SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-14567
ACC CORP.
400 West Avenue
Rochester, New York 14611
716-987-3000
Incorporated under the Employer Identification
Laws of the State of Delaware Number 16-1175232
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, par value $.015 per share
Indicate by check mark whether the Company (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Aggregate market value of all Common Stock held by non-affiliates as of March
10, 1995 = $106,964,000.
6,926,012 shares of $.015 par value Common Stock were issued and outstanding
as of March 10, 1995.
(Continued on next page)
Documents Incorporated by Reference:
(1) Portions of the Company's Annual Report to Shareholders for its fiscal
year ended December 31, 1994 are incorporated by reference in Parts II and IV
of this Report.
(2) Portions of the Company's Proxy Statement for its 1995 Annual Meeting of
Shareholders are incorporated by reference in Part III of this
Report.
The Index of Exhibits filed with this Report begins at page __.
The total number of pages in this Report is ___.
PART I
Item 1. BUSINESS.
Note: Terms first set forth in italic bold face type are defined in the
Glossary that appears at the end of this Item.
THE COMPANY
ACC Corp. is a telecommunications holding company that through its
operating subsidiaries provides a full range of domestic and international
long distance switched, private line and local telecommunications services for
voice and data transmission to commercial, residential and student customers
in the northeastern United States, Canada and the United Kingdom.
Unless the context otherwise requires, in this document the terms
"Company" and "ACC" refer to ACC Corp. and its subsidiaries. "ACC U.S."
refers to the Company's wholly-owned U.S. operating subsidiaries through which
the Company provides its long distance and local telephone services in the
United States. "ACC Canada" refers to the Company's approximately 70%-owned
Canadian subsidiary, ACC TelEnterprises Ltd., an Ontario corporation, that is
a holding company for several Canadian operating subsidiaries through which
the Company provides long distance services in Canada. "ACC U.K." refers to
ACC Long Distance UK Ltd., a U.K. corporation, the Company's wholly-owned
subsidiary through which it provides long distance services in the United
Kingdom. Each of these entities provides long distance services to their
customers within their respective countries and internationally either over
the Company's leased facilities or through other carriers. In the U.S., the
Company provides local telephone services to its university and student
customers through its university program and in 1994 began offering local
services to customers in the Syracuse, New York area.
The Company was originally incorporated in New York in January, 1982, as
A. C. Teleconnect Corp. During 1987, it changed its corporate name to ACC
Corp. and reincorporated in the State of Delaware. The Company does business
under the trade name "ACC." It commenced operations as a long distance
telecommunications reseller in May, 1982. Its principal executive offices are
located at 400 West Avenue, Rochester, New York 14611, telephone number (716)
987-3000.
Industry Overview
United States
The current U.S. long distance marketplace was largely shaped by the
1984 AT&T Divestiture Decree, under which AT&T was required to divest itself
of its 22 Bell Operating Companies ("BOCs"). This Decree also divided the
U.S. into approximately 200 "Local Access and Transport Areas" or LATAs. The
local exchange carriers, which include both the BOCs and independent local
exchange carriers, provide local telephone service, local access service and
long distance service within the same LATA ("intra-LATA" traffic). Almost all
of the 22 BOCs were grouped under seven regional holding companies that were
separated from the long distance provider, AT&T, which resulted in the
creation of two distinct market segments: long distance and local exchange
service. Long distance service between LATAs ("inter-LATA" traffic) and, in
most states, within LATAs, may be provided by both interexchange carriers and
other carriers such as the Company and certain independent local exchange
carriers that provide both interexchange and local telephone services. Under
the AT&T Divestiture Decree, the BOCs are currently allowed to offer only
local telephone service, local access services and intra-LATA long distance
service. While the BOCs currently are prohibited from entering the inter-LATA
long distance market, independent local exchange carriers may offer such
services.
The BOCs and other local exchange carriers are required by the AT&T
Divestiture Decree and the Federal Communications Commission ("FCC") to
provide interexchange carriers with access to their local exchange services
that is equal in type, quality and price to that provided to AT&T and to
maintain a subscription process that gives telephone customers the right to
designate a primary interexchange carrier for inter-LATA and interstate calls.
"Equal access" is intended to place all interexchange carriers on an equal
competitive footing with respect to the quality and cost of originating and
terminating calls in each LATA. Prior to equal access, customers of
interexchange carriers other than AT&T generally had to dial an access number
and a personal authorization code to make a long distance call. With equal
access, which has now been instituted in almost all LATAs with respect to
inter-LATA long distance service, customers need only dial the number "1" plus
the area code and telephone number of the person being called to connect with
the network of the interexchange carrier selected by that customer. This is
the same method of access available to customers of AT&T in all markets and is
known as "1+" dialing. All inter-LATA calls are then routed automatically to
the interexchange carrier preselected by the customer. ("1+" dialing is not
presently provided for intra-LATA calls in most states, however.) The
regulations governing the rate levels and rate structures for the local
exchange carriers' interstate access services to interexchange carriers are
currently under review by the FCC.
In addition to the local exchange carriers, new entrants to the
marketplace have begun to offer local telephone service. Originally limited
to private line connections between end user locations, or connections from
end users to interexchange carrier points of presence, these new entrants have
begun to offer a wider range of local telephone services in certain areas in
part because of new rate structure and interconnection requirements imposed on
the local exchange carriers by regulatory agencies. While the Company's local
telephone service offered in upstate New York provides some of the access
services currently provided by the local exchange carriers, these services are
not currently subject to the same degree of Federal and state regulation as
are those offered by the local exchange carriers.
Canada
Since 1990, the Canadian long distance telecommunications market has
undergone fundamental changes much like those experienced by the U.S. market
following the AT&T Divestiture Decree. The Canadian long distance industry is
dominated by ten major telephone companies, of which Bell Canada is the
largest. These and various other facilities-based carriers own their
interexchange and/or local transmission facilities. The local exchange
telephone systems owned by such carriers are operated on a monopoly basis.
Long distance telecommunications services are also provided by non-facilities-
based carriers, such as ACC Canada, that carry long distance traffic over
interexchange circuits leased from the facilities-based carriers, originating
and terminating the calls through the local exchange telephone systems.
As a result of the 1990 Canadian Radio-television and Telecommunications
Commission's ("CRTC") Telecom Decision CRTC 90-3 ("Decision 90-3"), carriers
such as ACC Canada were permitted for the first time to aggregate the calls of
any number of customers on the same leased circuits to provide discounted long
distance voice service in the Provinces of Ontario, Quebec and British
Columbia. As the result of the CRTC's 1992 Telecom Decision CRTC 92-12
("Decision 92-12"), certain monopoly facilities-based carriers were required
to allow resellers and other facilities-based carriers to interconnect their
long distance networks with the public switched telephone network ("PSTN") to
provide public long distance voice services. This decision also began the
process of requiring monopoly carriers to provide "equal ease of access" to
the customers of other long distance carriers (essentially the same concept as
"equal access" in the U.S.). As the result of the CRTC's Telecom Decisions
CRTC 93-8 ("Decision 93-8") and CRTC 93-17 ("Decision 93-17"), most of the
monopoly carriers are required to provide the customers of resellers with
"equal ease of access," which was implemented beginning in mid-1994.
The Canadian telecommunications industry is currently undergoing
significant structural change. Following CRTC Decision 90-3, a large number
of resellers and rebillers entered the marketplace. Increases in so-called
"contribution charges" resulting from CRTC Decision 92-12, coupled with price
reductions implemented by the facilities-based carriers and increased
competition in the long distance market, have altered the dynamics of the
resale market in Canada and put pricing pressure on reseller margins,
although recent CRTC decisions have begun to reverse these trends. In
response to these changes, resellers, including the Company, are seeking
economies of scale by increasing market share, which has led to consolidation
within the Canadian resale industry. However, for resellers such as the
Company with efficient and cost-effective operations, sophisticated network
systems and technology, and national and international activities, the
Company believes these changes will present opportunities for growth and
business expansion through acquisitions, joint ventures and other alliances.
United Kingdom
In the U.K., the telecommunications market is undergoing fundamental
change that began with the passage of the British Telecommunications Act 1981,
which brought about the privatization of British Telecommunications plc
("British Telecom") and the creation of the duopoly between British Telecom
and Mercury Communications Ltd. ("Mercury") that began in 1984. British
Telecom is the dominant, facilities-based telephone company in the U.K.; the
next largest is Mercury. To provide telecommunications services in the U.K.,
a potential service provider must make an application for a license to do so
with and have it approved by the U.K. Department of Trade and Industry
("DTI"), which license is then granted by the Secretary of State for Trade and
Industry. The terms of the licenses granted to British Telecom and Mercury
allow long distance carriers, and any other operators that have been granted
similar licenses, to interconnect to their networks. In similar fashion to
the process that occurs in Canada or the U.S., resellers in the U.K. carry
long distance traffic over circuits leased from the facilities-based carriers,
mainly originating and terminating calls through the local exchange networks
of British Telecom. The British Government's Office of Telecommunications
has instituted a policy of "indirect access" dialing for customers of
resellers and other licensed operators in the U.K. to enable them to access
their long distance carrier through the PSTN by dialing a four-digit access
code.
Customers
The Company serves commercial (including other resellers), residential
and student customers in the U.S., Canada and the U.K. The following table
shows, for the periods indicated, the number of U.S., Canadian and U.K.
customers for each of the Company's three customer categories.
As of December 31,
1992 1993 1994
Number of:
Commercial Customers:
U.S.: 5,637 5,841 6,872
Canada: 10,100 10,538 16,940
U.K.: --- --- 794
Total: 15,737 16,379 24,606
Residential Customers:
U.S.: 12,479 12,172 19,979
Canada: 2,427 23,266 53,103
U.K.: --- --- 517
Total: 14,906 35,438 73,599
Student Customers:
U.S.: 19,642 32,274 59,213
Canada: 33 11,809 33,492
U.K.: --- 2,500 9,556
Total: 19,675 46,583 102,261
Grand Totals: 50,318 98,400 200,466
Although the Company serves commercial, residential and student
customers in each of its three geographic markets, the Company's principal
focus within these markets differs. The Company is not dependent upon any
single customer or small group of customers in any of its markets, such that
the loss of any one customer would have a materially adverse effect on the
Company's operations taken as a whole.
United States. ACC U.S. is currently authorized to originate long
distance voice services in 36 states, and is seeking such authorization in 11
additional states. Originating calls currently can be terminated throughout
the U.S., Puerto Rico, the U.S. Virgin Islands, Canada and approximately 250
other international destinations. The Company's focus in the U.S. is on the
college and university sector and small and medium sized businesses. The
Company deems medium sized businesses to be those with monthly long distance
charges of between $500 and $5,000. To date, the Company's university program
has focused primarily on colleges and universities which range in size of
annual full time enrollment from 1,000 to 5,000 students. As of December 31,
1994, the Company had more than 59,000 college and university student
customers, representing 62 colleges and universities, including Syracuse
University, the State University of New York at Albany, Ithaca College, Bard
College and Colgate University. The Company is employing the same strategy in
targeting hospitals and other institutions as commercial accounts for its
services. At year end 1994, the Company had over 9,000 commercial customers
representing a variety of industries, including hospitals, healthcare
institutions, governmental entities, and other resellers, for which it
provided a variety of services ranging from basic discounted long distance
service to enhanced services similar to those offered to its college and
university customers. For the years ended December 31, 1992, 1993 and 1994,
the Company derived approximately 48%, 43% and 43%, respectively, of its
consolidated revenue from its U.S. customers.
Canada. ACC Canada, with its headquarters in Etobicoke, Ontario,
provides a broad range of voice and data telecommunications services to
commercial, residential and student customers in the Provinces of Alberta,
British Columbia, Manitoba, Ontario and Quebec. In 1993, the Company sold
approximately 30% of this subsidiary to the public in a Canadian initial
public offering.
The Company's Canadian operations began in 1984 by providing single-end
resale to commercial customers over dedicated lines to the U.S. ACC Canada
currently originates long distance voice and data services in the major
metropolitan centers of Montreal, Toronto and Vancouver, as well as throughout
Alberta, British Columbia, Manitoba, Ontario and Quebec. Originating traffic
can be terminated anywhere in the world. Through ACC Canada, the Company
serves all customer segments of the Canadian telecommunications market,
including several of Canada's largest banks and Financial Post 100
corporations, a significant number of small and medium sized commercial
customers and a growing number of residential customers. ACC Canada also
serves other resellers and rebillers that use the Company's network
exclusively at wholesale rates. The Company has also successfully implemented
its university program in Canada. As of year end 1994, the Company had a
total of over 33,000 Canadian college and university student customers,
representing 20 colleges and universities, including the University of
Toronto, York University, the University of British Columbia and McGill
University, as well as agreements with each of these institutions to offer
service to their students and/or alumni associations. It has also targeted
business and university customers that have significant volumes of calls to
the U.K., given the trans-Atlantic link it leased in 1993 following the grant
of ACC U.K.'s International Simple Resale License ("ISR License"). During the
fiscal years ended December 31, 1992, 1993 and 1994, the Company derived
approximately 52%, 57% and 54%, respectively, of its consolidated revenue from
its Canadian customers.
United Kingdom. In 1989, the Company began to plan an expanded
international strategy. Existing customers were increasingly becoming
involved in international operations, especially in the U.K. and Western
Europe, which have close ties to the population centers of eastern Canada and
the northeastern U.S. With deregulation of the telecommunications industry in
the U.K. gaining momentum through pro-competitive government initiatives,
London was a natural global "gateway" and became the Company's first point of
expansion outside of North America. Regulatory, legal and competitive issues
were examined and a business plan developed by 1991. During 1991, ACC U.K.
applied for and in 1992 was granted the first ISR License ever awarded by the
DTI. This license allows the Company to resell international long distance
service on leased international circuits connected to the PSTN at both ends
between the U.K. and Canada, Sweden, Australia and the U.S. at rates based on
leased line costs rather than per-call costs and not subject to the
artificially high rates set under the International Settlements Policies that
otherwise would apply. This license also authorizes ACC U.K. to offer
domestic resale within the U.K. After extended negotiations, the Company
signed an agreement with British Telecom to interconnect its U.K. network of
leased lines to British Telecom's network in February, 1994 and installed a
switch in London in May, 1994 to serve both ACC U.K.'s domestic and
international traffic.
ACC U.K. commenced operations in January, 1993 and currently originates
long distance voice service throughout the U.K. Originating calls currently
can be terminated anywhere in the world. Through ACC U.K., the Company serves
commercial, residential and student customers. Prior to the installation of
the Company's London switching center in May, 1994, ACC U.K.'s primary focus
had been on universities ranging in size of annual enrollment from 5,000 to
17,000 students. As of December 31, 1994, ACC U.K. had a total of
approximately 9,500 U.K. college and university student customers,
representing 18 colleges and universities, including Cambridge University,
Oxford University and Imperial College of Science, Technology and Medicine.
During 1994, ACC U.K. expanded its customer base to include commercial and
residential customers, as well as other licensed telecommunications carriers
and resellers, and now offers services on a mass market basis across the U.K.
During the fiscal years ended December 31, 1993 and 1994, the Company derived
approximately 0.2% and 3%, respectively, of its consolidated revenue from its
U.K. customers.
Services
The Company offers a variety of services to its commercial, residential
and student customers in the U.S., Canada and the U.K. The following table
shows, for the periods indicated, the number of billable voice long distance
minutes generated by the Company's customers in the U.S., Canada and the U.K.
Year Ended December 31,
1992 1993 1994
United States 305,400,000 378,778,000 445,619,000
Canada 169,600,000 304,295,000 422,149,000
United Kingdom -0- -0- 15,225,000
Totals: 475,000,000 683,073,000 882,993,000
University Program. The Company's university program offers a variety
of telecommunication services to educational institutions ranging from long
distance service for administration and faculty, to integrated on-campus
services, including both local and long distance service, voice mail, intercom
calling and operator services for students, administrators and faculty. The
Company's sales, marketing and engineering professionals work directly with
college and university administrators to design and implement integrated
solutions for providing and managing telecommunications equipment and services
to meet the current and prospective communications needs of their
institutions. As part of its program, the Company often installs
telecommunications equipment, which, depending upon the circumstances, may
include a switch or private branch exchange, voice mail, cabling and, more
frequently in the U.K., telephones. Payphone usage in the U.K., particularly
at universities, is more prevalent than in the U.S. and Canada. To access
this market directly, the Company has established a payphone division in the
U.K., which supplies payphones to universities and other institutions that
will automatically route calls over ACC U.K.'s network.
For the year ended December 31, 1994, the Company had entered into a
total of 100 contracts with colleges and universities in its three geographic
regions, of which 75 were long-term agreements with terms ranging from three
to eleven years in length. These contracts generally provide the Company with
a right of first refusal to provide the institution with any desired
additional telecommunications services or enhancements during the term of the
contract. The Company's long distance rates for students generally are priced
at a 10% discount from those charged by the dominant long distance carrier.
In addition, the Company's university contracts in Canada generally provide it
with the exclusive right, and in the U.K. the opportunity, to market to the
school's students and faculty, and in the U.K., administration. Most of the
Company's contracts in Canada also provide for exclusive university support
for marketing to alumni. These arrangements allow the Company to market its
services to these groups through its affinity programs. (See "Sales and
Marketing.")
The Company offers all of its university customers in the U.S., Canada
and the U.K. certain customized services. The Company offers its university
customers a comprehensive billing package to assist them in reviewing and
controlling their telecommunications costs. For its university student
customers in the U. S. and Canada, the Company provides a billing format that
indicates during each statement period the savings per call (in terms of the
discount from the competing dominant telephone company's rates) realized
during the billing period, and for all university customers including those in
the U.K., provides a call detail report recording every long distance call.
In addition, for university student customers, the Company provides account
codes for multiple users of the same telephone so that each student in a
dormitory room can record which calls he or she has made.
A majority of the Company's university customers in the U.S. are offered
operator services, which are available 24 hours per day, seven days per week.
The Company also offers its U.S. and Canadian university customers its "Travel
Service Elite" domestic calling card, which allows the customer to place long
distance calls at competitive rates from anywhere in the U.S. and Canada to
anywhere in either country, and plans to begin offering this service to its
U.K. university customers during the second quarter of 1995. In addition, the
Company has developed a prepaid calling card for sale in the U.S., which
allows customers to prepay for a predetermined number of "units" representing
long distance minutes. The rate at which the units are used is determined by
the destination of the calls made by the customer. The Company intends to
market this service on university campuses beginning in 1995 in Canada and the
U.K.
Commercial Services. The Company offers its commercial customers in the
U.S. and Canada an array of customized services and is in the process of
developing a similar range of service offerings for commercial customers in
the U.K.
United States. In the U.S., the Company's services include "1+" inter-
LATA long distance service, and private line service for which a customer is
charged a fixed monthly rate for transmission capacity that is reserved for
that customer's traffic. The Company's U.S. business services also include
toll-free "800" services. In addition, the Company provides automatic dialing
equipment for those customers in equal access areas who make a large number of
intra-LATA calls to enable them to place such calls over the Company's network
without having to dial an access code. In general, the Company's commercial
services are priced below the rates charged by AT&T for similar services.
Building on its experience in providing local telephone service to
various university customers, the Company took advantage of recent regulatory
developments in New York State and began offering local telephone service on a
limited basis to commercial customers in the Syracuse, New York metropolitan
area in the last half of 1994. The Company believes that it can strengthen
its relationships with existing commercial and residential customers in New
York State and attract new customers by offering them both local and long
distance services, thereby providing a single source for comprehensive
telecommunications services. Providing local telephone service will also
enable the Company to serve new customers even if they are already under
contract with a different interexchange carrier for long distance service.
During the fourth quarter of 1994, the Company signed a letter of intent to
merge its local exchange subsidiary with US ONE Communications Corp., in
return for which the Company will receive 30% of the common stock of the
merged entity. For more information concerning this transaction, see the
discussion under "Management's Discussion and Analysis."
Canada. In Canada, the Company offers its business customers both voice
and data telecommunications services. The Company's long distance voice
services are offered to its business customers in a nine-level discount
structure marketed under the "Edge" name. Discounts are based on calling
volume and call destination and typically result in savings ranging from 10%
to 30% when compared to Stentor member rates. Calls to the U.S. are priced at
a flat rate regardless of the destination and international calls are priced
at a percentage discount to the rates charged by Teleglobe Canada Inc.
("Teleglobe Canada"), the sole authorized Canadian operator of facilities to
provide Canada/overseas telecommunications services. The Company also offers
1-800 services within Canada, as well as to and from the U.S., and offers an
ACC Travel Card providing up to 50% savings off Bell Canada's "Calling Card"
rates. The Company's data services in Canada include facsimile and low and
high speed data transmission services delivered over a separate data network,
for which services customers are billed a flat monthly line charge. The
Company's data network currently serves 32 centers across Canada, including
four international border crossings to provide full service to and from the
U.S. As a complement to these services, the Company also provides data
network design services to its customers directly and in conjunction with
third parties.
