELL ATLANTIC LITIGATION AND THE TRO
In December 1997, the Company filed suit against Bell Atlantic for breaches
of its agency contract, including the failure of Bell Atlantic's retail division
to pay $14 million in agency commissions (now approximately $11.5 million) owed
to the Company. The Company intends to pursue this suit vigorously. Although the
Company believes the collection of the agency commissions sought in the suit is
probable, there can be no assurance that the Company will be successful in
collecting these commissions. If the Company fails to collect any of the amounts
sought or if their collection becomes less than probable, the Company would be
required to write off the amounts reflected in its financial statements that it
is unable to collect or for which collection becomes less than probable. Delay
in the collection or write-off of the agency commissions sought may adversely
affect the Company.
In the Company's litigation against Bell Atlantic, Bell Atlantic obtained a
temporary restraining order (the "TRO") prohibiting the Company until December
30, 1998 from marketing certain local telecommunications services to any Bell
Atlantic customer for whom the Company was responsible for account management,
or to whom the Company sold Bell Atlantic services, during 1997. Although the
Company is seeking to have the TRO modified or dissolved, there is no assurance
that it will be successful and the Company's sale of local service to such
customer sites could be prohibited until December 30, 1998. The inability of the
Company to sell local telephony services to such customers until such date may
continue to adversely affect the Company's business. In addition, the Company
must use Bell Atlantic infrastructure for nearly all of the local telephony
services that it currently provides and, although Bell Atlantic is prohibited by
federal law from discriminating against the Company, there can be no assurance
that the litigation with Bell Atlantic will not negatively affect the Company's
relationships with Bell Atlantic's wholesale division.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success will depend to a significant
extent upon the abilities and continued efforts of its management,
particularly members of its senior management team. The loss of the services
of any of such individuals could have a material adverse effect on the
Company's results of operations. The success of the Company will also depend,
in part, upon the Company's ability to identify, hire and retain additional
key management as well as highly skilled and qualified sales, service and
technical personnel. Competition for qualified personnel in the
telecommunications industry is intense, and there can be no assurance that the
Company will be able to attract and retain additional employees and retain its
current key employees. The inability to hire and retain such personnel could
have a material adverse effect on the Company's business.
COMPETITION
The Company operates in a highly competitive environment and has no
significant market share in any market in which it operates. The Company
expects that it will face substantial and growing competition from a variety
of data transport, data networking and telephony service providers due to
regulatory changes, including the continued implementation of the
Telecommunications Act of 1996 (the "Telecommunications Act"), and the increase
in the size, resources and number of such participants as well as a continuing
trend toward business
<PAGE>
combinations and alliances in the industry. The Company faces competition for
the provision of integrated telecommunications services as well as competition
in each of the individual market segments that comprise the Company's
integrated approach. In each of these market segments, the Company faces
competition from larger, better capitalized incumbent providers, which have
long standing relationships with their customers and greater name recognition
than the Company.
REGULATION
The Company's local and long distance telephony service, and to a lesser
extent its data services, are subject to federal, state, and, to some extent,
local regulation.
The Federal Communications Commission ("FCC") exercises jurisdiction over all
telecommunications common carriers, including the Company, to the extent that
they provide interstate or international communications. Each state regulatory
commission retains jurisdiction over the same carriers with respect to the
provision of intrastate communications. Local governments sometimes impose
franchise or licensing requirements on telecommunications carriers and regulate
construction activities involving public right-of-way. Changes to the
regulations imposed by any of these regulators could affect the Company.
While the Company believes that the current trend toward relaxed regulatory
oversight and competition will benefit the Company, the Company cannot predict
the manner in which all aspects of the Telecommunications Act will be
implemented by the FCC and by state regulators or the impact that such
regulation will have on its business. The Company is subject to FCC and state
proceedings, rulemakings, and regulations, and judicial appeal of such
proceedings, rulemaking and regulations, which address, among other things,
access charges, fees for universal service contributions, ILEC resale
obligations, wholesale rates, and prices and terms of interconnection and
unbundling. The outcome of these rulemakings, judicial appeals, and subsequent
FCC or state actions may make it more difficult or expensive for the Company
or its competitors to do business. Such developments could have a material
effect on the Company. The Company also cannot predict whether other
regulatory decisions and changes will enhance or lessen the competitiveness of
the Company relative to other providers of the products and services offered
by the Company. In addition, the Company cannot predict what other costs or
requirements might be imposed on the Company by state or local governmental
authorities and whether or not any additional costs or requirements will have
a material adverse effect on the Company.
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
As it expands, the Company may pursue strategic acquisitions. Acquisitions
commonly involve certain risks, including, among others: difficulties in
assimilating the acquired operations and personnel; potential disruption of
the Company's ongoing business and diversion of resources and management time;
possible inability of management to maintain uniform standards, controls,
procedures and policies; entering markets or businesses in which the Company
has little or no direct prior experience; and potential impairment of
relationships with employees or customers as a result of changes in
management. There can be no assurance that any acquisition will be made, that
the Company will be able to obtain any additional financing needed to finance
such acquisitions and, if any acquisitions are so made, that the acquired
business will be successfully integrated into the Company's operations or that
the acquired business will perform as expected. The Company has no definitive
agreement with respect to any acquisition, although from time to time it has
discussions with other companies and assesses opportunities on an ongoing
basis.
YEAR 2000 COMPLIANCE
The Company has assessed its systems and expects all of them to be year 2000
compliant by the end of 1998. However, there can be no assurance that all
systems will function adequately until the occurrence of year 2000. In
addition, if the systems of other companies on whose services the Company
depends or with whom the Company's systems interface are not year 2000
compliant, there could be a material adverse effect on the Company.
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CONTROL BY PRINCIPAL SHAREHOLDERS; VOTING AGREEMENT
As of May 16, 1998, the officers and directors and parties affiliated with
or related to such officers and directors controlled approximately 48.5% of
the outstanding voting power of the Common Stock. Robert J. Fabbricatore, the
Chairman and Chief Executive Officer of the Company, beneficially owns
approximately 27.5% of the outstanding shares of Common Stock. Consequently,
the officers and directors will have the ability to exert significant
influence over the election of all the members of the Company's Board, and the
outcome of all corporate actions requiring stockholder approval. In addition,
Mr. Fabbricatore has agreed to vote the shares beneficially owned by him in
favor of the election to the Company's Board of Directors of up to two persons
designated by the holders of a majority of the Series A Convertible Preferred
Stock.
IMPACT OF TECHNOLOGICAL CHANGE
The telecommunications industry has been characterized by rapid
technological change, frequent new service introductions and evolving industry
standards. The Company believes that its long-term success will increasingly
depend on its ability to offer integrated telecommunications services that
exploit advanced technologies and anticipate or adapt to evolving industry
standards. There can be no assurance that (i) the Company will be able to
offer new services required by its customers, (ii) the Company's services will
not be economically or technically outmoded by current or future competitive
technologies, (iii) the Company will have sufficient resources to develop or
acquire new technologies or introduce new services capable of competing with
future technologies or service offerings (iv) all or part of the ICN or the
CTC Information System will not be rendered obsolete, (v) the cost of the ICN
will decline as rapidly as that of competitive alternatives, or (vi) lower
retail rates for telecommunications services will not result from
technological change. In addition, increases in technological capabilities or
efficiencies could create an incentive for more entities to become facilities-
based ICPs. Although the effect of technological change on the future business
of the Company cannot be predicted, it could have a material adverse effect on
the Company's business, results of operations and financial condition.
