SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report January 3, 1998
(Date of earliest event reported) (November 7, 1997)
CTC COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Massachusetts 0-13627 04-2731202
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.
360 Second Ave., Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
(978) 466-8080
(Registrant's telephone number including area code)
(Former name or former address if changed since last report)
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Item 5. Other Events
On November 7, 1997 the Registrant entered into a Revolving and
Term Loan Agreement (the "Loan Agreement") with Fleet National
Bank ("Fleet Bank"), Boston, Massachusetts, for a $15.0 million
revolving line of credit and a $10.0 million term loan facility.
The Loan Agreement replaces the Registrant's prior $5.0 million
revolving line of credit with Fleet Bank.
Maximum amounts available under the revolving line of credit are
limited to a borrowing base of 75% of the Registrant's eligible
accounts receivable and may be utilized for working capital and
to fund standby letters of credit. Loans under the term loan
facility may be utilized to finance or refinance up to 75% of the
purchase price of equipment purchased by the Registrant and to
finance, in the aggregate amount of up to $5.0 million unless
otherwise consented to by Fleet Bank, establishment of new
business locations, acquisitions of other companies or
businesses, or for permanent working capital.
Advances made under the revolving credit line and the term loan
facility will bear interest, at the Registrant's option, at the
prime rate or the London Interbank Offer Rate (LIBOR), plus in
each case a margin percentage which will fluctuate based upon the
Registrant's ratio of Funded Debt (consolidated indebtedness for
borrowed money) to EBITDA (consolidated earnings before interest,
taxes, depreciation and amortization) and the Registrant's ratio
of Senior Debt (consolidated indebtedness which is not
subordinated debt) to Tangible Capital Base (consolidated
tangible net worth plus subordinated debt). In addition, loans
made under the term loan facility may, at the Registrant's
option, bear interest at a cost of funds rate to be determined by
Fleet Bank.
As security for all loans made under the Loan Agreement, the
Registrant has granted Fleet Bank a security interest and lien in
all of the Registrant's existing or future tangible and
intangible personal property and fixtures.
The Loan Agreement contains a number of covenants including,
among others, covenants limiting the Registrant's ability to
incur debt, create liens, issue guarantees, make investments,
engage in transactions with affiliates, to sell or otherwise
dispose of its assets, and engage in mergers and certain
acquisitions. In addition, the Loan Agreement contains
affirmative covenants including, among others, covenants
requiring maintenance of corporate existence and insurance,
payment of taxes and delivery of financial and other information.
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The Loan Agreement also requires the Registrant to comply with
certain financial tests and to maintain certain financial ratios
including, but not limited to, Senior Debt to Tangible Capital
Base, Funded Debt to EBITDA, and a Debt Service Coverage Ratio (
EBITDA less unfinanced capital expenditures, dividends and cash
taxes paid divided by the sum of interest expense and the
aggregate amount paid in respect of long term indebtedness).
Failure to satisfy any of the financial covenants would
constitute an event of default under Loan Agreement
notwithstanding the Registrant's ability to meet its debt service
obligations. The Loan Agreement also includes other customary
events of default including, without limitation, a cross-default
to other indebtedness, certain undischarged judgments and
bankruptcy and insolvency.
In December, 1997, the Registrant terminated its agency agreement
with Bell Atlantic Corporation (as the successor to the NYNEX "),
and in January 1998 began operating as a competitive local
exchange carrier ("CLEC") under Resale Service Agreements with
Bell Atlantic covering Massachusetts, Maine, New Hampshire and
Rhode Island. An additional agreement, covering the state of
Vermont, is awaiting approval by the Vermont Public Service
Board. The Registrant also commenced operations as a CLEC in New
York pursuant to tariffed rates and conditions. Pursuant to the
agreements and the New York tariff, the Registrant purchases
local exchange services at discounted rates for resale primarily
to business customers. Services offered for resale include all of
the retail telecommunications products and services offered by
Bell Atlantic, such as local exchange calling and attendant
features, including call waiting, call forwarding, caller ID and
three-way calling. The rates for these services are filed with
the public utilities commission of each respective state.
In December, 1997, the Registrant filed a Complaint and Jury
Demand ("Complaint") against Bell Atlantic Corporation ("Bell
Atlantic") in the United States District Court for the District
of Maine, Southern Division (Civil Action No. 97-CV-395-P-H).
The Complaint alleges four separate counts against Bell Atlantic,
as follows:
1. Breach of Contract. The complaint alleges that Bell Atlantic
(as successor to the NYNEX Company) has breached the Agreement
for Sale of Services and Account Management effective as of
February 1, 1996 between NYNEX and the Registrant (the "Agency
Agreement") pursuant to which the Breach of Contract. The
complaint alleges that Bell Atlantic Registrant sold intraLATA
(local) telecommunications services on behalf of NYNEX in New
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York and the New England states. Specifically, the Complaint
alleges that Bell Atlantic has (i) failed to pay the Registrant
in excess of $14.0 million in commissions due under the Agency
Agreement; (ii) failed to act "equitably" and "in good faith"
toward the Registrant in light of changes to the market
engendered by the Telecommunications Act of 1996 (the "1996
Act"); and (iii) unilaterally implemented a plan to eliminate
commissions owed to the Registrant pursuant to a certain class of
customers known as Account Management Program or AMP customers.