United Kingdom. In the U.K., the Company presently offers its business
customers voice telecommunications services. These services include indirect
access to the PSTN (known as "ACCess 1601") and the use of direct access lines
to the Company's network (known as "ACCess Direct") for higher-volume users.
Because ACCess 1601 is a mass market service, the prices offered are built
around a standard price list with volume discounts for high-volume users,
while ACCess Direct is cost effective only for customers making at least 5,000
Pounds Sterling per month in calls.
The Company's U.S. and Canadian commercial customers are offered the
same customized services offered to all of the Company's university customers
in those countries, such as comprehensive billing packages and the "Travel
Service Elite" domestic calling cards. The Company's standard monthly
statement includes a management summary report, a call detail report recording
every long distance call and facsimile call, and a pricing breakdown by call
destination. Optional calling pattern reports, which are available at no
extra cost, include call summaries by account code, area or city code, LATA
(for U.S. bound calls), international destination, and time-of-day. This
information is available to customers in the form of hard copy, magnetic tape
or disk.
Residential Services. The Company offers its residential customers in
the U.S. and Canada various long distance service plans and is currently
developing similar plans for its residential customers in the U.K. In the
U.S., the Company's "Save Plus" program provides customers with competitively
priced long distance service. In addition, U.S. customers are provided with a
"Phone Home" long distance service through which, by dialing an 800 number
plus an access code, callers can call home at competitive rates. In general,
the Company's residential services are priced below AT&T's Direct Distance
Dialing rates for similar services. In Canada, the Company offers three
different residential service plans. The basic offering is a discount
plan available for a minimum monthly usage of $10.00 (Can.), with call pricing
discounted by 15% to 35% off the Stentor companies' discounted rates depending
on the time of day and day of the week. The Company also offers its "Dusk
till Dawn 90" and "Dusk till Dawn 360" programs, which provide 90 and 360
minutes, respectively, of monthly calling to Ontario, Quebec and the
continental U.S. at flat monthly rates. In the metro Toronto area, the
Company offers "Extended Metro Toronto" calling, which provides flat rate
calling within areas adjacent to Toronto that are long distance from each
other. Customized billing services similar to those offered to the Company's
university customers are offered to the Company's U.S. and Canadian
residential customers. In the U.K., all residential customers use the
Company's ACCess 1601 service, which provides significant savings of as much
as 30% off the standard rates charges for residential service by British
Telecom or Mercury.
International Services. The Company is currently developing and
implementing international products and services to market to both its
existing customer base and to potential customers in the U.S., Canada and the
U.K. The Company believes it can compete effectively for international traffic
due to the ISR Licenses it has obtained for traffic between each of these
countries which allow it to price its services at cost-based rates that are
lower than the international settlement rates that would otherwise apply to
such traffic. The Company has leased or acquired fixed cost facilities
between these countries and is developing products and services for
customers with high volumes of traffic between and among these countries.
Customer and Technical Support. The Company maintains a customer
service and network operations center in Rochester, New York and customer
service capabilities at both its Canadian and U.K. headquarters. The
Company's customer service capabilities include instant access to billing
information, immediate credits and, in the U.S. and Canada, an automatic call
dispatch system that allows managers to monitor response times and reallocate
resources to minimize customer waiting time. The Company's network operations
center in Rochester monitors its entire North American network, including
switching centers, on-site university switches and transmission equipment and
microwave sites, enabling the Company to immediately identify and resolve
problems in the Company's network.
Sales and Marketing
The Company markets its services in the U.S., Canada and the U.K.
through a variety of channels, including direct and independent sales agents,
telemarketers and specialized marketing programs. The Company has a total of
approximately 85 direct sales personnel and 132 independent sales agents
serving its U.S., Canadian and U.K. markets. The Company maintains a number
of sales offices in the Northeastern U.S., in Canada, and in London,
Manchester and Cambridge, England. In addition, in each country, the Company
has representatives located either on campus or in close proximity to each
college or university customer to assist in customer enrollment, dissemination
of marketing information, complaint resolution and, in some cases, collection
of customer payments.
United States. The Company markets its services in the U.S. through
direct and independent sales agents, as well as through attendance at
significant trade association meetings and industry conferences of target
customer groups. During 1994, the Company increased the size of its direct
sales force to focus on marketing the Company's services to small and medium
sized business customers in the Northeast.
Canada. The Company markets its long distance services in Canada
through direct sales personnel, sales agents and telemarketers. The Company
focuses its direct selling efforts on large business customers, while the
telemarketing effort is focused primarily on residential customers. The
Company uses primary sales agents to target small to medium sized business and
residential markets throughout Canada. These agents employ over 200 sales
representatives to market the Company's services under contracts that
generally provide for the payment of commissions based on the revenue
generated from new customers obtained by the representative. The use of a
primary agent network allows the Company to expand into larger markets without
incurring the significant costs associated with a direct sales force. The
Company also markets its services, on a limited basis, to other resellers and
rebillers.
In addition to marketing its residential services in Canada through
primary sales agents and telemarketers, the Company has developed several
affinity programs designed to attract residential customers within specific
target groups, such as clubs, alumni groups and buying groups. The use of
affinity programs allows the Company to target groups with a nationwide
presence without engaging in costly nationwide advertising campaigns. ACC
Canada has established affinity programs with such groups as the Home Service
Club of Canada, Hudson's Bay Company, the University of Toronto and the
University of British Columbia.
United Kingdom. Until mid-1994, the Company's marketing efforts in the
U.K. focused primarily on its university customers. Since the May, 1994,
installation of its switching center in London, the Company has been marketing
its services to commercial and residential customers, as well as other
licensed telecommunications carriers and resellers, through a multichannel
distribution plan including direct sales, independent agents and
telemarketers.
The Company utilizes its direct sales force in the U.K. to target medium
and large business customers which typically have enough volume to warrant a
direct access line to the Company's switch, thereby bypassing the PSTN. The
Company markets its services to small and medium size businesses through a
national network of approximately 40 premier dealerships that employ a total
of over 200 sales representatives. Telemarketers also are used to market
services to small business customers and residential customers and also
generate leads for the other distribution channels.
The Company's marketing strategy in the U.K. also has included targeting
other licensed telecommunications carriers and resellers as potential
wholesale customers. ACC U.K. has established an internal marketing group
that is focused on selling this wholesale service to other licensed
telecommunications carriers and resellers both in the U.K. and in other
European countries.
Transmission Facilities
In the U.S., Canada and the U.K., the Company utilizes a network of
lines leased under volume-discount long-term contracts with facilities-based
carriers, much of which is fiber optic cable. To maximize efficient
utilization, the Company's network in each country is configured with two-way
transmission capability that combines over the same network the delivery of
both incoming and outgoing calls to and from the Company's switching centers.
The selection of any particular circuit for the transmission of a call is
controlled by least-cost-routing computer software, located in the switches,
that is designed to ensure the most efficient use of the Company's network.
In the U.S. and Canada, the Company's network is configured in a
redundant, "ring-topology" system architecture. This configuration offers
callers a dual path between the cities in the Company's service areas, which
helps ensure greater system reliability as well as a cost-effective alterna-
tive to calls being routed over the more expensive fallback networks, such as
the AT&T or Bell Canada Direct Distance Dialing network, as the case may be.
Additionally, the Company has deployed Signalling System #7" ("SS #7")
technology throughout its North American network and during 1994 linked its
North American network with its U.K. switching center utilizing this
technology. SS #7, the most advanced call processing technology available,
provides for improved call quality and faster call routing and set-up times.
SS #7 also maximizes network efficiencies by providing for "look ahead" call
routing, which automatically identifies and selects the lowest cost
transmission path available for a call.
United States. In the U.S., the Company has two switching centers in
Rochester and Syracuse, New York, plus approximately 20 additional points
of presence providing an interface with the PSTN to service its customer
calling areas, each of which is linked to one of its switches through its
network. The Company's U.S. customers can originate calls to all points in
the United States, Puerto Rico, the U.S. Virgin Islands, Canada and
approximately 250 other international destinations.
Canada. In Canada, the Company's digital switching centers are located
in Toronto, Montreal and Vancouver, together with eight points of presence
providing an interface with the PSTN in Canada. In Canada, as in the U.S.,
the Company uses circuits leased from the major facilities-based carriers to
link its points of presence to its switching centers. This network is also
linked with the Company's switches in the U.S. and the U.K. Originating
traffic can be terminated anywhere in the world. ACC Canada also has a direct
trans-Atlantic link with ACC U.K. that it leased in 1993 following the grant
to ACC U.K. of its ISR License to send traffic to the U.K. at rates below
those charged by Teleglobe Canada.
As the result of ACC Canada's implementation of "equal ease of access"
throughout much of its Canadian network in mid-1994, most of the Company's
Canadian customers who do not use direct access lines now can access the
Company's Canadian network by dialing "1+". Previously, those customers were
required to access the Company's Canadian network by dial-up access using
either auto dialing equipment or access code dialing.
United Kingdom. In the U.K., the Company currently has one digital
switching center in London, and plans to add a second switching facility in
Manchester during 1995. ACC U.K. has a total of three main points of
presence providing interfaces with the PSTN in the U.K., which are linked to
its London switching center through circuits leased from the major facilities-
based carriers. This network is also linked with the Company's switches in the
U.S. and Canada. Originating traffic can be terminated almost anywhere in the
world. Customers can access the Company's U.K. network through direct access
lines or by dial-up access using either auto dialing equipment or indirect
access dialing.
Network costs are the single largest expense incurred by the Company.
The Company strives constantly to control its network costs and its dependence
on other carriers by leasing transmission circuits on an economical basis.
The Company also has negotiated long-term leases of private line circuits with
carriers that operate fiber optic transmission systems at rates independent of
usage, particularly on routes over which it carries high volumes of calls. The
Company attempts to maximize the efficient utilization of its network in all
three countries. While its commercial and university customers tend to use
its services most frequently on weekdays during normal business hours, its
residential and student customers use these services most often at night and
on weekends.
Competition
United States. In the U.S., the Company's long distance service
origination areas presently include all or portions of 36 states, with
applications to provide such services pending in eleven additional states as
of March, 1995. In the U.S., the Company competes for customers, transmission
facilities and capital resources with numerous long distance
telecommunications carriers and/or resellers, some of which are substantially
larger, have substantially greater financial, technical and marketing
resources, and own or lease larger transmission systems than the Company.
AT&T is the dominant supplier of long distance services in the U.S. inter-LATA
market. The Company also competes within its U.S. call origination areas with
other national long distance telephone carriers, such as MCI
Telecommunications Corporation ("MCI"), Sprint Corp. ("Sprint"), and regional
companies which resell transmission services. In the intra-LATA market, the
Company also competes with the local exchange carriers servicing those areas,
principally New York Telephone Company ("New York Telephone") and Frontier
Corp. (formerly known as Rochester Telephone Corporation). In its local
service areas in New York State, the Company presently competes or in the
future will compete with New York Telephone, Frontier Corp., GTE Corp. and
Alltel Corp., the major local exchange carriers in its upstate New York
service areas. The Company believes that the principal competitive factors
affecting its market share in the U.S. are pricing, customer service, variety
of services and cost of leased network facilities. By offering high quality
telecommunications services at competitive prices and by offering a portfolio
of value-added services including customized billing packages, call
management and call reporting services, all of which are complemented by a
high level of customer service and support, the Company believes that it
competes effectively with all other long distance telephone carriers,
resellers and local exchange carriers in its service areas. The Company's
ability to continue to compete effectively will depend on its continued
ability to maintain high quality, market-driven services at prices generally
below those charged by its competitors. In addition to these factors, its
ability to compete in its provision of local telephone service in New York
State depends in part upon the successful resolution of several issues
discussed under below under "Regulation."
In the U.S. university market, the Company generally targets small to
medium size schools with full time enrollments in the range of 1,000 to 5,000
students. The Company believes that competition in the university market is
based on the marketing of unique programs and customizing of
telecommunications services to the needs of the particular institution. The
Company believes that it is successful in developing long-term relationships
with universities in particular due to its flexibility vis-a-vis the
competition.
Canada. The Company competes with facilities-based carriers, other
resellers and rebillers. The Company's principal facilities-based competitors
are Bell Canada, the dominant supplier of long distance services in Ontario
and Quebec, BC TEL, the dominant supplier of long distance services in British
Columbia, and Unitel Communications Inc. ("Unitel"), which provides certain
facilities-based and long distance services to business and residential
customers. The principal resellers that the Company competes against include
Sprint Canada Inc., Smart Talk Network, CamNet, Inc. and fONOROLA Inc.
The Company successfully competes with facilities-based and non-
facilities-based carriers by offering basic telecommunications voice and data
services of comparable quality at competitive prices and by offering a
portfolio of value-added services, including enhanced and customized billing
packages, call management and call reporting services, all of which are
complemented by a high level of customer service and support. Because the
Company is able to lease transmission capacity at discounted rates available
only to the highest-volume users, it is able to resell its services at prices
that generally are below the rates charged by Bell Canada or other Stentor
members to most long distance users. The Company's Canadian services are
competitive, in terms of price and quality, with the service offerings of
other non-facilities-based carriers primarily because of its technologically
advanced network-related hardware and software systems and the network
configuration and traffic management expertise that it has brought to bear in
Canada, which it developed through its years of experience in the highly
competitive U.S. marketplace.
In the Canadian university market the Company has been able to establish
long-term contracts with several of the largest universities in Canada. The
Company believes that while its marketing approach in Canada is similar to
that in the U.S. it is able to access larger institutions because of its
nationwide presence.
The Company believes that it generally has a competitive advantage over
other Canadian resellers through the synergies provided by its operations in
the U.S. and the U.K. In particular, the trans-Atlantic link that it
established in June, 1993 between the U.K. and Canada allows ACC Canada to
sell traffic to the U.K. with a significantly lower cost structure than most
other resellers.
United Kingdom. In the U.K., the Company competes with facilities-based
carriers and other resellers. The Company's principal competitors in the U.K.
are British Telecom, the dominant supplier of telecommunications services in
the U.K., and Mercury. The Company also faces competition from emerging
licensed public telephone operators (who are constructing their own
facilities-based networks) such as Energis, and from other resellers including
Worldcom, Esprit and Sprint. The Company believes it will successfully
compete with these facilities-based and non-facilities-based carriers by
offering basic telecommunications voice and data services of comparable
quality at competitive prices and by offering value-added services, including
enhanced and customized billing packages, call management and call reporting
services, all of which are complemented by a high level of customer service
and support. The Company believes that its newly developed billing system
provides billing information that is superior to the information that U.K.
consumers are accustomed to and that this will provide a competitive advantage
for the Company. The Company believes its services are and will be
competitive, in terms of price and quality, with the service offerings of its
U.K. competitors primarily because of its technologically advanced network-
related hardware and software systems and the network configuration and
traffic management expertise that it is employing in the U.K., which it
developed through its years of experience in the highly competitive U.S. and
Canadian markets.
In the U.K. university market the Company has been able to establish
long-term contracts with several of the largest universities in the U.K. The
Company believes that while its marketing approach in the U.K. is similar to
that in the U.S., it is able to access larger institutions because of its
nationwide presence and because the facilities-based competition has not
focused on this market.
Regulation
United States
Various aspects of the terms and conditions under which the Company's
U.S. operating subsidiaries provide telecommunications services are subject to
governmental regulation.
Federal
Certification and Tariffs. The FCC does not currently require
certification of "nondominant" resale common carriers, such as the Company's
ACC Long Distance Corp. subsidiary, in connection with their domestic
services. The FCC does have jurisdiction to act upon complaints against any
common carrier for failure to comply with its statutory obligations as a
common carrier, such as its obligation to charge rates on a nondiscriminatory,
just and reasonable basis. However, the FCC's historical policy of "forbear-
ance," under which the Company's subsidiaries had elected not to file
interstate tariffs for their domestic non-operator assisted services, was
declared unlawful in December, 1992, by the U.S. Court of Appeals for the
District of Columbia Circuit in a decision that has been upheld by the U.S.
Supreme Court. Based on the Court of Appeals' decision, AT&T challenged FCC
tariff filings of certain nondominant facilities-based carriers such as MCI
and Sprint and has sought damages for certain periods in which certain
carriers did not file tariffs similar to those required of AT&T. These chal-
lenges have related to large customers' long-term custom service agreements,
and at this time, the Company does not believe that AT&T will similarly chal-
lenge the tariff rule compliance by resellers such as the Company's
subsidiaries.
Subsequently, in August, 1993, the FCC adopted rules requiring
nondominant carriers such as the Company to file range-of-rate tariffs for
their interstate services. These tariffs require carriers to identify minimum
and maximum rates that will be charged for service, with the carrier able to
charge any rate within that minimum-maximum band for that service. These
tariff rules impose minimal burdens on the Company and do not require the
filing of cost support data. The Company's subsidiaries have filed tariffs
covering their domestic interstate long distance services. The Company
believes that these tariffs serve potential customers as informational price
lists. However, in January, 1995, the U.S. Court of Appeals for the District
of Columbia issued an order overturning the FCC rules authorizing range-of-
rate tariffs for nondominant carriers. The court concluded that the
Communications Act of 1934 requires that all interstate rates charges by a
common carrier must be included in a tariff filed at the FCC. This subjects
the Company to tariffing rules similar to those which apply in the majority
of states and restricts, to a certain degree, the pricing flexibility for
interstate services currently enjoyed by smaller nondominant interexchange
carriers such as the Company. The Court of Appeals' decisions discussed above
have been subject to legislative scrutiny. Return to the FCC's forbearance
policies, which the FCC previously determined to be in the public interest,
could be effected by legislative changes to the Communications Act.
In contrast to these recent developments affecting domestic long
distance service, the Company's U.S. subsidiaries have long been subject to
certification and tariff filing requirements for all international resale
operations. These tariffs are largely for informational purposes. The
Company's subsidiaries' international rates are not subject to either rate-of-
return or price cap regulation. The Company must seek separate certification
authority from the FCC to provide private line service or to resell private
line services between the U.S. and any foreign country. The Company's ACC
Global Corp. subsidiary has received authority from the FCC to resell private
lines on a switched service basis between the U.S. and Canada, and was the
first entity to seek such authority between the U.S. and the United Kingdom,
which it received in September, 1994.
Regulation of AT&T. The FCC regulates to some degree many of the rates
and services of AT&T and the local exchange carriers. This increasingly
streamlined regulation may affect the Company because its subsidiaries compete
with AT&T and lease local access transmission facilities from the local
exchange carriers. The FCC currently requires facilities-based carriers such
as AT&T to permit the resale of their services by others. The FCC's "price
cap" regulation of AT&T (discussed below) grants considerable flexibility to
AT&T in pricing its services. The extension of these regulations to the seven
regional BOC holding companies and other local exchange carriers grants them
such flexibility as well. This could result in decreases in and increased
pricing flexibility with respect to the rates charged to end user customers by
AT&T and other competitors for their services, and could result in increased
prices for services the Company purchases from AT&T and local exchange
carriers to access the public switched telephone network. However, to date,
the Company has not found rate changes attributable to the price cap
regulation of AT&T and the local exchange carriers to have substantially
adversely affected its business.
In 1988, the FCC approved its "price cap" proposal to regulate the rates
AT&T may charge for its services. Essentially, this regulation places a cap
on the prices AT&T may charge for various services, in contrast with the prior
scheme under which AT&T's rates of return were regulated. Because this scheme
caps the prices AT&T charges, in theory AT&T will be able to increase its
profits through lowering its costs of doing business. However, since this
regulation also grants AT&T extensive flexibility in pricing its various
services, AT&T may use this flexibility to enhance its competitive position.
In January, 1995, the FCC amended its price cap rules to remove AT&T's
commercial long distance services from price cap regulation and to grant them
"streamlined" regulatory status. As a result of this decision, AT&T may
change the rates for its commercial services on 14 days' notice and without
cost support data, and is relieved of several reporting requirements. AT&T's
analog private line and 800 services remain subject to price cap regulation,
however. AT&T is therefore more restricted in its ability to change rates for
these two categories of service. In February, 1995, the FCC affirmed its
order that approved customer-specific contracting authority and other forms of
pricing flexibility for AT&T as well as other interexchange carriers. AT&T is
also authorized by the FCC to enter into special pricing arrangements with
large commercial customers, pursuant to which highly competitive rate plans
are offered. AT&T claims that these special arrangements are necessary to
respond to offers made by its competitors. These tariffs have on occasion
been rejected if their rates were not deemed to have been made generally
available to similarly situated customers. AT&T has, however, generally met
the FCC's objections to these tariffs and may be expected to continue to offer
increasingly competitive special rate plans designed to attract large
customers. The FCC approval of AT&T's Tariff 12 offerings was challenged by a
competitor in the U.S. Court of Appeals for the District of Columbia Circuit,
and in October, 1990, that Court set aside the FCC's Order and remanded the
matter to the FCC for further consideration. During 1991, the FCC generally
reaffirmed AT&T's authority to enter into individual contract pricing under
Tariff 12 in an Order that was upheld on appeal. In a related 1991
proceeding, the FCC adopted a policy allowing all interexchange carriers to
offer certain common carrier services on a contract basis; AT&T has filed well
over 1,000 "contract tariffs," and MCI has been active in this area as well.
This streamlined regulation of interexchange carrier tariffs was affirmed by
the FCC in February, 1995. In 1991, the FCC further streamlined the tariff
process applicable to AT&T's competitive business service offerings under
Tariff Nos. 11, 12, 15 and 16, including exempting services offered under
these Tariffs from price cap regulation. Since 1989, AT&T has also offered
special pricing arrangements to governmental agencies under its FCC Tariff 16,
which enables it to be highly competitive in that marketplace.
During 1990, the FCC also adopted price cap regulations to govern the
prices which the BOCs and other local exchange carriers, such as Frontier
Corp., will be able to charge for their interstate access services.
Access Charges. In order to provide their services, interexchange
carriers such as the Company must purchase "access" from local exchange
carriers to originate calls from and terminate calls on the local exchange
telephone networks. In its U.S. service areas, access charges presently
represent a significant portion of the Company's network costs. Access
charges generally are regulated by the FCC and the relevant state public
service commissions ("PSCs"). Under the terms of the AT&T Divestiture Decree,
the BOCs were required to price the "local transport" portion of such access
charges (i.e., the portion of a switched long distance call transmitted
between the switch of a local exchange carrier and the point of presence of
the interexchange carrier) on an "equal price per unit of traffic" basis. In
December, 1993, the local exchange carriers filed tariffs pursuant to the
FCC's new interim rules governing local transport access charges that will
remain in place for two years while the FCC considers permanent rules
regarding new rate structures for transport pricing and switched access
competition. Under the access charge rate structures adopted by the FCC,
projected access charges for AT&T, and possibly other larger interexchange
carriers, would decrease, while access charges for smaller interexchange
carriers would increase. While the outcome of these proceedings is uncertain,
should the FCC adopt permanent access charge rules along the lines of the
interim structures it has allowed to take effect, it could place the smaller
interexchange carriers, such as the Company, at a cost disadvantage, thereby
affecting their ability to compete with AT&T and larger interexchange carrier
competitors.
The FCC has also approved "colocation" of "competitive access
providers" in or near the central office switching areas of the local exchange
carriers to enable such competitive access providers to provide transport
service between a local exchange carrier's central office switch and an
interexchange carrier's point of presence or end user location. Colocation
increases competitive options available to interexchange carriers, which will
no longer be required to rely solely on a local exchange carrier's access
transport services. However, the FCC also has authorized the local exchange
carriers to engage in zone density and flexible pricing for both switched and
dedicated transport services, a situation that could result in AT&T and larger
interexchange carrier competitors obtaining more favorable rates for access
transport than may be available to the Company. While this FCC decision has
been appealed to the U.S. Court of Appeals for the District of Columbia
Circuit, the Company cannot at this time predict the outcome of such appeal.
In addition to its status as an access customer, the Company is now an access
provider in connection with its provision of local telephone service in
upstate New York. However, at present the Company's provision of local
telephone service in New York State is not subject to all of the Federal
access rules and rate structure prescriptions applicable to the BOCs and
independent local exchange carriers.
Potential Increased Competition. Pursuant to the terms of the AT&T
Divestiture Decree, the BOCs are prohibited from providing inter-LATA long
distance service. The BOCs have sought, unsuccessfully to date, to have this
restriction on their business activities removed. However, they continue to
pursue this goal in a variety of ways. Legislation has been introduced in the
U.S. Congress that would repeal this prohibition in stages. Also, NYNEX Corp.
has petitioned for a waiver of the inter-LATA prohibition from the U.S.
Department of Justice based on the level of telecommunications competition
either currently existing or which is expected to exist in the near future.
If the BOCs ultimately are permitted to provide inter-LATA long distance
services, the Company would face significant additional competition, most
probably from NYNEX Corp., the regional BOC in the Company's northeastern U.S.
service area. Additionally, the FCC has in recent years relaxed its
regulatory requirements applicable to foreign-controlled interexchange
carriers, such that these companies will have greater flexibility to compete
on international routes.
State
General. The Company's intrastate long distance operations are subject
to various state laws and regulations including, in most jurisdictions,
certification requirements. Generally, the Company must obtain and maintain
certificates of public convenience and necessity from the PSCs in the states
in which it offers intrastate long distance services. Most PSCs also require
carriers to file tariffs that set forth their rates and conditions of service.
Virtually all states today allow some form of intrastate telecommunications
competition. However, some states restrict or condition the offering of
intrastate/intra-LATA long distance services by the Company and other
interexchange carriers. In those states that do permit interexchange carriers
to offer intrastate services, customers desiring to access those services are
generally required to dial special access codes, which puts the Company at a
disadvantage vis-a-vis local exchange carrier intrastate long distance
service, which generally requires no such access code dialing. Increasingly,
states are reexamining this policy and some states, such as New York, have
ordered that this disadvantage be removed. Implementation, however, will
require several years. Historically, the Company has not experienced
significant problems in its dealings with state regulatory authorities.
PSCs also regulate access charges and other pricing for
telecommunications services within each state. The BOCs and other local
exchange carriers have been seeking reduction of state regulatory
requirements, including greater pricing flexibility. This could adversely
affect the Company in several ways. First, the regulated prices for
intrastate access charges that the Company must pay could increase both
relative to the charges paid by the largest interexchange carriers, such as
AT&T, and in absolute terms as well. Additionally, the Company could face
increased price competition from the BOCs and other local exchange carriers
for intra-LATA long distance services.
A number of the Company's subsidiaries are certified by PSCs to provide
intrastate long distance services and have filed appropriate rate tariffs for
intrastate traffic. Rates charged by the Company may generally be changed as
competitive conditions warrant, after filing an amended rate schedule with the
relevant state's PSC. The Company has received the necessary certificate and
tariff approvals to provide intrastate long distance service in 36 states and
has pending applications to offer such services in eleven more. In addition
to the long distance services discussed above, the Company has obtained
approval to provide competitive local telephone service in New York State.
Developments in New York State are discussed below.
New York State. Beginning in 1992, the New York Public Service
Commission ("NYPSC") commenced several proceedings that are still underway to
investigate the manner in which local exchange carriers should be regulated.
As a result of these proceedings, the local exchange carriers could have
additional freedom to reduce the rates they charge for services that compete
with those offered by the Company, such as intra-LATA toll service, while at
the same time be able to increase the prices for services they provide to the
Company, such as intrastate access charges. In July, 1994, New York Telephone
and the NYPSC staff reached a settlement to a pending proceeding to
investigate an incentive regulatory program for New York Telephone. This
settlement, if approved by the NYPSC, would provide for substantial
deregulation and regulatory flexibility for New York Telephone over the next
five to seven years. Basic residential and business service rates would be
frozen at their current levels, and New York Telephone would be required to
reduce its intrastate rates by from $375 million to $425 million over the term
of this plan. In return, New York Telephone would be granted considerable
pricing flexibility with respect to its competitive services, the services
purchased by the Company (such as carrier access and interconnections) and all
new services, with minimal NYPSC review of rates. New York Telephone would be
freed from any limitation on earnings and profits under this plan and would be
authorized to provide any service under individual contract arrangements with
customers. Approval of this settlement is pending before the NYPSC. If
approved, New York Telephone would be granted extensive freedom from
regulation and greatly enhanced pricing flexibility, which could enhance its
competitive position. By gaining the freedom to modify and manipulate both
its wholesale prices charged to competitors and its retail prices charges to
customers, New York Telephone could potentially be able to subject its
competitors to price squeezes in both the local and intrastate long distance
markets.
In a manner similar to the FCC, the NYPSC has adopted revised rules
governing the manner in which intrastate local transport elements of access
charges are to be priced. These revisions accompanied its decision ordering
local exchange carriers to permit "colocation" for intrastate special access
and switched access transport services. In general, where competitive access
providers have established interconnections at the switches of individual
local exchange carriers, the local exchange carriers will be given expanded
authority to enter into individually negotiated contracts with interexchange
carriers for transport service. At the same time, the transport charges to
other interexchange carriers located at the same switching facilities
generally will be lowered. If insufficient competition is present at that
switching facility, the pre-existing intrastate "equal price per unit of
traffic" rule will remain in effect. While the presence of switch
interconnections may actually lower the price the Company may pay for local
transport services, the ability of carriers such as AT&T that handle large
traffic volumes to negotiate flat rate direct trunking charges may result in
the Company paying more per unit of traffic than its competitors for local
transport service.
In early 1993, Rochester Telephone Corporation (now known as Frontier
Corp.) submitted a proposal to the NYPSC to realign its corporate structure
into an unregulated holding company, a regulated monopoly corporation and a
deregulated competitive corporation. The regulated entity would serve as both
a wholesale provider of service to all competitors on an equal basis and a
retail provider of local exchange service to end users. This proposal was
approved by the NYPSC in 1994 and was effective January 1, 1995. At this
time, it is not possible to determine the full impact that this reorganization
will have on the Company, if any.
In early 1994, in response to a directive from the NYPSC, New York
Telephone decreased its rates for intra-LATA long distance calls and for its
downstate regional calling plan calls, and increased its time of day discounts
on intrastate access charges. Increases in time of day discounts on access
charges disproportionately favor carriers such as AT&T that have larger
traffic volumes in the evening and nighttime calling periods than does the
Company. Further decreases in intra-LATA toll rates and intrastate access
charges are being considered by the NYPSC. It is not possible at this time
for the Company to predict the outcome of these proceedings or the impact it
may have on the Company's competitive position.
In 1994, in a separate proceeding, the NYPSC ordered New York Telephone
to implement statewide intra-LATA presubscription by the end of 1995. This
process would eliminate the need for the Company's customers to dial extra
digits in order to make intra-LATA long distance calls, and could enhance the
Company's competitive position in the intra-LATA long distance market.
However, one of the provisions of the New York Telephone rate incentive
settlement now pending before the NYPSC (discussed above) is a deferral of
intra-LATA presubscription until at least the third quarter of 1996, which
would further delay the Company's ability to increase its share of this
market.
Local Telephone Service in New York State. The NYPSC has determined
that it will allow competition in the provision of local telephone service in
New York State, including "alternate access," private line services and local
switched services. The Company applied to the NYPSC for authority to provide
such services, and received certifications in early 1994 to offer these
services in the Albany, Binghamton, Buffalo, Rochester and Syracuse areas.
The Company's ability to profitably offer competing local services will
depend on a number of factors. For the Company to compete effectively against
New York Telephone, Frontier Corp. and other local exchange carriers in the
Company's upstate New York service areas, it must be able to interconnect its
network with those local exchange carriers in the markets in which it plans to
offer local services, obtain direct telephone number assignments and, in most
cases, negotiate with those local exchange carriers for certain services such
as call termination, leased lines, directory assistance and operator services
on commercially acceptable terms. In December, 1993, the NYPSC issued an
order assuring local telephone service competitors access to number resources
and the right to reciprocal intercarrier compensation arrangements with the
local exchange carriers. The Company has obtained number assignments in the
Syracuse area and plans to request number assignments in each of its other
upstate New York markets.
In June, 1994, the Company agreed to an interim reciprocal compensation
arrangement with New York Telephone. The parties have not yet concluded
negotiations for the leasing of residential links, necessitating the Company
to request a brief postponement of its offer to provide residential and
lifeline services. In granting the postponement, however, the NYPSC ruled
that since the Company would not immediately be providing residential dial
tone services, the reciprocal compensation arrangement negotiated with New
York Telephone would have to be modified. As a result, the Company is not
allowed to charge an equivalent terminating access rate as that imposed by New
York Telephone for terminating traffic on its network. Because this places
the Company at a competitive disadvantage vis-a-vis New York Telephone, the
Company filed for reconsideration of this order, which motion the NYPSC has
denied. The NYPSC's general position is that it will not permit the Company
to receive equivalent terminating access payments from New York Telephone
until such time as the Company actually provides local residential telephone
service.
In February, 1994, the NYPSC instituted a new proceeding (generally
referred to as the "Competition II" docket) to review the extent of
competition in the local telephone service marketplace and to determine the
respective rights, obligations and responsibilities of new local service
providers and local exchange carriers. The order instituting this proceeding
also established interim rules designed to govern the provision of competitive
local telephone services during the pendency of the proceeding. Under those
rules, competitive providers of local telephone service are entitled to
comparable access to and inclusion in local telephone routing guides, and
access to the customer information of other carriers necessary for billing or
other services.
The NYPSC has adopted interim rules that would subject competitive
providers of local telephone service to a number of rules, service standards,
and requirements not previously applicable to "nondominant" competitors such
as the Company. These rules include requirements involving "open network
architecture," provision of reasonable interconnection to competitors, and
compliance with the NYPSC's service quality standards and consumer protection
requirements. As part of its "open network architecture" obligations, the
Company could be required to allow collocation with its facilities upon
receipt of a bona fide request by an interexchange carrier or other carrier.
Compliance with these rules in connection with the Company's provision of
local telephone service may impose new and significant operating and
administrative burdens on the Company. This proceeding will also determine
the responsibilities of new local service providers with respect to universal
service, lifeline service and other forms of subsidy inherent in existing
local exchange carrier rates.
In February, 1995, the NYPSC endorsed these interim rules and suggested
a framework for permanently resolving the interconnection and compensation
issues being addressed in the Competition II proceeding. The extent to which
the Company will be successful in constructing and operating competing local
service networks for both local private line and switched services cannot be
determined at this time, but will depend upon successful implementation of the
structural market reforms discussed above, favorable determinations with
respect to its universal service, lifeline and subsidy obligations by the
NYPSC, and the satisfactory conclusion to negotiations with the local exchange
carriers for interconnection and other services. (Reference is made to the
discussion under "Management's Discussion and Analysis" with respect to the
Company's plans to merge its local service operations with US ONE
Communications Corp.)
Canada
General. In general, long distance telecommunications services in
Canada are subject to regulation by the CRTC. As the result of significant
regulatory changes during the past several years, the historical monopolies
for long distance service granted to regional telephone companies in Canada
have been terminated in nine provinces. This has resulted in a significant
increase in competition in the Canadian long distance telecommunications
industry.
CRTC Decisions. In March, 1990, the CRTC issued Decision 90-3 that for
the first time permitted non-facilities-based carriers, such as ACC Canada, to
aggregate the traffic of any number of customers on the same leased
interexchange circuits in order to provide discounted long distance voice
services in the Provinces of Ontario, Quebec and British Columbia. In
September, 1990, the CRTC also authorized carriers in addition to members of
the Stentor consortium to interconnect their transmission facilities with the
Message Toll Service ("MTS") facilities of Teleglobe Canada allowing resell-
ers, such as ACC Canada, to resell international long distance MTS service.
Previous to this decision, Bell Canada and other members of Stentor were the
exclusive long distance carriers interconnected to Teleglobe Canada's MTS
facilities.
In June, 1992, the CRTC released its Decision 92-12. This Decision
resulted from an application by Unitel and a joint application by two other
parties to the CRTC for permission to connect their telecommunications
networks with the networks of certain Stentor member companies for the purpose
of providing public long distance voice services. This Decision effectively
removed the monopoly rights of those Stentor member companies that were
parties to this proceeding with respect to the provision of facilities-based
long distance voice services in the territories in which they operate and
opened the provision of these services to substantial competition in all
Provinces of Canada other than Alberta, Saskatchewan and Manitoba. Among
other things, the CRTC also directed the telephone companies that were subject
to this Decision to provide Unitel with "equal ease of access" -- i.e., to
allow Unitel to directly connect its network to the telephone companies' toll
and end office switches to allow Unitel's customers to make long distance
calls without dialing extra digits. In July, 1993, in its Decision 93-8, the
CRTC ordered the telephone companies subject to Decision 92-12 to provide
resellers with equal ease of access upon payment of contribution, network
modification and ongoing access charges on the same general basis as for
facilities-based carriers.
In return for the rights granted in Decision 92-12, that Decision also
requires telephone company competitors to assume certain financial obliga-
tions, including the payment of "contribution charges" designed to ensure that
each long distance carrier bears a fair proportion of the subsidy that long
distance services have traditionally contributed to the provision of local
telephone service. As a result, contribution charges payable by resellers
were increased. These charges are levied on resellers as a monthly charge on
leased access lines. The charges vary for each telephone company based on
that company's estimated loss on local services. Those resellers whose access
lines were connected only to end offices on a non-equal access basis
initially paid contribution charges of 65% of the equal access contribution
rates, rising over a five-year period to an 85% rate thereafter. For domestic
equal access connections, Decision 93-8 requires resellers to pay full equal
access contribution rates. Decision 92-12 also established a mechanism under
which contribution rates will be re-examined on a yearly basis. In 1993, the
CRTC reduced the contribution charges for the year beginning April 1, 1993,
for all of the major telephone companies in Canada.
Facilities-based competitors and resellers that obtain equal ease of
access will also assume approximately 30% of the estimated $240,000,000 (Can.)
cost required to modify the telephone companies' networks to accommodate
interconnection with competitors, as well as a portion of the ongoing costs of
the telephone companies to provide such interconnection. Initial modification
charges will be spread over a period of ten years. These charges and costs
will be payable on the basis of a specified charge per minute. The CRTC also
ruled that facilities-based competitors must adhere to the policy of route
averaging for basic and volume discount long distance services--i.e., charging
similar rates for calls of similar distance and duration. Non-facilities-
based carriers, such as ACC Canada, will not be required to adhere to this
policy, however.
In September, 1993, The Public Utilities Board of Manitoba released its
Report to the Lieutenant Governor in Council recommending the approval of
facilities-based competition, resale and sharing in the Province of Manitoba
on the same general terms as contained in Decision 92-12. This Report was
accepted by the Manitoba Government, and a subsidiary of ACC Canada has
subsequently entered into an interconnection agreement with the Manitoba
Telephone System, the major provincial telephone company in Manitoba.
In Decision 93-17, released in October, 1993, the CRTC approved
facilities-based competition, resale and sharing, and trunk-side access for
resellers in the Province of Alberta on the same general terms as contained in
Decisions 92-12 and 93-8. In Telecom Public Notice CRTC 94-51, released in
October 1994, the CRTC initiated a proceeding to develop an alternative method
for collecting contribution charges from facilities-based carriers and
resellers operating in Alberta. It invites proposals for an alternative
contribution approach that would provide a better balance between the
contribution requirements of both AGT Limited (the dominant supplier of
telephone services in Alberta) and Edmonton Telephones Corporation (the local
telephone company in the City of Edmonton, Alberta).
In Telecom Letter Decision CRTC 93-18, released in December, 1993, the
CRTC approved the filing by Bell Canada of proposed tariffs to implement
threshold pricing for local telephone service. This would require that
business customers--including resellers--pay a flat rate for their access
channels and a specified amount of outgoing calls. Outgoing calls exceeding
this threshold would be charged on a per-minute basis. The threshold would
not apply to the customer's incoming traffic. The threshold would vary by
rate group bands to take into account usage differences. These proposed
tariffs are to be filed by Bell Canada in May, 1995, to take effect in mid-
1997, and may result in increased costs to ACC Canada.
In Telecom Public Notice CRTC 93-70, released in December, 1993, the
CRTC initiated a proceeding to determine whether and under what terms and
conditions, if any, telephone companies should provide billing and collection
services and customer database access to resellers. In Telecom Order CRTC 94-
629, released in June, 1994, the CRTC established interim procedures for
resellers to use the billing and collection services and the billed number
screening databases of the telephone companies.
As contemplated in Decision 92-12, initial implementation of single
carrier 800 number portability occurred in Canada in January, 1994. In July,
1994, in Telecom Public Notice CRTC 94-34, the CRTC initiated a proceeding to
examine 800 number multi-carrier selection capability.
In April, 1994, in Telecom Public Notice CRTC 94-19, the CRTC initiated
a process to consider whether there should be a balloting process to permit
customers to select a long distance service provider, what form that process
should take, whether other approaches would be more appropriate, and whether
it would be appropriate to continue contribution discounts for resellers and
other long distance competitors.
In July, 1994, in Telecom Decision CRTC 94-13, the CRTC modified the
rules governing the consideration of new toll services to be offered by
telephone companies and of rate reductions for their existing services to
require the telephone companies to show that the revenues (or the average
revenue per minute) for each service equal or exceed the sum of causal costs
and contribution for the service.
In August, 1994, in Telecom Decision CRTC 94-17, the CRTC directed the
major telephone companies under its jurisdiction other than the Manitoba
Telephone System to include a bill insert from the CRTC to be included in the
telephone companies' regular billings during the fall of 1994 to their
customers providing a message informing them about equal access and their
ability to select an alternate toll service provider.
In September, 1994, in Telecom Decision CRTC 94-18, the CRTC established
interim contribution charges required to be made by alternate long distance
service providers to the telephone companies effective January 1, 1994. The
contribution charges were decreased (with respect to the 1993 contribution
charges) by approximately 12% and 16% for Bell Canada and BC TEL respectively,
and were decreased by larger percentages for the other telephone companies
subject to the decision. The CRTC stated that final contribution charges
effective January 1, 1994 would be established following the CRTC's decision
in its proceeding to consider changes to its Phase III costing procedures.