In addition, the Complaint alleges that Bell Atlantic has
constructively eliminated the Registrant as a "third party
marketing sales channel" and is thereby responsible to pay a
"separation payment based on 50% of the Registrant's earned
compensation during the 12 months preceding termination of the
Agency Agreement."
2. Monopolization and Attempted Monopolization. The Complaint
alleges that Bell Atlantic has monopoly power in the relevant
market or markets of intraLATA telecommunications services in New
England and New York and has willfully maintained this power,
specifically intended to exclude competitors and competition and
has injured competitors and competition by (i) withholding
payment of the $14.0 million owed to the Registrant under the
Agency Agreement; (ii) threatening to sue the Registrant if it
becomes a reseller and sells to particular classes of customers,
(iii) refusing to sell voice mail at wholesale prices to
resellers, including the Registrant, throughout New England
although it provides these services on a retail basis in New
England, and on a wholesale basis in New York, (iv) refusing to
sell at wholesale prices FCC tariffed data services to resellers,
including the Registrant, (v) refusing to sell intraLATA
telecommunications services at wholesale prices to resellers,
including the Registrant, who seek to sell these services to
existing Bell Atlantic customers unless the customer agrees to
pay unreasonable termination fees; and (vi) otherwise imposing
unreasonable barriers, conditions and restrictions on the resale
of intraLATA telecommunications services.
3. Illegal Tying Arrangement. The Complaint alleges that Bell
Atlantic has entered into illegal tying arrangements in New
England whereby it has refused to provide and/or sell its brand
of voice mail service (the "Tying Product") unless customers
purchase or continue to purchase its brand of Centrex service
(the "Tied Product") from Bell Atlantic in violation of Section 1
of the Sherman Antitrust Act, 15 USC Sec. 1. The Complaint
further alleges that Bell Atlantic's tying arrangement has
resulted in an unreasonable restriction of competition which
cannot be justified by a legitimate business purpose and has
precluded the Registrant from competing with Bell Atlantic in the
"tied product market.
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4. Violation of the Telecommunications Act. The Complaint
alleges that, by virtue of the actions complained of in the first
three counts of the Complaint, Bell Atlantic has violated its
statutory duty under Section 251 of the 1996 Act not to prohibit,
or impose unreasonable or discriminatory conditions or
limitations on, the resale of its telecommunications services by
new reseller competitors such as the Registrant.
The Complaint seeks monetary damages in an amount in excess of
$75,000 on each of the four counts, and treble damages under the
count alleging violation of Section 1 of the Sherman Act. In
addition, the Complaint requests injunctive relief restraining
Bell Atlantic from any further anti-competitive acts.
Bell Atlantic has moved the Maine Federal District Court for an
order transferring the action to the United States District Court
for the Southern District of New York or, in the alternative,
staying the action pending determination of its application in
the District Court in New York to compel arbitration of the
dispute (see below for a description of the New York District
Court action). The Registrant has opposed this motion.
Following institution of the Maine Federal District Court action
by the Registrant, Bell Atlantic instituted an action against the
Registrant in the United States District Court for the Southern
District of New York (98 CIV 0048) setting forth two causes of
action against the Registrant. In the first cause of action, Bell
Atlantic denies that it has breached the Agency Agreement,
alleges that the Registrant has breached its obligations under
the Agency Agreement and requests an order (i) compelling the
Registrant to arbitrate its dispute with Bell Atlantic pursuant
to the Agency Agreement and (ii) enjoining the Registrant from
proceeding with the above described litigation against Bell
Atlantic in the United States District Court in Maine.
The second cause of action alleges that the Registrant has
engaged in certain activities in violation of its post-
termination non-competition, trademark usage and confidentiality
obligations under the Agency Agreement, and its fiduciary duty to
Bell Atlantic, and intends to continue to do so. Bell Atlantic
seeks an order for injunctive relief requiring the Registrant to
cease and desist from engaging in the alleged actions set forth
in the second cause of action.
In January, 1998 Bell Atlantic filed a motion for a temporary
restraining order and preliminary injunction seeking to prohibit
the Registrant from continuing the alleged violations of the non-
competition, trademark usage and confidentiality provisions of
the Agency Agreement, and seeking an order compelling arbitration
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of the entire dispute. After the close of business on January
30, 1997, the Court issued an order denying the motion seeking to
compel arbitration and granting the motion for a temporary
restraining order. Specifically, the order temporarily enjoined
the Registrant, for a period of 12 months from December 30, 1997,
from selling or promoting the sale of any non-Bell Atlantic
IntraLATA telecommunications products, including IntraLATA
products purchased wholesale from Bell Atlantic for resale to the
Registrant's customers, to any Bell Atlantic customer for whom
the Registrant was responsible for account management or to whom
the Registrant sold any such Bell Atlantic service during the 12
months preceding December 30, 1997. The order also temporarily
enjoined the Registrant from any use of Bell Atlantic's
trademarks and trade name in promotional, advertising or
marketing material without Bell Atlantic's written permission and
from any use of certain Bell Atlantic confidential information
disclosed to the Registrant in its capacity as Bell Atlantic's
sales agent.
The Registrant intends to vigorously contest the action.
SIGNATURES
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.
(Registrant)
By: /s/ John D. Pittenger
John D. Pittenger
Vice President-Finance
February 3, 1998