Also in September, 1994, in Telecom Decision CRTC 94-19 ("Decision 94-
19"), the CRTC released its decision entitled Review of Regulatory Framework.
The decision applied to the major telephone companies regulated by the CRTC
other than the Manitoba Telephone System. Among other things, the decision
established the following changes to Canadian telecommunications regulation:
1. The CRTC initiated a program of rate rebalancing, which
would entail three annual increases of $2 per month in rates for local
service, with corresponding decreases in rates for basic toll service.
The CRTC indicated that there would be no price changes which would
result in an overall price increase for North American basic toll
schedules combined.
2. The CRTC would initiate a proceeding to apply contribution
charges to other services using switched access, not only to long
distance voice services.
3. Telephone companies' monopoly local and access services,
including bottleneck services provided to competitors (the Utility
segment), would remain in the regulated rate base. The CRTC would
replace earnings regulation for the Utility segment with price caps
effective January 1, 1998.
4. Other services (the Competitive segment) would not be
subject to earnings regulation after January 1, 1995. At that time a
Carrier Access Tariff would become effective, which would include
contribution, start-up cost recovery and bottleneck service charges
applicable to the telephone companies' and competitors' traffic. In
order to prevent anti-competitive pricing in the long distance market,
telephone company long distance services must be priced to recover all
underlying costs and charges for contribution, start-up cost recovery
and bottleneck services. The Carrier Access Tariff would be based on a
per minute calculation, rather than the per trunk basis currently used
to calculate contribution charges.
5. While the CRTC considered it premature to forbear from
regulating interexchange services in Decision 94-19, it considered that
the framework set forth in the decision may allow forbearance in the not
too distant future. The CRTC set forth a number of critical conditions
which must be met before forbearance can occur.
6. Restrictions on local telephone service competition would be
removed. Co-location, unbundling, open access and network
interoperability principles would be promoted.
7. The CRTC would initiate a number of public proceedings to
further develop various aspects of the regulatory framework set forth in
Decision 94-19.
In October, 1994, in Telecom Public Notice CRTC 94-44, the CRTC invited
comment on the appropriateness of forbearing from regulating the services of
Canadian facilities-based carriers other than Teleglobe Canada, Telesat
Canada, mobile service providers and carriers that provide basic local
telephone service. This forbearance, if implemented, may result in increased
competitive flexibility for certain of the competitors of ACC Canada.
In November, 1994, in Telecom Decision CRTC 94-24, the CRTC varied
certain elements of its Phase III costing procedures. These procedures are
used to enable the CRTC to identify the costs and revenues of the dominant
telephone companies associated with various categories of their services, in
order, among other things, to identify the extent and nature of any cross-
subsidies which may exist among those categories.
In Telecom Public Notices CRTC 94-52, 94-56 and 94-58, the CRTC
initiated a proceeding to include an oral hearing scheduled to start May 8,
1995 to consider certain issues arising out of Decision 94-19, including the
splitting of the rate base, Phase III costing, contribution charges,
investments by dominant telephone companies in broadband facilities, and a
comparison of Canadian and United States toll and local costs. As a result of
petitions to the Governor in Council by a coalition of consumers groups and by
the Competitive Telecommunications Association (of which ACC Canada is a
member), the implementation of local rate increases and offsetting basic toll
rate decreases was stayed pending a reconsideration by the CRTC of those
changes, which is to take into consideration a comparison of Phase III cost
allocations and external benchmarks, and which is to be completed no later
than October 31, 1995. The proceeding will also consider the application of
Decision 94-19 to the Manitoba Telephone System.
In December, 1994, the CRTC released Telecom Decision CRTC 94-27 and
Telecom Public Notice CRTC 94-59, which indicated that the CRTC had found that
there was substantial doubt as to the correctness of Decision 94-19 with
respect to the implementation of an average per-minute contribution charge and
with respect to the timing of the change in the contribution mechanism.
Accordingly, the CRTC initiated a procedure to consider a de-averaged per-
minute contribution mechanism with two components, a peak and an off-peak
charge. The off-peak charge would be one-half of the peak charge. Until a
final determination is made in this matter, contribution will continue to be
charged on the basis of the per-trunk mechanism currently in place.
The Company cannot predict the timing or the outcome of any of the
pending and ongoing proceedings described above, or the impact they may have
on the competitive position of ACC Canada.
Telecommunications Act. In October, 1993, the Telecommunications Act
replaced the Railway Act (Canada) as the principal telecommunications
regulatory statute in Canada. Among other matters, this Act provides that all
federally-regulated telecommunications common carriers as defined therein
(essentially all facilities-based carriers) are under the regulatory juris-
diction of the CRTC. It also gives the federal government the power to issue
directions to the CRTC on broad policy matters. The Act does not subject non-
facilities-based carriers, such as ACC Canada, to foreign ownership
restrictions, tariff filing requirements or other regulatory provisions
applicable to facilities-based carriers. However, to the extent that
resellers acquire their own facilities in order to better control the carriage
and routing of their traffic, certain provisions of this Act may be applicable
to them. The Act requires companies subject thereto to obtain CRTC approval
for their tariffs. Tolls or rates established in such tariffs must be "just
and reasonable" and rates and services must not be unjustly discriminatory or
unduly prejudicial. In Decision 92-12, the CRTC ruled that the public
interest would require the continued regulation of the long distance rates
charged by the telephone companies. However, the CRTC also established new
procedures to ensure prompt processing leading to interim approval of long
distance rate applications by the telephone companies. A condition of
obtaining interim long distance rate approval will be telephone company proof
that the proposed rates are compensatory -- i.e., that such long distance
rates must cover all causal costs of providing such long distance services.
The CRTC has stated that it intends to take into account the impact on local
rates of long distance rate reductions by the telephone companies. The CRTC
has also stated that it will grant ex parte interim approval where new long
distance rates proposed by telephone companies do not result in a significant
loss of contribution to the provision of local telephone services. Because
the telephone companies will continue to control access to the PSTN, the CRTC
indicated that regulatory safeguards will focus on ensuring functional access
to the PSTN by competitors.
Prior to 1991, only the Stentor member companies and Unitel were
authorized to route Canadian-originated Canada/overseas traffic through the
facilities of Teleglobe Canada. Resellers were required to route such traffic
through the telephone companies. Although Teleglobe Canada currently retains
a legal monopoly in routing such traffic to and from overseas countries,
resellers and facilities-based carriers other than Stentor members are now
permitted direct access to Teleglobe Canada's facilities, thus eliminating the
higher charges previously incurred in routing through the facilities of
Stentor member companies. However, such resellers and facilities-based
carriers are subject to charges levied by Teleglobe Canada for the use of its
facilities and contribution charges payable to Teleglobe Canada and remitted
to the telephone companies.
Teleglobe Canada has international settlement arrangements throughout
the world whereby traffic from Canada is transmitted to and terminated by
various overseas telephone companies. Similarly, traffic originated overseas
is delivered to Teleglobe Canada and in turn passed on to the Canadian
telephone companies and their competitors, including resellers. In 1993, the
Company leased a trans-Atlantic link between ACC U.K. and ACC Canada to route
international resale traffic between the U.K. and Canada under the terms of
applicable Canadian regulations and of ACC U.K.'s ISR License.
In September, 1993, the CRTC released Telecom Decision CRTC 93-15. This
decision approved the restructuring by Teleglobe Canada of its overseas MTS.
The decision allowed Teleglobe Canada to introduce International Globeaccess
Service, allowing domestic service providers, including resellers, to
interconnect with Teleglobe Canada's international network at its gateways for
the purpose of providing outbound direct-dial telephone service. To take
advantage of this service, domestic service providers are required to commit
to a minimum usage of two million minutes per year under a two-year contract.
Discounts are available for commitments for greater usage levels, longer
contract terms, and for interconnection to gateways in all of Teleglobe
Canada's three regions. Overseas inbound traffic will be allocated to Stentor
and other domestic service providers, including resellers, in proportion to
their outbound market shares. Such recipients of inbound traffic are
required, among other things, to meet a minimum market share and to
interconnect at Teleglobe Canada's gateways in all three of its regions. This
decision also approved a new Interconnection and Operating Agreement between
Teleglobe Canada and the members of Stentor. That agreement provides, among
other things, for reductions in inbound settlement rates payable by Teleglobe
Canada to Stentor, and for some part of these reductions and anticipated
accounting rate reductions to flow through to Globeaccess rates and to end
user rates. The Company is investigating obtaining Globeaccess service, which
it believes might modestly reduce some of its network costs with respect to
such calls.
In May, 1991, the FCC issued a "Report and Order" in Phase I of its
Docket 90-337 investigation, and adopted a number of provisions designed to
eliminate barriers to the development of competition in the international
telecommunications market. The FCC subsequently eliminated restrictions on
international resale by U.S. carriers, and authorized the interconnection of
international private lines with public switched networks in countries found
to afford "equivalent opportunities" for such private line resale to carriers
including U.S.-owned carriers in those countries. The grant of authority is
predicated on the finding, on a country-by-country basis, of "equivalent
opportunities" for resale in each such country to which private line resale is
proposed, and on the grant of country-specific service authorization (such as
the authorization granted to ACC Global Corp.). To date, the FCC has made the
prerequisite "equivalent opportunities" finding only with respect to Canada
and the U.K. However, should the FCC reverse its policy authorizing the
provision of resold calls from Canada and the U.K. via resold private lines,
it is the Company's view that, due to the recent significant decreases in the
U.S.-Canada and U.S.-U.K. accounting rates, there would be no material adverse
impact on the Company's operations.
United Kingdom
Until 1981, British Telecom was the sole provider of public
telecommunications services throughout the U.K. This monopoly ended when, in
1981, the British government granted Mercury a license to construct and
operate its own telecommunications system under the British Telecommunications
Act 1981. Both British Telecom and Mercury are licensed under the subsequent
Telecommunications Act 1984 to construct and operate telecommunications
systems and provide telecommunications services.
In 1991, the British government established a "multi-operator" policy to
replace the duopoly that had existed between British Telecom and Mercury.
Under the multi-operator policy, the DTI will recommend the grant of a license
to operate a telecommunications network to any applicant that the DTI believes
has a reasonable business plan and where there are no other overriding
considerations not to grant such license. All public telecommunications
operators and international simple resellers operate under individual licenses
granted by the Secretary of State for Trade and Industry pursuant to the
Telecommunications Act 1984. Any telecommunications system with compatible
equipment that is authorized to be run under an individual license granted
under this Act is permitted to interconnect to British Telecom's network.
Under the terms of British Telecom's license, it is required to allow any such
licensed operator to interconnect its system to British Telecom's system,
unless it is not reasonably practicable to do so (e.g., due to incompatible
equipment).
ACC U.K. was granted an ISR License in September, 1992 by the DTI.
Since approximately 97% of all calls in the U.K. terminate on a line owned by
British Telecom, it is necessary for any newly licensed operator of a
telecommunications system to enter into an interconnection agreement with
British Telecom. After approximately eighteen months of protracted
negotiations, ACC U.K. and British Telecom were able to reach agreement
concerning the terms and conditions under which ACC U.K. could interconnect
its leased line network and switching equipment with British Telecom's
network.
Also under British Telecom's license, British Telecom may charge other
licensed telecommunications operators that are interconnected to its system
"access deficit charges." Access deficit charges represent a contribution to
the cost burden British Telecom bears in respect of operating the local
exchange network, the cost of which exceeds the rates British Telecom is
permitted by regulation to recover from customers by way of connection charges
and exchange line rentals. Licensed operators may apply to the Director
General of Telecommunications for a waiver of access deficit charges for a
period of time. ACC U.K. filed such an application in July, 1993, and in
July, 1994, the Director General granted ACC U.K. a full waiver of the access
deficit charges that would otherwise be applicable to the first 10% market
share of both its domestic and international simple resale traffic through
March 31, 1996. In December, 1994, the Office of Telecommunications published
a Consultative Document titled "A Framework for Effective Competition," in
which proposals are made for a complete overhaul of the current access deficit
charge regime and the calculation of interconnection charges generally. The
adoption of such proposals could have the effect of permanently reducing the
interconnection charges that ACC U.K. pays British Telecom. However, it is
not possible to determine when or in what form these proposals may be adopted,
if at all.
GLOSSARY
The following sets forth the definitions of certain terms used in this
Report.
AT&T - AT&T Communications, Inc., an interexchange carrier wholly-owned by
AT&T Corp. (formerly known as American Telephone and Telegraph Company) that
provides interexchange services and facilities on a nationwide basis in the
U.S. AT&T Corp. and its subsidiaries are collectively referred to herein as
"AT&T."
AT&T Divestiture Decree - Entered in 1982 by the U.S. District Court for the
District of Columbia. It required, among other things, that AT&T divest its
22 wholly-owned BOCs from its Long Lines Division and manufacturing operations
and generally prohibited the BOCs from providing long distance telephone
service between LATAs.
BOC - Bell Operating Company - One of the 22 local exchange carriers divested
by AT&T pursuant to the AT&T Divestiture Decree. Almost all of the BOCs are
in turn owned by one of the seven regional BOC holding companies.
British Telecom - British Telecommunications plc - the dominant provider of
both local exchange and long distance telephone service in the U.K.
Carrier - A company that provides telecommunications transmission services.
CRTC - The Canadian Radio-television and Telecommunications Commission.
Direct Access Line - A telephone line connecting a customer's telephone system
directly to a carrier's switch without passing through the switch of a local
exchange carrier.
DTI - The U.K. Department of Trade and Industry.
Facilities-based carrier - A carrier that owns interexchange and/or local
exchange transmission facilities in its network.
FCC - The U.S. Federal Communications Commission.
ISR License - International Simple Resale License.
Interexchange carrier - A carrier that provides service between local
exchanges (i.e., long distance service). With particular reference to the
U.S., an interexchange carrier provides service on an interstate or intrastate
basis, generally between LATAs.
LATAs - Local Access and Transport Areas - The approximately 200 geographic
areas approved pursuant to the AT&T Divestiture Decree that define the areas
between which the BOCs are prohibited from providing long distance service.
Local exchange carrier - With particular reference to the U.S., a company
providing local exchange telephone service.
Local Exchange - A geographic area (generally determined by a PSC in the U.S.
and by appropriate regulatory authority in other countries) in which calls
generally are transmitted without toll charges to the called or calling party.
Non-facilities-based carrier - A carrier that is not a facilities-based
carrier. Also known as a "reseller."
NYPSC - The New York State Public Service Commission.
Point of Presence - Location in a service area where a carrier has installed
equipment that serves as or relays calls to a network switching center of that
carrier.
PSC - A Public Service Commission (or public utility commission) - In the
U.S., a state regulatory authority that establishes and enforces rules and
regulations governing companies deemed public utilities, such as telephone
companies, providing services within that state.
PSTN - Public Switched Telephone Network - A term for the existing telephone
switched network available to all users generally on a shared basis (i.e., not
dedicated to a particular user). With specific regard to the U.S., traffic
along the PSTN is switched at the central switching facilities of a local
exchange carrier.
Rebiller - A reseller that obtains services from other carriers and resells
those services to its own customers but generally does not own any switching
equipment or transmission facilities.
Reseller - A company that provides telephone services by arranging for
transmission capacity provided by another carrier.
Stentor - Stentor Canadian Network Management - An association of the major
facilities-based dominant providers of local exchange service in Canada,
including Bell Canada, and Telesat Canada, the monopoly provider of domestic
satellite telecommunications services in Canada. Stentor facilitates long
distance service through a system of interconnection and revenue sharing
arrangements among its members and with other North American
telecommunications carriers.
Switch - A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of telecommunications traffic. Switching
is a process of interconnecting circuits to form a transmission path between
callers and called parties.
Executive Officers of the Company
The following sets forth information concerning the individuals who
currently are the executive officers of the Company and its principal
operating subsidiaries.
Richard T. Aab, 46, is a co-founder of the Company who has served as
Chairman of the Board since March, 1983, as Chief Executive Officer since
August, 1983, and as a Director since October, 1982. Mr. Aab also served as
Chairman of the Board of the Company's ACC TelEnterprises Ltd. subsidiary from
April, 1993 through February, 1994.
Christopher Bantoft, 47, was elected Managing Director of the Company's
ACC Long Distance UK Ltd. subsidiary in February, 1994. From 1986 through
1993, he served as Sales and Marketing Director, Deputy Managing Director, and
most recently as Managing Director of Alcatel Business Systems Ltd., the U.K.
affiliate of Alcatel, N.V.
Arunas A. Chesonis, 32, was elected President and Chief Operating
Officer of the Company in October, 1994. He previously served as President of
the Company and of its Domestic Group since February, 1994, and as President
of the Company's ACC Long Distance Corp. subsidiary from January, 1989 through
February, 1994. From August, 1990 through March, 1991, he also served as
President of ACC TelEnterprises Ltd., and from May, 1987 through January,
1989, Mr. Chesonis served as Senior Vice President of Operations for ACC Long
Distance Corp. Mr. Chesonis was elected a Director of the Company in October,
1994.
Francis D. R. Coleman, 56, has been Secretary of the Company since
January, 1986, and has served as Corporate Counsel since September, 1985.
From February through September, 1987, he also served as President of the
Company's former ACC Raymart Corp. subsidiary.
Michael R. Daley, 32, was elected the Company's Executive Vice President
and Chief Financial Officer in February, 1994, and has served as Treasurer of
the Company since March, 1991. He previously served as the Company's Vice
President-Finance from August, 1990 through February, 1994, as Treasurer and
Controller from August, 1990 through March, 1991, as Controller from January,
1989 through August, 1990, and as the Company's Manager of Accounting from
July, 1985 through January, 1989.
Steve M. Dubnik, 32, was elected the President and Chief Executive
Officer and a Director of the Company's ACC TelEnterprises Ltd. subsidiary in
July, 1994. Previously, he served from 1993 through June, 1994 as President,
Mid-Atlantic Region, of RCI Long Distance, Washington, D.C. For more than
five years prior thereto, he served in progressively senior positions with
Rochester Telephone Corporation including assignments in engineering,
operations, information technology and sales.
Michael L. LaFrance, 35, was elected the President of the Company's ACC
Long Distance Corp. subsidiary in April, 1994. From May, 1992 through May,
1994, he served as Executive Vice President and General Manager of Axcess USA
Communications Corp., from June, 1990 through May, 1992, as Director of
Regulatory Affairs and Administration of LDDS Communications, Inc. and from
February, 1987 through June, 1990, as Vice President of Comtel-TMC
Telecommunications.
George H. Murray, Jr., 48, was elected the Company's Vice President-
Human Resources and Corporate Communications in September, 1994. For more
than five years prior thereto, he served as Senior Vice President of Human
Resources and Marketing of First Federal Savings and Loan of Rochester, New
York.
Richard E. Sayers, 58, was elected the Company's Vice Chairman and as
President of its International Group in February, 1994, and was also elected
Chairman of ACC TelEnterprises Ltd. and ACC Long Distance UK Ltd. He
previously served as the Company's President and Chief Operating Officer from
August, 1992 through February, 1994 and as President of the Company's Danbury
Cellular Telephone Co. subsidiary from January, 1991 through October, 1993.
From June, 1990 through January, 1991, he served as a cellular
telecommunications consultant to the Company. Prior to June, 1990, he served
for over ten years in various executive-level sales, engineering, operational
and administrative positions with Rochester Telephone Corp.
John J. Zimmer, 36, a Certified Public Accountant, was elected the
Company's Vice President-Finance in September, 1994. He previously served as
the Company's Controller from March, 1991 through September, 1994. Prior to
March, 1991, he served as a staff accountant and then as a manager of
accounting with the Rochester, New York office of Arthur Andersen LLP.
Employees
As of year end 1994, the Company on a consolidated basis had 539
employees worldwide. Of this total, 234 were in the U.S., 213 were in Canada
and 92 were in the U.K. The Company's continued success will depend, in part,
upon its ability to attract and retain experienced management, marketing and
technical personnel. The Company has never experienced a work stoppage and
its employees are not represented by a labor union. The Company considers its
employee relations to be good.
Item 2. PROPERTIES.
The Company occupies corporate office space located at 400 West Avenue,
Rochester, New York leased through June, 2004. It also leases office space at
various other locations. For additional information regarding these leases,
see Notes 7 and 9 to the Company's Consolidated Financial Statements
incorporated by reference herein.
The Company's switching equipment for the Rochester call origination
area is located in space leased from Rochester Telephone Corporation in
Rochester, New York. The lease term extends through April, 1995, and may be
extended for additional one-year periods at rental rates to be adjusted by
Rochester Telephone. Additional switching equipment for the Company's other
call origination areas is located in Syracuse, New York; in Toronto, Ontario,
Montreal, Quebec, and Vancouver, British Columbia; and in London, England.
Branch sales offices are rented by the Company at various locations in the
northeastern U.S., Canada and the U.K. The Company also leases equipment and
space located at various sites in its service areas.
Item 3. LEGAL PROCEEDINGS.
1) Yankee Microwave, Inc. v. ACC Corp., et al. In February, 1990,
Yankee Microwave, Inc. ("Yankee") filed a complaint against ACC Corp., its
subsidiary, ACC Long Distance Corp., and others in the United States District
Court for the District of Massachusetts alleging violations of the Racketeer
Influenced and Corrupt Organization ("RICO") statute and the Massachusetts
Unfair and Deceptive Trade Practice Statute (G.L. Chapter 93A), breach of
contract, interference with contractual relations and violation of the
Massachusetts Uniform Fraudulent Conveyance Act, allegedly arising from acts
by the defendants as a result of which the plaintiff claimed to have lost
approximately $3 million under a contract for microwave transmission services.
The claims against ACC Corp. and ACC Long Distance Corp. related to an alleged
1985 service and license agreement between Yankee and Petricca Communication
Systems, Inc. ("Petricca") and a 1987 agreement between ACC and Petricca by
which ACC acquired certain assets of Petricca.
The complaint sought damages in the amount of approximately $3 million
and requested that any such damages be trebled and costs and attorneys' fees
be awarded pursuant to the federal RICO statute and Massachusetts law.
The Company filed a motion to dismiss or for summary judgment in its
favor dismissing the suit from Federal court. It also filed a formal
complaint with the FCC seeking to have the rates charged by Yankee under its
1985 agreement with Petricca declared unlawful.
In January, 1992, the Federal District Court granted the Company's
motion for summary judgment by ruling the RICO count to be without merit and
dismissing it on the merits, and then dismissed all of Yankee's state law
claims for lack of federal subject matter jurisdiction. In February, 1992,
Yankee re-filed its state-law claims in Massachusetts state court.
In January, 1993, the FCC's Common Carrier Bureau issued a decision
dismissing the Company's complaint and simultaneously declining to rule
Yankee's challenged rates to be lawful. The Company asked the FCC to review
and overrule this decision, but it was affirmed by the FCC. The Company has
appealed the FCC's decision to the U.S. Court of Appeals for the District of
Columbia Circuit.
In the meantime, the Massachusetts Superior Court conducted a trial on
the liability issues in Yankee's claims and in February, 1995, issued a
judgment that rejected all of Yankee's claims against the Company. The time
within which Yankee must file an appeal from this judgment has not begun to
run due to the pendency of certain undisposed issues involving other
defendants in the case. The Company intends to seek all appropriate remedies
against Yankee for bringing this suit and has notified Yankee of its intention
to seek recovery of its legal fees incurred in defense of these claims.
2) In Re: Applications of Horizon Cellular Telephone Company of
Central Kentucky, L.P. In 1989, the Company's Danbury Cellular Telephone Co.
("DCTC") subsidiary won an authorization to build a cellular telephone system
in the area known as Kentucky Rural Service Area ("RSA") #6, which it then
constructed. During 1991, DCTC acquired the FCC licenses to build and operate
cellular telephone systems in the areas known as Kentucky RSAs #5 and #8,
which are adjacent to its RSA #6. In 1993, DCTC sold the assets of its three-
RSA cellular telephone system to Horizon Cellular Telephone Company of Central
Kentucky, L.P. ("Horizon"). At various steps along the way, DCTC's actions
were unsuccessfully challenged at the FCC, at the Kentucky Public Service
Commission and in federal court by one Vivian Warner, a losing applicant for
the Kentucky RSA #6 license that DCTC won in an FCC-sponsored lottery for
awarding these RSA licenses. Although the sale of the Company's cellular
business to Horizon closed during the third quarter of 1993, Ms. Warner had
filed an application for FCC review of the sale of DCTC's cellular business to
Horizon. That matter remains pending at the FCC.
To address various issues in preparation for the closing of the sale of
DCTC's assets to Horizon, the Company, DCTC and Horizon entered into a Closing
Adjustment Agreement. Among other matters, that agreement provides for the
unwinding of that transaction should such action ever be required by the
final, binding and non-appealable order of any court or other governmental
authority having competent jurisdiction over this matter.
However, since the Company believes that none of the matters raised by
Ms. Warner are likely to cause the FCC to disturb the sale of DCTC's assets to
Horizon, it likewise considers as unlikely the possibility that it will be
required to unwind this transaction.
3) In Re: Petition of Vivian E. Warner. In August, 1993, Vivian
Warner filed a petition with the Federal Trade Commission ("FTC") requesting
that it investigate the settlement agreement under which Tsaconas Cellular,
Inc. ("Tsaconas") withdrew its objection to Horizon's application described
under In Re: Applications of Horizon Cellular Telephone Company of Central
Kentucky, L.P. above. As part of that settlement, DCTC and Tsaconas mutually
agreed to service area extensions into their respective cellular service
areas. Ms. Warner claimed that the agreement may violate the Sherman
Antitrust Act of 1890, the Clayton Act of 1914, and other unnamed federal
statutes. Ms. Warner urged the FTC to investigate the matter and to report
its findings to the FCC. The Company believes that there are no grounds for
an FTC investigation. The FTC has taken no action on Ms. Warner's petition,
nor has it asked the Company to respond to it.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on October 13, 1994.
At that Meeting, there were four Proposals acted upon. The first was the
election of the Company's Board of Directors. Richard T. Aab, Hugh F.
Bennett, Arunas A. Chesonis, Willard Z. Estey, David K. Laniak, Robert F.
Sykes and Daniel D. Tessoni were each elected as Directors of the Company for
a one-year term. The detail concerning the votes cast for and withheld from
voting with respect to each such Director is as follows:
Votes:
Name: For Withheld
R. T. Aab 5,727,661 335,099
H. F. Bennett 5,727,661 334,699
A. A. Chesonis 5,727,661 334,699
W. Z. Estey 5,725,961 336,399
D. K. Laniak 5,727,361 334,999
R. F. Sykes 5,666,400 395,960
D. D. Tessoni 5,727,661 334,699
There were no other Directors whose terms of office continued after this
Meeting.
Also at this Meeting, the Company's shareholders ratified the selection
of Arthur Andersen LLP as the Company's independent auditors for its 1994
fiscal year. The detail concerning the votes cast for, against, and
abstaining from voting with respect to this Proposal is as follows:
Votes:
For Against Abstaining
6,031,907 13,446 17,007
There were no broker non-votes with respect to this Proposal.
Also at this Meeting, the Company's shareholders approved an amendment
to the Company's Employee Stock Option Plan to increase the number of shares
authorized for issuance thereunder by 350,000 shares and to take action to
conform the Plan to certain Internal Revenue Code regulations. The detail
concerning the votes cast for, against and abstaining from voting with respect
to this Proposal is as follows:
Votes:
For Against Abstaining
3,409,483 513,701 41,969
There were 2,097,207 broker non-votes with respect to this Proposal.
Also at this Meeting, the Company's shareholders approved the Company's
Employee Stock Purchase Plan, which is authorized to issue 500,000 shares of
the Company's Common Stock, pursuant to purchases made thereunder. The detail
concerning the votes cast for, against and abstaining from voting with respect
to this Proposal is as follows:
Votes:
For Against Abstaining
3,705,168 224,235 35,750
There were 2,097,207 broker non-votes with respect to this Proposal.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
This information is incorporated by reference to the section of the
Company's 1994 Annual Report to Shareholders ("1994 Annual Report") entitled
"Investor Information" found at page 35 thereof.
Item 6. SELECTED FINANCIAL DATA.
This information is incorporated by reference to the section of the
Company's 1994 Annual Report entitled "Selected Consolidated Financial Data,"
found at page 14 thereof.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This information is incorporated by reference to the section of the
Company's 1994 Annual Report entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" found at pages 15 through 20
thereof.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
This information is incorporated by reference to the sections of the
Company's 1994 Annual Report entitled "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Changes in
Shareholders' Equity," "Consolidated Statements of Cash Flows," "Notes to
Consolidated Financial Statements," "Supplemental Information" and "Report of
Independent Public Accountants," found at pages 2 and 21 through 34 thereof.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the Company's Directors is incorporated by
reference to the Company's definitive Proxy Statement to be filed with respect
to its 1995 Annual Meeting of Shareholders ("1995 Proxy Statement"), as
permitted by General Instruction G(3) to this Report. As also permitted by
General Instruction G(3), information regarding the executive officers of the
Company is found in Part I of this Report, under the heading "Executive
Officers of the Company."
Item 11. EXECUTIVE COMPENSATION.
This information is incorporated by reference to the Company's 1995
Proxy Statement as permitted by General Instruction G(3) to this Report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This information is incorporated by reference to the Company's 1995
Proxy Statement as permitted by General Instruction G(3) to this Report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This information is incorporated by reference to the Company's 1995
Proxy Statement as permitted by General Instruction G(3) to this Report.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Exhibits.
(1) Financial Statements. The following Financial Statements of
the Company and the accountant's report thereon are included on pages 21
through 34 of the Company's 1994 Annual Report and are incorporated herein by
reference:
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 1994 and 1993
Consolidated Statements of Income for the years ended December 31, 1994,
1993 and 1992
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1993 and 1992
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) Financial Statement Schedules. The following Financial
Statement Schedules and the accountant's report thereon are included herewith
as follows:
Report of Independent Public Accountants
II Consolidated Valuation and Qualifying Accounts for the years ended
December 31, 1994, 1993 and 1992
All other schedules are not submitted because they are not applicable, not
required or because the required information is included in the consolidated
financial statements or notes thereto.
(3) Exhibits. The following constitutes the list of exhibits
required to be filed as a part of this Report pursuant to Item 601 of
Regulation S-K:
LIST OF EXHIBITS
Exhibit
Number Description Location
3-1 Certificate of Incorporation of Filed herewith; see Exhibit
ACC Corp. (a Delaware corporation), Index
as amended
3-2 Bylaws of ACC Corp., a Delaware Filed herewith; see Exhibit
corporation, as amended through Index
October 13, 1994
4-1 Form of ACC Corp. Common Stock Incorporated by Reference to
Certificate Exhibit 4-1 to the Company
Registration Statement on
Form S-2, No. 33-41588
declared effective August 21,
1991
10-1* Form of Employment Continuation Incorporated by Reference to
Incentive Agreement between ACC Exhibit 10-1 to the Company's Re
Corp. and certain of its Key port on Form 10-K for
Employees its year ended December 31,
1992 ("1992 10-K")
10-2 Demand Promissory Note dated Incorporated by Reference to
October 18, 1991 given to Marine Exhibit 10-5 to the Company's
Midland Bank, N.A. by ACC Corp. Report on Form 10-K for its
year ended December 31, 1991
10-3* ACC Corp. Employee Stock Option Filed herewith; see Exhibit
Plan, as amended through October 13, Index
1994
10-4 Line of Credit Agreement dated June Incorporated by Reference to
10, 1993 between ACC Corp. and Exhibit 10-4 to the Company's
Marine Midland Bank, N.A., Rochester, Report on Form 10-K for its
NY year ended December 31, 1993
("1993 10-K")
10-5 Form of ACC Corp. Indemnification Incorporated by Reference to
Agreement with its Directors and Exhibit 10-29 to the Company's
certain of its Executive Officers Report on Form 10-K for its
year ended December 31, 1987
10-6 Line of Credit Agreement dated Incorporated by Reference to
October 14, 1992, between ACC Corp. Exhibit 10-8 to the Company's
and Manufacturers and Traders Trust 1992 10-K
Company, Buffalo, NY, with exhibits
10-7* Incentive Compensation Agreement Incorporated by Reference to
between Richard E. Sayers and Exhibit 10-9 to the Company's
ACC Corp., dated as of December 31, 1992 10-K
1992
10-8* ACC Corp. Employee Stock Purchase Incorporated by Reference to
Plan Exhibit 4-4 to the Company's
Registration Statement on
Form S-8, No.33-75558,
effective February 22, 1994
10-9* Severance Agreement between ACC Incorporated by Reference to
Corp. and Richard T. Aab, dated Exhibit 10-8 to the Company's
March 18, 1994 Amendment No. 1 to its 1993
10-K
10-10* Investment Banking Retainer Filed herewith; see Exhibit
Agreement between ACC Corp. and Index
Gagan, Bennett & Co., Inc.,
dated March 22, 1994
11 Statement re: Computation of Per See Note 1 to the Notes to
Share Earnings Consolidated Financial
Statements incorporated by
reference in Item 8 of this
Report.
13 ACC Corp. 1994 Annual Report to Filed herewith; see Exhibit
Shareholders Index
21 Subsidiaries of ACC Corp. Filed herewith; see Exhibit
Index
23 Accountant's Consent re: Filed herewith; see Exhibit
Incorporation by Reference Index
27 Financial Data Schedule Filed herewith; see Exhibit
Index
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an Exhibit to this Report pursuant to Item 14(c) of this
Report.
(b) Reports on Form 8-K. No Reports on Form 8-K were filed by the
Company during the fourth quarter of 1994.
(c) Exhibits. See Exhibit Index.
(d) Financial Statement Schedules. Are attached, along with the
report of the independent public accountants thereon, as follows:
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ACC Corp.:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in ACC Corp.'s annual report to
shareholders incorporated by reference in this Form 10-K, and have issued
our report thereon dated March 30, 1995. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The schedules
listed in the accompanying index are the responsibility of the Company's
management and are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as
a whole.
/s/ Arthur Andersen LLP
Rochester, New York
March 30, 1995
<PAGE>
SCHEDULE II
ACC CORP AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1994, 1993, 1992
(000's)
Balance Charged Net Balance
at to Costs Accounts at
Beginning and Written End of
of Period Expenses Off Period
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful
accounts $1,008 $2,345 ($2,318) $1,035
Valuation allowance for
deferred tax assets $603 $6,851 --- $7,454
YEAR ENDED DECEMBER 31, 1993
Allowance for doubtful accounts $774 $1,141 ($907) $1,008
Valuation allowance for
deferred tax assets --- $603 --- $603
YEAR ENDED DECEMBER 31, 1992
Allowance for doubtful accounts $561 $872 ($659) $774
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACC CORP.
Dated: March 30, 1995 By: /s/Richard T. Aab
Richard T.Aab,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons, on behalf of the
Company and in the capacities and on the dates indicated.
Dated: March 30, 1995 By:/s/ Richard T. Aab
Richard T. Aab, Chairman and
Chief Executive Officer, Director
Dated: March 30, 1995 By: /s/ Michael R. Daley
Michael R. Daley, Executive Vice President
and Chief Financial Officer
Dated: March 30, 1995 By: /s/Sharon L. Barnes
Sharon L. Barnes, Controller
Dated: March __, 1995 By:
Hugh F. Bennett, Director
Dated: March 30, 1995 By: /s/ Arunas A. Chesonis
Arunas A. Chesonis, President and
Chief Operating Officer and a Director
Dated: March __, 1995 By:
Willard Z. Estey, Director
Dated: March 30, 1995 By: /s/ David K. Laniak
David K. Laniak, Director
Dated: March 30, 1995 By: /s/ R.F. Sykes
Robert F. Sykes, Director
Dated: March 30, 1995 By: /s/ Daniel D. Tessoni
Daniel D. Tessoni, Director
<PAGE>
LIST OF EXHIBITS
Exhibit
Number Description Location
3-1 Certificate of Incorporation of Pages __ through __ hereof
ACC Corp. (a Delaware corporation),
as amended
3-2 Bylaws of ACC Corp., a Delaware Pages __ through __ hereof
corporation, as amended through
October 13, 1994
4-1 Form of ACC Corp. Common Stock Incorporated by Reference to
Certificate Exhibit 4-1 to the Company
Registration Statement on Form
S-2, No.33-41588 declared
effective August 21, 1991
10-1 Form of Employment Continuation Incorporated by Reference to
Incentive Agreement between ACC Exhibit 10-1 to the Company's
Corp. and certain of its Key Report on Form 10-K for
Employees its year ended December 31,
1992 ("1992 10-K")
10-2 Demand Promissory Note dated Incorporated by Reference to
October 18, 1991 given to Marine Exhibit 10-5 to the Company's
Midland Bank, N.A. by ACC Corp. Report on Form 10-K for its
year ended December 31, 1991
10-3 ACC Corp. Employee Stock Option Pages __ through __ hereof
Plan, as amended through October
13, 1994
10-4 Line of Credit Agreement dated Incorporated by Reference to
June 10, 1993 between ACC Corp. Exhibit 10-4 to the Company's
and Marine Midland Bank, N.A., Report on Form 10-K for its
Rochester, NY year ended December 31, 1993
("1993 10-K")
10-5 Form of ACC Corp. Indemnification Incorporated by Reference to
Agreement with its Directors and Exhibit 10-29 to the Company's
certain of its Executive Officers Report on Form 10-K for its
year ended December 31, 1987
10-6 Line of Credit Agreement dated Incorporated by Reference to
October 14, 1992, between Exhibit 10-8 to the Company's
ACC Corp. and Manufacturers 1992 10-K
and Traders Trust Company,
Buffalo, NY, with exhibits
10-7 Incentive Compensation Agreement Incorporated by Reference to
between Richard E. Sayers and Exhibit 10-9 to the Company's
ACC Corp., dated as of December 1992 10-K
31, 1992
10-8 ACC Corp. Employee Stock Purchase Incorporated by Reference to
Plan Exhibit 4-4 to the Company
Registration Statement on Form
S-8, No.33-75558, effective
February 22, 1994
10-9 Severance Agreement between ACC Incorporated by Reference to
Corp. and Richard T. Aab, dated Exhibit 10-8 to the Company's
March 18, 1994 Amendment No.1 to its 1993 10-K
10-10 Investment Banking Retainer Pages __ through __ hereof
Agreement between ACC Corp. and
Gagan, Bennett & Co., Inc.,
dated March 22, 1994
11 Statement re: Computation of Per See Note 1 to the Notes to
Share Earnings Consolidated Financial
Statements incorporated by reference in
Item 8 of this Report.
13 ACC Corp. 1994 Annual Report to Pages __ through __ hereof
Shareholders (Note: Per Reg. S-T,
Rule 303(b), EDGAR filing includes
only sections of 1994 Annual Report
specifically incorporated by reference
into this 10-K filing)
21 Subsidiaries of ACC Corp. Pages ___ through ___ hereof
23 Accountant's Consent re:
Incorporation Page ___ hereof
by Reference
27 Financial Data Schedule (Filed only with EDGAR filing, per
Reg. S-K, Rule 601(c)(1)(v))
CERTIFICATE OF INCORPORATION
OF ACC CORP.
(a Delaware corporation)
ARTICLE ONE
The name of the Corporation is ACC CORP.
ARTICLE TWO
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of the registered agent of the Corporation at such address
is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE FOUR
The total number of shares of stock which the Corporation shall have
authority to issue is 10,000,000 shares, all of one class of Common Stock
having a par value of $.015 per share, and each share of Common Stock shall be
entitled to one vote on all matters as to which such stock is entitled to
vote.
ARTICLE FIVE
The business and affairs of the Corporation shall be managed by its
Board of Directors which shall consist of not less than three persons. The
exact number of Directors shall be fixed from time to time by, or in the
manner provided in, the By-laws of the Corporation and may be increased or
decreased as therein provided. Directors of the Corporation need not be
elected by ballot unless required by the By-laws. The Board of Directors is
authorized to adopt, alter, amend or repeal the By-laws, subject to the right
of the stockholders to adopt, alter, amend or repeal By-laws made by the Board
of Directors; provided, however, that By-laws shall not be adopted, altered,
amended or repealed by the stockholders except by the affirmative vote of the
holders of at least 80% of the issued and outstanding Common Stock of the
Corporation.
ARTICLE SIX
Action shall be taken by stockholders of the Corporation only at duly
called annual or special meetings of stockholders and stockholders may not act
by written consent. Special meetings of stockholders of the Corporation may
be called only by the Chairman of the Board, the President, or the Board of
Directors pursuant to a resolution approved by a majority of the entire Board.
ARTICLE SEVEN
SECTION 1
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after approval by the stockholders of this Article to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such
repeal or modification.
SECTION 2
(a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director, officer or employee of the Corporation or is or was serving at the
request of the Corporation as a Director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans
(hereinafter an 'indemnitee'), whether the basis of such proceeding is alleged
action in an official capacity as a Director, officer, employee or agent or in
any other capacity while serving as a Director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss, including
without limitation attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement, reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall
continue as to an indemnitee who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the indemnitee's heirs,
executors and administrators; provided, however, that, except as provided in
Paragraph (b) hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding, or part thereof, initiated by such indemnitee
only if such proceeding, or part thereof, was authorized by the Board of
Directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
Director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by the Court of Chancery of the
State of Delaware or the court in which such proceeding is brought, that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise (hereinafter an "undertaking').
(b) Right of Indemnitee to Bring Suit. If a claim under Paragraph (a)
of this Section is not paid in full by the Corporation within sixty days after
a written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense, and (ii) in any suit by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Corporation shall be
entitled to recover such expenses upon an adjudication by the Court of
Chancery of the State of Delaware or the court in which such suit is brought,
that the indemnitee has not met the applicable standard of conduct set forth
in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such suit that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right hereunder, or by the Corporation
to recover an advancement of expenses pursuant to the terms of an undertaking,
the burden of proving that the indemnitee is not entitled to be indemnified or
to such advancement of expenses under this Section or otherwise shall be on
the Corporation.
(c) Non-Exclusivity of Rights. The rights to indemnification and the
advancement of expenses conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, this Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested Directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
(e) Indemnification of Agents of the Corporation. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
grant rights to indemnification, and to the advancement of expenses, to any
agent of the Corporation to the fullest extent of the provisions of this
Section with respect to the indemnification and advancement of expenses of
Directors, officers and employees of the Corporation.
ARTICLE EIGHT
SECTION 1
Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 80% of the
issued and outstanding Common Stock of the Corporation shall be required to
alter, amend, adopt any provision inconsistent with or repeal Articles Five,
Six, Seven and this Section 1 of Article Eight of this Certificate of
Incorporation in any respect.
SECTION 2
Except as otherwise provided in this Certificate of Incorporation, the
Corporation reserves the right at any time and from time to time to amend,
alter or repeal any provision contained in this Certificate of Incorporation
in the manner now or as hereafter prescribed by law, and all rights,
preferences and privileges conferred upon stockholders, Directors and officers
by and pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are subject to the right reserved in this Section.
ARTICLE NINE
The name and mailing address of the incorporator of the Corporation are:
Thomas P. Young, Esq., 1800 Lincoln First Tower, Rochester, New York, 14604.
IN WITNESS WHEREOF, the undersigned, being the sole incorporator for the
purpose of forming a corporation under the laws of the State of Delaware, does
make, file and record this Certificate of Incorporation, does certify that the
facts herein stated are true, and, accordingly, has executed this Certificate
of Incorporation this 7th day of April, 1987.
/s/ Thomas P. Young
Thomas P. Young, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ACC CORP.
ACC CORP., a corporation organized and existing under and by virtue of
the General Corporation Law Of the State of Delaware, hereby certifies as
follows:
1. ARTICLE FOUR of this Corporation's Certificate of Incorporation is
hereby amended to change the total number of shares of stock which this
Corporation shall have authority to issue to 50,000,000 shares, all of one
class of Common Stock having a par value of $. 015 per share. Each share of
Common Stock shall continue to be entitled to one vote on all matters as to
which it is entitled to vote.
2. At a meeting held on March 16, 1993, the Board of Directors of
this Corporation duly adopted resolutions setting forth this proposed
amendment, declared the advisability of its adoption and directed that the
amendment proposed be considered at the next annual meeting of this
Corporation's stockholders.
3. At the annual meeting of this Corporation's stockholders duly
called and held on June 2, 1993, this amendment was duly adopted by the
majority vote of all outstanding shares entitled to vote thereon.
4. This amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, this Corporation has caused this Certificate of
Amendment to be duly executed by Richard T. Aab, its Chairman, and attested by
Francis D. R. Coleman, its Secretary, this 10th day of June, 1993.
By:/s/ Richard T. Aab
Richard T. Aab, Chairman
Attest:
By: /s/ Francis D.R. Coleman
Francis D. R. Coleman, Secretary
As amended by action of the
Board of Directors of this
Corporation on October 13,
1994
/s/ Francis D.R. Coleman
Francis D. R. Coleman,
Secretary
BYLAWS
OF
ACC CORP.
(a Delaware corporation)
ARTICLE I
STOCKHOLDERS
Section 1.01 Annual Meeting. The Annual Meeting of the stockholders of
this Corporation, for the purpose of electing Directors and transacting such
other business as may come before the meeting, shall be held on such date, at
such time and at such place as may be designated by the Board of Directors.
Section 1.02 Special Meetings. Special Meetings of the stockholders
may be called at any time by the Chairman and Chief Executive Officer or by
the President and Chief Operating Officer, or by a majority of the entire
Board of Directors acting with or without a meeting. Special Meetings may be
called for any purpose(s); however, the business transacted at any such Spe-
cial Meeting shall be confined to the purposes set forth in the notice
thereof.
Section 1.03 Place of Meetings. Meetings of stockholders shall be held
at such place as the person or persons calling the meetings shall decide,
unless the Board of Directors
decides that a meeting shall be held at some other place and causes the notice
thereof to so state.
Section 1.04 Notices of Meetings. Unless waived, a written, printed,
or typewritten notice of each Annual or Special meeting, stating the date,
hour and place and the purpose or purposes thereof shall be delivered or
mailed to each stockholder of record entitled to vote or entitled to notice,
not more than 60 days nor less than 10 days before any such meeting. If
mailed, such notice shall be directed to a stockholder at his or her address
as the same appears on the records of the Corporation. Notice shall not be
required to be given to any stockholder who submits a signed waiver of notice,
in person or by proxy, whether before or after such meeting. The attendance
of any stockholder at a meeting without protesting, prior to the conclusion of
the meeting, the lack of notice of such meeting, shall constitute a waiver of
notice by him or her. If a meeting is adjourned to another time or place and
such adjournment is for 30 days or less and no new record date is fixed for
the adjourned meeting, no further notice as to such adjourned meeting need be
given if the time and place to which it is adjourned are fixed and announced
at such meeting. If, however, such adjournment exceeds 30 days or if, after
the adjournment, a new record date is fixed for the adjourned meeting, a
notice of such adjourned meeting must be given to each stockholder of record
entitled to vote at such meeting. In the event of a transfer of shares after
notice has been given and prior to the holding of the meeting, it shall not be
necessary to serve notice on the transferee. Such notice shall specify the
place where the stockholders list will be open for examination prior to the
meeting if required by Section 1.08 hereof.
Section 1.05 Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any other change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than 60 nor less than 10 days before the date of
such meeting, nor more than 60 days prior to any other action. If the Board
shall not fix such a record date, (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be the close of business on the date next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held, and (ii) in any case
involving the determination of stockholders for any purpose other than notice
of or voting at a meeting of stockholders, the record date for determining
stockholders for such purpose shall be the close of business on the day on
which the Board of Directors shall adopt the resolution relating thereto.
Determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of such meeting; provided, how-
ever, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 1.06 Organization. At each meeting of the stockholders, the
Chairman and Chief Executive Officer, or in the absence of the Chairman and
Chief Executive Officer, the President and Chief Operating Officer, or, in the
absence of both such officers, a Chairman chosen by a majority in interest of
the stockholders present in person or by proxy and entitled to vote, shall act
as Chairman, and the Secretary of the Corporation, or, if the Secretary of the
Corporation not be present, the Assistant Secretary, or, in the absence of
both such officers, any person whom the Chairman of the Meeting shall appoint,
shall act as Secretary of the Meeting.
Section 1.07 Quorum. A stockholders' meeting duly called shall not be
organized for the transaction of business unless a quorum is present. Except
as otherwise expressly provided by law, the Certificate of Incorporation or
these Bylaws, the presence in person or by proxy of holders of record of
shares of stock of the Corporation entitling them to exercise at least a
majority of the voting power of the Corporation shall constitute a quorum for
such meeting. The stockholders present at a duly organized meeting can
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum. If a meeting cannot be
organized because a quorum has not attended, a majority in voting interest of
the stockholders present may adjourn, or, in the absence of a decision by the
majority, any officer entitled to preside at such meeting may adjourn the
meeting from time to time to such time (not more than 30 days after the
previously adjourned meeting) and place as they (or he/she) may determine,
without notice other than by announcement at the meeting of the time and place
of the adjourned meeting. At any such adjourned meeting at which a quorum is
present any business may be transacted which might have been transacted at the
meeting as originally called.
Section 1.08 List of Stockholders. The Secretary of the Corporation
shall prepare and make a complete list of the stockholders of record as of the
applicable record date entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. This list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The
Corporation shall be entitled for all purposes to rely on the address for any
stockholder appearing on the records of its duly-appointed transfer agent(s),
unless a stockholder shall specifically file with the Secretary of the
Corporation a written request that notices intended for such stockholder be
mailed to a different address, in which case all notices shall be mailed to
the address specified in such request.
Section 1.09 Order of Business and Procedure. The order of business at
all meetings of the stockholders and all matters relating to the manner of
conducting the meeting shall be determined by the Chairman of the Meeting,
whose decisions may be overruled only by majority vote of the stockholders
present and entitled to vote at the meeting in person or by proxy. Meetings
shall be conducted in a manner designed to accomplish the business of the
meeting in a prompt and orderly fashion and to be fair and equitable to all
stockholders, but it shall not be necessary to follow any manual of
parliamentary procedure.
Section 1.10 Voting.
(a) Each stockholder of Common Stock shall, at each meeting of the
stockholders, be entitled to one vote for each share of the Common Stock of
the Corporation which shall have been held by and registered in the name of
such stockholder on the books of the Corporation on the date fixed pursuant to
these Bylaws as the record date for the determination of stockholders entitled
to notice of and to vote at such meeting, except as may otherwise be provided
by statute or the Certificate of Incorporation.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by such stockholder's proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized and delivered to the Secretary of the Meeting in
sufficient time to permit the necessary examination and tabulation thereof
before the vote is taken; provided, however, that no proxy shall be valid
after the expiration of three years after the date of its execution, unless
the stockholder executing it shall have specified therein the length of time
it is to continue in force. At any meeting of the stockholders at which a
quorum is present, all matters, except as otherwise expressly required by law,
the Certificate of Incorporation or these Bylaws, shall be decided by the vote
of a majority of the shares present in person or by proxy and entitled to vote
thereat and thereon. The vote at any meeting of the stockholders on any
questions need not be by ballot, unless so directed by the Chairman of the
Meeting or required by the Certificate of Incorporation; provided, however,
that with respect to the election of Directors, any stockholder shall have the
right to demand that such vote be taken by written ballot. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by such
stockholder's proxy, as the case may be, and it shall state the number of
shares voted. Each proxy shall be revocable at the pleasure of the person
executing it, or of such person's personal representative(s) or assign(s),
except as otherwise provided by statute. The authority of the holder of a
proxy to act shall not be revoked by the incompetence or death of the
stockholder who executed the proxy unless, before the authority is exercised,
valid and sufficient written notice of an adjudication of such incompetence or
of such death is received by the Secretary of the Corporation.
Section 1.11 Inspectors. The Board of Directors, in advance of any
meeting of the stockholders, may appoint one or more inspectors to act at the
meeting. If inspectors are not so appointed, the person presiding at the
meeting may appoint one or more inspectors. If any person so appointed fails
to appear or act, the vacancy may be filled by appointment made by the Board
of Directors in advance of the meeting or at the meeting by the person
presiding thereat. The inspectors so appointed shall determine the number of
shares outstanding, the shares represented at the meeting, the existence of a
quorum and the authenticity, validity and effect of proxies and shall receive
votes, ballots, waivers, releases, or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots, waivers, releases, or consents, determine and
announce the results and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated and of the vote as certified by them.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01 General Powers of Board. The powers of the Corporation
shall be exercised, its business and affairs conducted, and its property
controlled by the Board of Directors, except as otherwise provided by the law
of Delaware or in the Certificate of Incorporation. Each Director shall be at
least 21 years of age.
Section 2.02 Number of Directors. The number of Directors of the
Corporation shall not be less than three, with the exact number of Directors
to be such number as may be set from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of Directors; provided,
however, that no decrease in the size of the Board shall serve to reduce the
term of any Director then in office. As used in these Bylaws, the term
"entire Board" means the total number of Directors which the Corporation would
have if there were no vacancies. The initial number of Directors and the
persons appointed as the initial Directors shall be as selected by the
incorporator.
Section 2.03 Election of Directors. At each Annual Meeting of the
stockholders, Directors shall be elected by a plurality of the votes cast by
the holders of Common Stock entitled to vote thereon for a term of one year,
and shall hold office until the election and qualification of their
successors, or until their earlier resignation or removal.
Section 2.04 Nominations. Nominations for the election of Directors
may be made by the Board of Directors or a committee thereof or by any
stockholder entitled to vote for the election of Directors.
Section 2.05 Resignations. Any Director of the Corporation may resign
at any time by giving written notice to the Chairman and Chief Executive
Officer, the President and Chief Operating Officer or the Secretary of the
Corporation. Such resignation shall take effect at the time specified
therein, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 2.06 Vacancies. In the event that any vacancy shall occur in
the Board of Directors, whether because of death, resignation, removal, newly
created directorships resulting from any increase in the authorized number of
Directors, the failure of the stockholders to elect the whole authorized
number of Directors, or for any other reason, such vacancy shall be filled by
the vote of a majority of the Directors then in office, although less than a
quorum. A Director elected to fill a vacancy shall hold office until the next
Annual Meeting of stockholders for the election of Directors, and until the
election and qualification of his or her successor.
Section 2.07 Removal of Directors. Any or all of the Directors may be
removed for cause or without cause only by a majority vote of all outstanding
shares of stock.
Section 2.08 Place of Meeting, etc. The Board of Directors may hold
any of its meetings at the principal office of the Corporation or at such
other place or places as the Board of Directors may from time to time
designate. Directors may participate in any regular or special meeting of the
Board of Directors or of any committee thereof by means of conference
telephone or similar communications equipment pursuant to which all persons
participating in any such meeting can hear each other and such participation
shall constitute presence in person at any such meeting.
Section 2.09 Regular Meetings. A Regular Meeting of the Board of
Directors shall be held following each Annual Meeting of Stockholders for the
purpose of organizing the Corporation's affairs and the transaction of such
other business as may properly come before such meeting. Other Regular
Meetings of the Board of Directors may be held at such intervals and at such
time as shall from time to time be determined by the Board of Directors. Once
such determination has been made and notice thereof has been once given to
each person then a member of the Board of Directors, such Regular Meetings may
be held at such intervals and at the time(s) and place(s) so designated
without further notice being given.
Section 2.10 Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman and Chief Executive
Officer, by the President and Chief Operating Officer, or by a majority of
Directors then in office, to be held on such day and at such time as shall be
specified by the person or persons calling the meeting.
Section 2.11 Notice of Meetings. Notice of each Special Meeting or,
where required, each Regular Meeting of the Board of Directors shall be deemed
properly given to each Director either: (a) when mailed by first class mail,
postage prepaid, to each Director, addressed to him or her at his or her
residence or usual place of business, at least two days before the day on
which such meeting is to be held; or (b) when sent to him or her at such
address by telegraph, cable, telex, telecopier, facsimile or other similar
means, or when delivered to him or her personally, or when given to him or her
by telephone or other similar means, in any event at least 24 hours before the
time at which such meeting is to be held. Such notice shall specify the
place, date and time of the meeting; however, except as otherwise specifically
required by these Bylaws, notice of any Regular or Special Meeting of the
Board of Directors need not state the purpose or purposes of such meeting and,
at any such meeting duly held, any business may be transacted. At any meeting
of the Board of Directors at which every Director shall be present, even
though without such notice, any business may be transacted. Any acts or
proceedings taken at a meeting of the Board of Directors not validly called or
convened may be made valid and fully effective by ratification at a subsequent
meeting that has been validly called or convened. A written waiver of notice
of a Special or Regular Meeting, signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
the equivalent of such notice, and attendance of a Director at any meeting
shall constitute a waiver of notice of such meeting except when the Director
attends the meeting and prior to or at the commencement thereof protests the
lack of proper notice to him or her, or that the meeting is not lawfully
called or convened.
Section 2.12 Quorum and Voting. At all meetings of the Board of
Directors, the presence of a majority of the Directors then in office shall
constitute a quorum for the transaction of business; provided, however, that
such number may not be less than one-third of the entire Board. Except as
otherwise required by law, the Certificate of Incorporation, or these Bylaws,
the vote of a majority of the Directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors. At all meetings
of the Board of Directors, each Director shall have one vote.
Section 2.13 Committees. The Board of Directors may appoint an
Executive Committee, an Audit Committee, an Executive Compensation Committee
and any other committee of the Board of Directors, each to consist of three or
more Directors of the Corporation. Each such committee shall have and may
exercise all of the powers and authority of the Board of Directors necessary
and appropriate to the carrying out of its functions, except that no such
committee shall have the power or authority:
(a) To amend the Certificate of Incorporation or these Bylaws;
(b) To adopt an agreement of merger or consolidation;
(c) To recommend to the stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets;
(d) To recommend to the stockholders a dissolution of the Corporation
or a revocation of a dissolution; nor
(e) To declare a dividend or to authorize the issuance of stock unless
the resolution creating such committee expressly so provides.
The Executive Committee of the Board shall have the power and authority
to act in lieu of the full Board of Directors as may be necessary in the
intervals between Board meetings and as otherwise requested by the full Board,
except as otherwise specifically circumscribed by the Delaware General
Corporation Law, the Corporation's Certificate of Incorporation or these
Bylaws.
The Audit Committee of the Board shall periodically review the
Corporation's auditing practices and procedures, make recommendations to
management or to the Board of Directors as to any changes to such practices
and procedures deemed necessary from time to time to comply with applicable
auditing rules, regulations and practices, and recommend independent auditors
for the Corporation to be elected by the stockholders. A majority of this
Committee shall at all times consist of Directors who are not also employees
or officers of the Corporation.
The Executive Compensation Committee of the Board shall meet from time
to time to set and review the compensation and benefits payable to the
Corporation's officers and other senior executives, and, acting under the
terms of the Corporation's Employee Stock Option Plan, shall have exclusive
authority to administer said Plan in all respects in accordance with its
terms. This Committee shall at all times consist solely of Directors who are
not also employees or officers of the Corporation.
Each such committee shall serve at the pleasure of the Board of
Directors and shall be subject to the control and direction of the Board of
Directors. In the absence of any member of any such committee, the members
thereof present at any meeting may appoint a member of the Board of Directors
previously designated by the Board of Directors as a committee alternate to
act in the place of such absent member. Any such committee shall keep written
minutes of its meetings and report the same to the Board of Directors at the
next Regular Meeting of the Board of Directors.
Section 2.14 Compensation. The Board of Directors may, by resolution
passed by a majority of those in office, fix the compensation of Directors for
service in any capacity and may fix fees for attendance at meetings and may
authorize the Corporation to pay the traveling and other expenses of Directors
incident to their attendance at meetings, or may delegate such authority to a
committee of the Board of Directors. The Board of Directors shall fix the
compensation of all officers of the Corporation who are appointed by the Board
of Directors. The Board of Directors may authorize the Chairman and Chief
Executive Officer or the President and Chief Operating Officer to fix the
compensation of such assistant and subordinate officers and agents as either
of them is authorized to appoint and remove.
Section 2.15 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of the Board
of Directors or such committee.
Section 2.16 Director Emeritus. From time to time, the Board may in
its discretion designate a Director who elects to retire from the Board, on or
after reaching age 70, as a Director Emeritus. A Director Emeritus shall be
invited to attend all Board meetings as an ex officio member of the Board
without a vote and shall be entitled to receive the annual retainer fees then
paid to the Directors of this Corporation, until reaching age 75.
ARTICLE III
OFFICERS
Section 3.01 General Provisions. The officers of the Corporation shall
be the Chairman of the Board, who shall also be the Chief Executive Officer of
the Corporation, a Vice Chairman, a President and Chief Operating Officer,
such number of Vice Presidents as the Board of Directors may from time to time
determine, a Secretary and a Treasurer. Any person may hold any two or more
offices and perform all the duties thereof. The Board of Directors may also
elect a Chief Financial Officer, a Controller and such other officers as it
may determine.
Section 3.02 Election, Terms of Office, and Qualification. The
officers of the Corporation named in Section 3.01 of this Article III shall be
elected by the Board of Directors for an indeterminate term and shall hold
office at the pleasure of the Board of Directors.
Section 3.03 Additional Officers, Agents, etc. In addition to the
officers mentioned in Section 3.01 of this Article III, the Corporation may
have such other officers or agents as the Board of Directors may deem
necessary and may appoint, each of whom shall hold office for such period,
have such authority and perform such duties as may be provided in these Bylaws
as the Board of Directors may from time to time determine. The Board of
Directors may from time to time delegate to the Chairman and Chief Executive
Officer or the President and Chief Operating Officer the power to appoint any
subordinate officers or agents and prescribe the powers and duties thereof.
In the absence of any officer of the Corporation, or for any other reason the
Board of Directors may deem sufficient, the Board of Directors may delegate
the powers and duties of such officer, in whole or in part, to any other
officer, or to any Director.
Section 3.04 Removal. Any officer of the Corporation may be removed,
either with or without cause, at any time, by resolution adopted by the Board
of Directors at any meeting. Any officer appointed not by the Board of
Directors but by an officer or committee to which the Board of Directors shall
have delegated the power of appointment may be removed, with or without cause,
by the Board of Directors, by the committee that or superior officer
(including successors) who made the appointment, or by any committee or
officer upon whom such power of removal may be conferred by the Board of
Directors.
Section 3.05 Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors, or to the Chairman and Chief
Executive Officer, the President and Chief Operating Officer, or the Secretary
of the Corporation. Any such resignation shall take effect at the time
specified therein, and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.06 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, shall be filled in the
manner prescribed in these Bylaws for regular appointments or elections to
such office.
ARTICLE IV
DUTIES OF THE OFFICERS
Section 4.01 Chairman and Chief Executive Officer. The Chairman and
Chief Executive Officer shall preside at all meetings of the stockholders and
of the Board of Directors, and shall have general charge of and be primarily
responsible for the conduct of the business of the Corporation, including
long-range planning and strategic analyses of the Corporation's future growth
and direction, and subject to the Board's approval, establishing the general
business policies and goals of the Corporation. Except where by law the
signature of the President and Chief Operating Officer is required, the
Chairman and Chief Executive Officer shall possess the same power as the
President and Chief Operating Officer to sign all contracts, certificates and
other instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President and Chief
Operating Officer, the Chairman and Chief Executive Officer shall exercise all
the powers and discharge all the duties of the President and Chief Operating
Officer. The Chairman and Chief Executive Officer shall also perform such
duties and may exercise such other powers as from time to time may be assigned
by these Bylaws or by the Board of Directors.
Section 4.02 Vice Chairman. The Vice Chairman shall be responsible for
the Corporation's public relations, investor relations, and industry
relations. In addition, the Vice Chairman's responsibilities shall include
contract negotiations and special project assignments; he shall also perform
such other duties and may exercise such other powers as from time to time may
be assigned by these Bylaws, the Board of Directors, or the Chairman and Chief
Executive Officer.
Section 4.03 President and Chief Operating Officer. The President and
Chief Operating Officer shall, subject to the control of the Board and the
Chairman and Chief Executive Officer, have general supervision of the day-to--
day operation and administration of the business of the Corporation, together
with such other duties and such other powers as from time to time may be
assigned by the Board of Directors or the Chairman and Chief Executive
Officer. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign
and execute documents when so authorized by these Bylaws, the Board of
Directors or Chairman and Chief Executive Officer. In the absence or dis-
ability of the Chairman and Chief Executive Officer, the President and Chief
Operating Officer shall preside at all meetings of the shareholders and the
Board of Directors.
Section 4.04 Vice Presidents. The Vice Presidents shall perform such
duties as are conferred upon them by these Bylaws or as may from time to time
be assigned to them by the Board of Directors, the Chairman and Chief
Executive Officer or the President and Chief Operating Officer. Any one of
the Vice Presidents may be designated by the Board of Directors as an
Executive Vice President, and the Board may also from time to time designate
one or more of the Vice Presidents as Senior Vice Presidents in the exercise
of its sole discretion. At the request of the Chairman and Chief Executive
Officer or the President and Chief Operating Officer, or in the absence or
disability of the President and Chief Operating Officer, the Executive Vice
President shall perform all the duties and have all the powers of the
President and Chief Operating Officer. If there be no Executive Vice Presi-
dent, the Vice President designated by the Board of Directors shall perform
such duties and exercise such functions. Each Vice President shall have such
other powers and duties as may from time to time be properly prescribed by the
Board of Directors, the Chairman and Chief Executive Officer, or the President
and Chief Operating Officer.
Section 4.05 Treasurer. The Treasurer shall keep correct and complete
books and records of account for the Corporation. Subject to the control and
supervision of the Board of Directors and the Chairman and Chief Executive
Officer, or such other officer as either of them may designate, the Treasurer
shall establish programs for the provision of the capital required by the
Corporation, including negotiating the procurement of capital and maintaining
adequate sources for the Corporation's current borrowings from lending
institutions. He shall maintain banking arrangements to receive, have custody
of and disburse the funds and securities of the Corporation. He shall invest
the funds of the Corporation as required, and establish and coordinate
policies for investment in pension and other similar accounts due the
Corporation. The Treasurer shall have such other powers and duties as may
from time to time be properly prescribed by the Board of Directors, the
Chairman and Chief Executive Officer, the President and Chief Operating
Officer, or the Chief Financial Officer.
Section 4.06 Secretary. The Secretary shall attend all meetings of the
Board of Directors and of the stockholders, and shall record all votes in the
Minutes of all such proceedings in a book to be maintained for such purpose.
The Secretary shall give or cause to be given a notice of all meetings of
stockholders and of the Board of Directors. The Secretary shall be the
custodian of the seal of the Corporation and shall affix the seal to any
instrument when authorized by the Board of Directors. The Secretary shall
keep all the documents and records of the Corporation, as required by law or
otherwise, in a proper and safe manner. The Secretary shall have such other
powers and duties as may from time to time be properly prescribed by the Board
of Directors, the Chairman and Chief Executive Officer or the President and
Chief Operating Officer.
Section 4.07 Chief Financial Officer. The Board of Directors may
appoint a Chief Financial Officer. Subject to the control and supervision of
the Board of Directors and the Chairman and Chief Executive Officer, the Chief
Financial Officer shall have general charge of establishing and overseeing all
financial and accounting policies and matters of the Corporation. The Chief
Financial Officer shall also have such other powers and duties as may from
time to time be properly prescribed by the Board of Directors or the Chairman
and Chief Executive Officer.
Section 4.08 Controller. The Board of Directors may appoint a
Controller. Subject to the control and supervision of the Board of Directors,
the Chairman and Chief Executive Officer, or such officer as either of them
may designate, the Controller shall establish, coordinate and administer an
adequate plan for the financial control of operations, including profit
planning, programs for capital investing and for financing, sales forecasts,
expense budgets and cost standards, together with the necessary procedures to
effectuate such plans. The Controller shall compare performance with
operating plans and standards and shall report and interpret the results of
operations to all levels of management.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 5.01 Mandatory Indemnification. The Corporation shall
indemnify any officer or Director of the Corporation who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceedings, whether civil, criminal, administrative or
investigative (including, without limitation, any action threatened or
instituted by or in the right of the Corporation), by reason of the fact that
he is or was a Director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a Director, trustee,
officer, employee or agent of another corporation (domestic or foreign,
nonprofit or for profit), partnership, joint venture, trust or other
enterprise, against expenses (including, without limitation, attorneys' fees,
filing fees, court reporters' fees and transcript costs), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, he had no reasonable cause to believe his conduct was unlawful. A
person claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for indemnification,
to have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and with respect to any
criminal matter, to have had no reasonable cause to believe his conduct was
unlawful, and the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
Section 5.02 Court-Approved Indemnification. Anything contained in
these Bylaws or elsewhere to the contrary notwithstanding:
(a) The Corporation shall not indemnify any officer or Director of the
Corporation who was a party to any completed action or suit instituted by or
in the right of the Corporation to procure a judgment in its favor by reason
of the fact that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, trustee, officer, employee or agent of another Corporation (domestic
or foreign, nonprofit or for profit), partnership, joint venture, trust or
other enterprise, in respect of any claim, issue or matter asserted in such
action or suit as to which he shall have been adjudged to be liable for gross
negligence or intentional misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite such adjudication of liability, and
in view of all the circumstances of the case, he is fairly and reasonably
entitled to such indemnity as such Court of Chancery or such other court shall
deem proper; and
(b) The Corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as contemplated by
this Section 5.02.
Section 5.03 Indemnification for Expenses. Anything contained in these
Bylaws or elsewhere to the contrary notwithstanding, to the extent that an
officer or Director of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
5.01, or in defense of any claim, issue or matter therein, he shall be
promptly indemnified by the Corporation against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs) actually and reasonably incurred by him in connection therewith.
Section 5.04 Determination Required. Any indemnification required
under Section 5.01 and not precluded under Section 5.02 shall be made by the
Corporation only upon a determination that such indemnification of the officer
or Director is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 5.01. Such determination may be made
only (a) by a majority vote of a quorum consisting of Directors of the
Corporation who were not and are not parties to any such action, suit or
proceedings, or (b) if such a quorum is not obtainable or if a majority of a
quorum of disinterested Directors so directs, by independent legal counsel in
a written opinion, or (c) by the stockholders, or (d) by the Court of Chancery
of the State of Delaware or (if the Corporation is a party thereto) the court
in which such action, suit or proceeding was brought, if any. Any such
determination may be made by a court under division (d) of this Section 5.04
at any time (including, without limitation, any time before, during or after
the time when any such determination may be requested of, be under consid-
eration by or have been denied or disregarded by the disinterested Directors
under division (a) or by independent legal counsel under division (b) or by
the stockholders under division (c) of this Section 5.04); and no failure for
any reason to make any such determination, and no decision for any reason to
deny any such determination, by the disinterested Directors under division (a)
or by independent legal counsel under division (b) or by stockholders under
division (c) of this Section 5.04 shall be evidence in rebuttal of the
presumption recited in Section 5.01. Any determination made by the
disinterested Directors under division (a) or by independent legal counsel
under division (b) of this Section 5.04 to make indemnification in respect of
any claim, issue or matter asserted in an action or suit threatened or brought
by or in the right of the Corporation shall be promptly communicated to the
person who threatened or brought such action or suit, and within twenty days
after receipt of such notification such person shall have the right to
petition the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought, if any, to review the reasonableness of such
determination.
Section 5.05 Advances for Expenses. Expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs) incurred in defending any action, suit or proceeding referred to in
Section 5.01 shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer
or Director promptly as such expenses are incurred by him, but only if such
officer or Director shall first agree, in writing, to repay all amounts so
paid in respect of any claim, issue or other matter asserted in such action,
suit or proceeding in defense of which he shall not have been successful on
the merits or otherwise:
(a) If it shall ultimately be determined as provided in Section 5.04
that he is not entitled to be indemnified by the Corporation as provided under
Section 5.01; or
(b) If, in respect of any claim, issue or other matter asserted by or
in the right of the Corporation in such action or suit, he shall have been
adjudged to be liable for gross negligence or intentional misconduct in the
performance of his duty to the Corporation, unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite such
adjudication of liability, and in view of all the circumstances, he is fairly
and reasonably entitled to all or part of such indemnification.
Section 5.06 Article V Not Exclusive. The indemnification provided by
this Article V shall not be deemed exclusive of any other rights to which any
person seeking indemnification may be entitled under the Certificate of
Incorporation or any Bylaw, agreement, vote of stockholders or disinterested
Directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be an officer or Director of the Corporation and
shall inure to the benefit of the heirs, executors, and administrators of such
a person.
Section 5.07 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a Directors, trustee, officer, employee, or agent of another
corporation (domestic or foreign, nonprofit or for profit), partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the obligation or the power to
indemnify him against such liability under the provisions of this Article V.
Section 5.08 Certain Definitions. For purposes of this Article V, and
as examples and not by way of limitation:
(a) A person claiming indemnification under this Article V shall be
deemed to have been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 5.01, or in defense of any
claim, issue or the matter therein, if such action, suit or proceeding shall
be terminated as to such person, with or without prejudice, without the entry
of a judgment or order against him, without a conviction of him, without the
imposition of a fine upon him and without his payment or agreement to pay any
amount in settlement thereof (whether or not any such termination is based
upon a judicial or other determination of the lack of merit of the claims made
against him or otherwise results in his vindication); and
(b) References to an "other enterprise" shall include employee benefit
plans; references to a "fine" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a Director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such Director, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
best interests of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" within the meaning of that term as used in this
Article V.
Section 5.09 Venue. Any action, suit or proceeding to determine a
claim for indemnification under this Article V may be maintained by the person
claiming such indemnification, or by the Corporation, in the Court of Chancery
of the State of Delaware. The Corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Chancery of the State of Delaware in any
such action, suit or proceeding.
Section 5.10 Contractual Nature. The foregoing provisions of this
Article V shall be deemed to be a contract between the Corporation and each
Director and officer who serves in such capacity at any time while this
Section 5.10 is in effect, and any repeal or modification thereof shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, suit or proceeding there-
tofore or thereafter brought based in whole or in part upon any such state of
facts.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 6.01 Certificate for Shares. Every owner of one or more shares
in this Corporation shall be entitled to a certificate, which shall be in such
form as the Board of Directors shall prescribe, certifying the number and
class of shares in the Corporation owned by such person. When such
certificate is countersigned by an incorporated transfer agent or registrar,
the signature of any of said officers may be facsimile, engraved, stamped or
printed. The certificates for the respective classes of such shares shall be
numbered in the order in which they shall be issued and shall be signed in the
name of the Corporation by the Chairman and Chief Executive Officer, the
President and Chief Operating Officer, or a Vice President and by the
Secretary or the Treasurer. A record shall be kept of the name of the person,
firm, or corporation owning the shares represented by each such certificate
and the number of shares represented thereby, the date thereof and in case of
cancellation, the date of cancellation. Every certificate surrendered to the
Corporation for exchange or transfer shall be canceled and no new certificate
or certificates shall be issued in exchange for any existing certificates
until such certificates shall have been so canceled. In case any officer who
has signed, or whose facsimile signature has been placed upon a certificate,
shall have ceased to be such officer before such certificate is issued, such
certificate may be issued by the Corporation with the same effect as if such
person were such officer at the date of issue.
Section 6.02 Lost, Destroyed or Mutilated Certificates. If any
certificates for shares in this Corporation become worn, defaced, or mutilated
but are still substantially intact and recognizable, the Directors, upon
production and surrender thereof, shall order the same canceled and shall
issue a new certificate in lieu of same. The holder of any shares in the
Corporation shall immediately notify the Corporation if a certificate therefor
shall be lost, destroyed, or mutilated beyond recognition, and the Corporation
may issue a new certificate in the place of any certificate theretofore issued
by it which is alleged to have been lost or destroyed or mutilated beyond
recognition. Unless otherwise provided by the Board of Directors or an
officer of the Corporation, the owner of the certificate which has been lost,
destroyed, or mutilated beyond recognition, or his legal representative, shall
give the Corporation a bond in such sum and with such surety or sureties as
may be required to adequately indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, destruction, or
mutilation of any such certificate. The Board of Directors may, however, in
its discretion, refuse to issue any such new certificate pending the
resolution of any legal proceedings involving such certificate or the loss,
destruction or mutilation thereof.
Section 6.03 Transfers of Shares. Transfers of shares in the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, his or its legal guardian, executor, or
administrator, or by his or its attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation or with
a transfer agent appointed by the Board of Directors, and on surrender of the
certificate or certificates for such shares properly endorsed or accompanied
by properly executed stock powers (and any requested signature guarantees) and
evidence of the payment of all taxes imposed upon such transfer. The person
in whose name shares stand on the books of the Corporation shall, to the full
extent permitted by law, be deemed the owner thereof for all purposes as
regards the Corporation, and the Corporation shall not be bound to recognize
any equitable or other claim or interest in such shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as expressly provided by statute.
Section 6.04 Stock Ledgers. The stock ledgers of the Corporation
containing the names and addresses of the stockholders and the number of
shares held by them respectively shall be maintained at the principal offices
of the Corporation, or, if there be a transfer agent, at the office of such
transfer agent as the Board of Directors shall determine.
Section 6.05 Regulations. The Board of Directors may make such rules
and regulations as it may deem expedient and not inconsistent with these
Bylaws concerning the issue, transfer, and registration of certificates for
shares in the Corporation. It may appoint one or more transfer agents or one
or more registrars, or both, and may require all certificates for shares to
bear the signature of either or both.
ARTICLE VII
FINANCES
Section 7.01 Dividends. Subject to any statutory provisions, dividends
upon the capital stock of the Corporation may be declared by the Board of
Directors, payable on such dates as the Board of Directors may designate.
Section 7.02 Reserves. Before the payment of any dividend, there may
be set aside out of the funds of the Corporation available for dividends, such
sum or sums as the Board of Directors may from time to time in its absolute
discretion deem proper as a reserve to meet contingencies or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board shall deem conducive to the interests of
the Corporation. The Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
Section 7.03 Bills, Notes, etc. All checks or demands for money and
notes or other instruments evidencing indebtedness or obligations of the
Corporation shall be made in the name of the Corporation and shall be signed
by such officer or officers or such other person or persons as the Board of
Directors may from time to time designate.
ARTICLE VIII
DIVISIONS
Section 8.01 Creation of Divisions. The Board of Directors may from
time to time create Divisions of the Corporation as operational units of the
Corporation, and may set apart to such Divisions such aspects or portions of
the business, affairs and properties of the Corporation as the Board of Direc-
tors may from time to time determine.
Section 8.02 Division Officers. The Board of Directors of the
Corporation may appoint as officers of a Division a President, one or more
Vice Presidents, a Secretary, a Treasurer and any other officers, all of whom
shall serve at the pleasure of the Board of Directors. The same person may
hold two or more offices of a Division, and any person holding an office of a
Division may also be elected an officer of the Corporation. The officers and
all other persons who shall serve a Division in the capacities set forth in
this Article are hereby appointed agents of the Corporation with the powers
and duties herein set forth; provided, however, that the authority of said
agents shall be limited to matters related to the properties, business and
affairs of the Division and shall not extend to any other portion of the
properties, business and affairs of the Corporation. The Board of Directors
may from time to time authorize the Chairman and Chief Executive Officer or
the President and Chief Operating Officer of the Corporation to appoint and
remove all such Divisional officers and agents and to prescribe their
respective powers and duties.
Section 8.03 Division President. The President of a Division shall be
the Chief Executive Officer of the Division and shall have the responsibility
for the general management of the affairs of the Division, subject to the
direction of the Board of Directors and the President and Chief Operating
Officer of the Corporation. He shall see that all orders, instructions,
policies and resolutions of the Board of Directors, the Chairman and Chief
Executive Officer and the President and Chief Operating Officer of the
Corporation relating to the business and affairs of the Division are carried
into effect.
Section 8.04 Division Secretary. The Division Secretary shall have the
custody of such books and papers, shall maintain such records and shall have
such other powers and duties as may from time to time be properly prescribed
by the Board of Directors, the Chairman and Chief Executive Officer and the
President and Chief Operating Officer of the Corporation and by the Division
President.
Section 8.05 Division Treasurer. Subject to the direction of the
Treasurer of the Corporation and the Division President, the Division
Treasurer shall have custody of the funds and securities of the Division,
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Division, shall deposit all monies and other valuable effects
in the name and to the credit of the Division in such depositories as may be
designated by the Board of Directors and shall have such other powers and
duties as may from time to time be properly prescribed by the Board of
Directors, the Chairman and Chief Executive Officer and the President and
Chief Operating Officer of the Corporation and by the Division President.
ARTICLE IX
SEAL
Section 9.01 Seal. The Board of Directors may provide a corporate
seal, which shall be circular and contain the name of the Corporation engraved
around the margin and the words "corporate seal," the year of its
organization, and the word "Delaware."
ARTICLE X
AMENDMENTS
Section 10.01 Power to Amend. These Bylaws may be adopted, altered,
amended or repealed by the affirmative vote of the holders of at least 80% of
the issued and outstanding shares of this Corporation's Common Stock. The
Board of Directors shall also have the power to adopt, alter, amend or repeal
these Bylaws by a majority vote of the entire Board of Directors at any meet-
ing thereof, subject to the right of the holders of this Corporation's Common
Stock to adopt, alter, amend or repeal these Bylaws as aforesaid.
ACC CORP.
EMPLOYEE STOCK OPTION PLAN
As Amended through October 13, 1994
1. Purpose. The ACC CORP. EMPLOYEE STOCK OPTION PLAN (hereinafter
referred to as the "Plan") is designed to furnish additional incentive to key
employees of ACC Corp., a Delaware corporation (hereinafter referred to as the
"Company"), and its parents or subsidiaries, upon whose judgment, initiative and
efforts the successful conduct of the business of the Company largely depends,
by encouraging such key employees to acquire a proprietary interest in the
Company or to increase the same, and to strengthen the ability of the Company to
attract and retain in its employ persons of training, experience and ability.
Such purposes will be effected through the granting of stock options, as herein
provided, which may be of two types: (a) "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as the
same has been and shall be amended (hereinafter referred to as the "Code"); or
(b) non-qualified stock options ("NQSOs"). If not otherwise specified
hereinafter, any reference to "options" shall be deemed to refer to both ISOs
and NQSOs.
2. Eligibility.
(a) General. The persons who shall be eligible to receive options under
the Plan shall be those employees of the Company, or of any of its parents or
subsidiaries within the meaning of Section 425(e) and (f) of the Code, who are
exempt from the overtime provisions of the Fair Labor Standards Act of 1938, as
amended, by reason of employment in an executive, administrative or professional
capacity under 29 U.S.C. Section 213(a)(1).
(b) Special Provisions Regarding ISOs. With respect to ISOs, no ISOs
shall be granted to a person who would, at the time of the grant of such option,
own, or be deemed to own for purposes of Section 422(b)(6) of the Code, more
than 10% of the total combined voting power of all classes of shares of stock
of the Company or its parents or subsidiaries unless at the time of the grant of
the ISO both of the following conditions are met:
(i) the ISO option price is at least 110% of the fair market value
of the shares of stock subject to the ISO, as defined in paragraph 4(a) hereof,
and
(ii) the ISO is, by its terms, not exercisable after the expiration
of five years from the date it is granted.
3. Stock Options.
(a) Shares Subject to Options. Subject to the provisions of paragraph
4(h) hereof, options may be granted under the Plan to purchase in the aggregate
not more than 2,000,000 shares of the $.015 par value Common Stock of the
Company or of its parent or subsidiaries (hereinafter referred to as the
"Shares"), which Shares may, in the discretion of the Executive Compensation
Committee of the Board of Directors of the Company (the "Committee") consist
either in whole or in part of authorized but unissued Shares or Shares held in
the treasury of the Company. Any Shares subject to an option which for any
reason expires or is terminated unexercised as to such Shares shall continue
to be available for options under the Plan. For purposes of complying with
Code Section 162(m), for each fiscal year of the Company during which this Plan
is in effect, no person who is for that year determined to be a "covered
employee" for purposes of Code Section 162(m)(3) shall be eligible to be granted
options to purchase more than the number of shares authorized for issuance under
the Plan.
(b) General. The Committee may, prospectively or retroactively, amend
the terms of any option granted hereunder, except that anything in this Plan to
the contrary notwithstanding: (i) no such amendment or other action by the
Committee shall impair the rights of any optionee without the optionee's
consent; and (ii) no term of this Plan relating to ISOs shall be interpreted,
amended or altered, nor shall any discretion or authority granted hereunder be
so exercised, so as to disqualify this Plan under Section 422 of the Code, or,
without the consent of the optionee(s) affected, to disqualify under said
Section 422 any option granted as an ISO. However, for all purposes hereunder,
should any option granted as an ISO fail to qualify as an ISO, it shall be
treated as an NQSO hereunder.
(c) Special Provisions Concerning ISOs.
(i) ISOs Granted Prior to January 1, 1987. The aggregate fair
market value, determined as of the time an ISO is granted, of Shares for which
any employee may be granted ISOs in any calendar year, under all ISO plans
of the Company or in any corporation which is a parent or subsidiary of the
Company, shall not exceed $100,000, plus any unused limit carryover to such
year within the meaning of Section 422(c)(4) of the Code.
(ii) ISOs Granted After December 31, 1986. With respect to ISOs
granted under this Plan after December 31, 1986, in any calendar year beginning
in 1987, the Company may grant any employee ISOs, under all ISO plans of the
Company or in any corporation which is a parent or subsidiary of the Company, in
any amount; provided, however, that the value of such ISOs, as determined on
their date of grant, that shall first become exercisable in any calendar year
cannot exceed $100,000.
4. Terms and Conditions of Options. Options shall be granted by the
Committee pursuant to the Plan and shall be subject to the following terms and
conditions:
(a) Price. Each option shall state the number of Shares subject to the
option and the option price, which shall be not less than the fair market value
of the Shares with respect to which the option is granted at the time of the
granting of the option; provided, however, that the option price with respect to
ISOs shall be at least 110% of fair market value in the case of a grant of an
ISO to a person who would at the time of the grant own, or be deemed to own for
purposes of Section 422(b)(6) of the Code, more than 10% of the total combined
voting power of all classes of shares of the Company, its parents or
subsidiaries. For purposes of this paragraph, "fair market value" shall mean:
(i) the Closing Price quoted for the Company's Common Stock in the
National Association of Securities Dealers Automated Quotation System on the
last business day immediately preceding the date of the grant of the option, or
(ii) the most recent sale price for the Company's Common Stock as
of the date of the grant of the option, or
(iii) such price as shall be determined by the Committee in an
attempt made in good faith to meet the requirements of Section 422(b)(4) of the
Code.
(b) Term. The term of each option shall be determined by the Committee
subject to the following:
(i) With respect to ISOs, in no event shall an ISO be exercisable
either in whole or in part after the expiration of ten years from the date on
which it is granted; except that such term shall not exceed five years with
respect to any ISO grant made to a person who would own, or be deemed to own for
purposes of Section 422(b)(6) of the Code, more than 10% of the total combined
voting power of all classes of shares of the Company's stock, or that of its
parents or subsidiaries, at the time of such grant.
(ii) With respect to NQSOs, in no event shall an NQSO be exercisable
either in whole or in part after the expiration of ten years and one day from
the date on which it is granted.
Notwithstanding the foregoing, the Committee and an optionee may, by mutual
agreement, terminate any option granted to such optionee under the Plan.
(c) Exercisability.
(i) General. Any options granted hereunder in excess of 2,250
Shares shall only be exercisable with respect to 25% of the number of such
optioned Shares on the first anniversary of the date of grant, and with respect
to an additional 25% of such Shares on each of the second, third and fourth
anniversaries of the date of grant. Any options granted hereunder for 2,250
Shares or less shall only be exercisable with respect to 50% of the number of
such optioned Shares on the first anniversary of the date of grant, and with
respect to an additional 50% of such Shares on the second anniversary of the
date of grant. The Committee shall have the right, however, at any time to
waive or modify these exercisability requirements in its sole discretion,
subject to the provisions of Section 422 of the Code with respect to ISOs.
(ii) Acceleration of Exercisability in the Event of a Change in
Control. Notwithstanding subparagraph 4(c)(i) above, all options then
outstanding under this Plan shall automatically become exercisable in full upon
the occurrence of any of the following events, each of which shall be deemed a
"change in control" of the Company: (1) a merger or other business combination
approved by the Company's shareholders; (2) the acquisition by a third party of
more than 50% of the total outstanding shares of the Company's Common Stock; or
(3) a change in the composition of the Company's Board of Directors such that a
majority of the Board consists of Directors other than the incumbent Directors
and the nominees of the incumbent Directors; provided, however, that in all
events the Committee shall have the discretion to determine that a particular
transaction does not constitute a "change in control" for purposes of this
subparagraph.
(d) Non-Assignment During Life. During the lifetime of the optionee, the
option shall be exercisable only by him/her and shall not be assignable or
transferable by him/her, whether voluntarily or by operation of law or
otherwise, and no other person shall acquire any rights therein.
(e) Death of Optionee. In the event that an optionee shall die prior to
the complete exercise of options granted to him/her under the Plan, such
remaining options may be exercised in whole or in part after the date of the
optionee's death only: (i) by the optionee's estate or by or on behalf of such
person or persons to whom the optionee's rights under the option pass under the
optionee's Will or the laws of descent and distribution, (ii) to the extent that
the optionee was entitled to exercise the option at the date of his/her death,
and (iii) prior to the expiration of the term of the option.
(f) Prior Outstanding ISOs.
(i) ISOs Granted Prior to January 1, 1987. With respect to ISOs
granted prior to January 1, 1987, no ISO shall be exercisable in whole or in
part while there is outstanding any ISO to purchase Shares in the Company
or any of its parents or subsidiaries, or in any predecessor corporation of the
Company or parent or subsidiary of such predecessor. For purposes of this
subparagraph (i), an ISO shall be deemed to be outstanding until it is exercised
in full or expires by reason of the lapse of time.
(ii) ISOs Granted After December 31, 1986. With respect to ISOs
granted after December 31, 1986, the sequential exercise rule stated in
subparagraph (i) above is eliminated in all respects. ISOs thus granted need
not be exercised in the order granted, and any ISOs granted prior to January
1, 1987 shall not prevent the exercise, in any order, of any ISOs granted after
December 31, 1986.
(g) Termination of Employment. An option shall be exercisable during the
lifetime of the optionee to whom it is granted only if, at all times during the
period beginning on the grant date of the option and ending on the day 30 days
before the date of such exercise, he or she is an employee of the Company or its
parent or any of its subsidiaries, or an employee of a corporation or a parent
or subsidiary of such corporation issuing or assuming an option granted
hereunder in a transaction to which Section 425(a) of the Code applies, subject
to the following exceptions: (i) in the case of an optionee who is disabled
within the meaning of Section 22(e)(3) of the Code, the 30-day period after
cessation of employment during which an option shall be exercisable shall be one
year; and (ii) with respect to NQSOs, the Committee shall have the discretion
to extend from 30 days to one year the period following an optionee's
termination of employment during which time the optionee may exercise his or her
NQSOs that are otherwise exercisable as of the date of such termination.
However, notwithstanding the foregoing, no option shall be exercisable after the
expiration of its term. For purposes of this subsection, an employment
relationship will be treated as continuing intact while the optionee is on
military duty, sick leave or other bona fide leave of absence, such as temporary
employment by the government, if the period of such leave does not exceed 30
days, or, if longer, so long as a statute or contract guarantees the optionee's
right to re-employment with the Company, its parent or any of its subsidiaries,
or another corporation issuing or assuming an option granted hereunder in a
transaction to which Section 425(a) of the Code applies. When the period of
leave exceeds 30 days and the individual's right to re-employment is not
guaranteed either by statute or by contract, the employment relationship will be
deemed to have terminated on the 31st day of such leave.
(h) Anti-Dilution Provisions. The aggregate number and kind of Shares
available for options under the Plan, and the number and kind of Shares subject
to, and the option price of, each outstanding option shall be proportionately
adjusted by the Committee for any increase, decrease or change in the total
outstanding shares of the Company resulting from a stock dividend, recapital-
ization, merger, consolidation, split-up, combination, exchange of shares or
similar transaction (but not by reason of the issuance or purchase of shares by
the Company in consideration for money, services or property).
(i) Power to Establish Other Provisions. Options granted under the Plan
shall contain such other terms and conditions as the Committee shall deem
advisable, subject, in the case of ISOs, to the provisions of Section 422 of the
Code and the regulations promulgated thereunder.
5. Exercise of Option. Options shall be exercised as follows:
(a) Notice and Payment. Each option, or any installment thereof, shall
be exercised, whether in whole or in part, by giving written notice to the
Company at its principal office, specifying the number of Shares purchased and
the option price being paid, and accompanied by the payment of the applicable
option price in cash, by certified or bank check payable to the order of the
Company, or, at the discretion of the Committee, by tendering shares of the
Company's Common Stock already owned by the optionee (provided, however, that
the optionee shall have owned such shares for at least six months). To the
extent that the Committee permits payment of the option price through the tender
of Common Stock already owned by the optionee, the fair market value of the
shares of Common Stock tendered shall be determined by reference to the Closing
Price quoted for the Company's Common Stock as of the close of business on the
date on which the Company receives notice of the optionee's exercise of an
option. Each such notice shall also contain representations on behalf of the
optionee that he or she acknowledges that the Company is selling the Shares to
him or her under a claim of exemption from registration under the Securities Act
of 1933, as amended (hereinafter referred to as the "Act"), as a transaction not
involving any public offering; that he or she represents and warrants that he or
she is acquiring such Shares with a view to "investment" and not with a view to
distribution or resale; and that he or she agrees not to transfer, encumber or
dispose of the Shares unless: (i) a registration statement with respect to the
Shares shall be effective under the Act, together with proof satisfactory to the
Company that there has been compliance with applicable state law; or (ii) the
Company shall have received an opinion of counsel in form and content
satisfactory to the Company to the effect that the transfer qualifies under
Rule 144 or some other disclosure exemption from registration and that no
violation of the Act or applicable state laws will be involved in such transfer,
and/or such other documentation in connection therewith as the Company's counsel
may in its sole discretion require.
(b) Issuance of Certificates. Certificates representing the Shares
purchased by the optionee shall be issued as soon as practicable after the
optionee has complied with the provisions of paragraph 5(a) hereof.
(c) Rights as a Shareholder. The optionee shall have no rights as a
shareholder with respect to the Shares purchased until the date of the issuance
to him or her of a certificate(s) representing such Shares.
(d) Disposition of Shares Received Pursuant to Exercise of an ISO.
Subject to the provisions of paragraph 5(a) hereof, to obtain ISO tax treatment
under the Code, an optionee can make no disposition, within the meaning of
Section 425(c) of the Code, of Shares acquired by the exercise of an ISO within
two years from the date of the grant of the ISO or within one year following the
optionee's exercise of the ISO; provided, however, that the foregoing holding
periods shall not apply to the disposition of Shares after the death of the
optionee by the estate of the optionee, or by a person who acquired the Shares
by bequest or inheritance or otherwise by reason of the death of the optionee.
For purposes of the preceding sentence, in the case of a transfer of Shares by
an insolvent optionee to a trustee, receiver or similar fiduciary in any
proceeding under Title 11 of the United States Code or any similar insolvency
proceeding, neither the transfer, nor any other transfer of such Shares for the
benefit of his or her creditors in such proceeding, shall constitute a
disposition.
(e) Tax Withholding Matters. With respect to the exercise of an NQSO
hereunder, no later than the date as of which any amount first becomes
includible in an optionee's gross income for income tax purposes, the optionee
shall pay to the Company, or make arrangements satisfactory to the Company
regarding the payment of, any federal, state or local taxes of any kind required
by law to be withheld or paid with respect to such income. The Company's
obligations under this Plan shall be conditional on such payment or arrangements
and the Company shall, to the extent permitted by law, have the right to deduct
the amount of any such tax obligations from any payment of any kind otherwise
due the optionee.
6. Term of Plan. Options may be granted pursuant to this Plan from time
to time within a period of ten years after the date it is adopted by the Board
of Directors of the Company or the date it is approved by the holders of a
majority of the outstanding shares of the Company, whichever date is earlier.
However, the Plan shall not take effect until approved by the holders of a
majority of the outstanding shares of the Company, at a duly constituted meeting
thereof, held within 12 months before or after the date the Plan is adopted by
the Board of Directors.
7. Amendment and Termination of Plan. Without further approval of the
shareholders of the Company, the Board of Directors or the Committee may at any
time suspend or terminate the Plan, or, subject to the terms hereof, may amend
it from time to time in any manner; provided, however, that no amendment shall
be effective without the prior approval of the shareholders of the Company that
would: (i) except as provided in paragraph 4(h) hereof, increase the maximum
number of Shares for which options may be granted under the Plan; or (ii) change
the eligibility requirements for individuals entitled to receive options under
the Plan.
8. Administration. The Plan shall be administered by the Committee, and
decisions of the Committee concerning the interpretation and construction of any
provisions of the Plan or of any option granted pursuant to the Plan shall be
final. The Company shall effect the grant of options under the Plan in
accordance with the decisions of the Committee, which may, from time to time,
adopt rules and regulations for the carrying out of the Plan. For purposes of
the Plan, an option shall be deemed to be granted when a written Stock Option
Contract is signed on behalf of the Company by its duly authorized officer or
representative. Subject to the express provisions of the Plan, the Committee
shall have the authority, in its discretion and without limitation: to
determine the individuals to receive options; the times when such individuals
shall receive options; the number of Shares to be subject to each option; the
term of each option; the date each option shall become exercisable; whether an
option shall be exercisable in whole, in part, or in installments; the number of
Shares to be subject to each installment; the date each installment shall become
exercisable; the term of each installment; the option price of each option; the
terms of payment for Shares purchased by the exercise of each option; to
accelerate the date of exercise of any installment; and to make all other
determinations necessary or advisable for administering the Plan. The Plan, all
options granted and all actions taken hereunder shall be governed by and
construed in accordance with the laws of the State of Delaware.
9. Reservation of Shares. The Company shall be under no obligation to
reserve Shares to fill options. Likewise, because of the substantial nature of
the conditions which must be met to entitle eligible employees to deliveries of
reserved Shares, the Company shall be under no obligation to reserve Shares
against such deliveries. The optioning and reservation of Shares for employees
hereunder shall not be construed to constitute the establishment of a trust of
the Shares so optioned and reserved, and no particular Shares shall be
identified as optioned and reserved for employees hereunder. The Company shall
be deemed to have complied with the terms of the Plan if, at the time of the
issuance and delivery pursuant to option or reservation, or both, it has a
sufficient number of Shares authorized and unissued or held in its treasury for
the purposes of the Plan, irrespective of the date when such Shares were
authorized.
10. Application of Proceeds. The proceeds of the sale of Shares by the
Company under the Plan will constitute general funds of the Company and may be
used by the Company for any purpose.
EXHIBIT 10-10
Mr. Richard T. Aab
Chairman & CEO
ACC Corp.
39 State Street
Rochester, New York 14614 CONFIDENTIAL
March 22, 1994
Dear Rick:
We are pleased to hereby confirm terms of an agreement between ACC Corp.
("ACC" or the "Company", which terms shall include all ACC Subsidiaries) and
Gagan, Bennett & Co., Inc. ("GBC"), whereby GBC is engaged to act as
investment banking advisor to the Company.
I. RESPECTIVE ROLES
GBC will act as exclusive advisor to the Company and will assist the
Company in the financial evaluation and negotiation of any potential sale or
merger transaction, and will further assist the Company on an exclusive basis
if it is determined that additional parties should be contacted or responded
to regarding the possible sale or merger of the Company.
GBC will also consider the proposed terms and price of a proposed
transactions(s) from a financial point of view for fairness as part of this
engagement. GBC gives no assurance that it will opine favorably or
unfavorably on any proposed transaction. GBC will study proposed
transactions(s) and deliver its opinion of an offer(s) in writing and be
available to the board to review its opinion as necessary.
GBC will also assist ACC by asking all interested parties to sign
Confidentiality Agreements (which ACC will provide) and will discuss detailed
information which might be considered confidential only when Confidentiality
Agreements have been signed or when otherwise approved by ACC. GBC will also
treat all detailed information as confidential and use it only in the course
of performing its services under this agreement.
ACC shall provide GBC with full and complete access to all properties
and records. ACC will also provide copies of documents describing ACC and its
operations to other qualified third parties, if it is determined that ACC
wishes to consider possible offers from such parties. The scope and cost of
such documentation shall be subject to the prior consent of ACC, which ACC
shall not unreasonably withhold. ACC will readily provide, though, copies of
its publicly filed financial statements, plus brochures and other relevant
promotional or disclosure documents as needed to GBC and other third parties.
Lastly, ACC agrees to provide accurate and complete information to GBC and to
all other companies or parties which would be necessary for all the parties to
form complete and fully informed judgements.
II. FEES
ACC hereby agrees to pay (or to cause an acquiring or merging party to
pay) a fees to GBC at closing of $225,000. From this amount, to the extent
previously paid, will be deductible: 1) a $25,000 retainer payable upon the
signing of this agreement, and 2) a $100,000 fee payable upon the delivery of
a written fairness opinion from GBC.
III. EXPENSES
ACC hereby agrees to pay all reasonable documented out-of-pocket
expenses when invoiced whether any transaction closes or not. Such expenses
might include travel, lodging, courier and postage services, documents
retrieval services, copying, and off-site meeting facility rentals. Any GBC
legal expenses will be reviewed with ACC before incurrence, but will also be
reimbursable to GBC, so long as ACC does not unreasonably withhold its
approval of the need and likely costs of such legal expenditures.
IV. DISCLOSURE
No opinion letters, financial data, market data, description or
memoranda or other documentation rendered by GBC pursuant to this agreement
may be disclosed publicly or to any third party in any manner without first
reviewing such disclosure with GBC and obtaining GBC's written approval, which
shall not be unreasonably withheld.
V. ANNOUNCEMENT
If a transaction is consummated, GBC may place an announcement in
newspapers or periodicals at GBC's own expense stating that GBC acted as an
advisor to the Company.
VI. INDEMNIFICATION
The Company agrees to indemnify and hold harmless GBC and its directors,
officers, and employees against any and all claims, damages, losses,
liabilities, costs and expenses related to or arising out of the engagement of
GBC by the Company pursuant to the terms hereof, or in connection therewith,
and the Company will reimburse GBC in connection with investigating, preparing
or defending any such action or claim, whether or not in connection with
pending or threatened litigation in which GBC is a party or potential party.
The Company will not, however, be responsible for any claims, liabilities,
losses, damages or expenses that have been judicially determined to have been
caused by GBC's bad faith or gross negligence. The foregoing shall be in
addition to any rights that GBC or any indemnified party may have at common
law or otherwise, including, but not limited to, contribution.
Promptly after the receipt by GBC or notice of any claim, action, suit,
proceeding or investigation with respect to which GBC may claim
indemnification under this agreement, GBC shall provide written notice thereof
to ACC. Thereafter, ACC shall be entitled to assume the defense of any such
claim, action, suit, proceeding or investigation with counsel reasonably
satisfactory to GBC. After written notice from ACC to GBC of its election to
assume the defense thereof, ACC shall not be liable to GBC for any legal
expenses or fees of other counsel or any other expense incurred by GBC, in
connection with the defense thereof after such date, except as provided below
and in the next paragraph of this agreement. GBC shall cooperate fully with
ACC in the defense of any such claim, action, suit, proceeding, or
investigation. Notwithstanding an election by ACC to assume defense, GBC
shall have the right to employ separate counsel and to participate in, but not
control, the defense of such claim, action, suit, proceeding or investigation
and ACC shall bear the reasonable fees and expenses of such separate counsel
(provided that with respect to any single claim, action, suit, proceeding or
investigation, ACC shall not be required to bear the fees and expenses of more
than one such counsel in any single jurisdiction) if (i) the use of counsel
chosen by ACC to represent GBC would present a conflict of interest in the
reasonable determination of such counsel of (ii) the defendants in, or target
of, any such claim, action, suit, proceeding or investigation include both GBC
and ACC, and GBC has reasonably concluded that there may be legal defenses
available to it which differ from or are in addition to those available to
ACC. ACC shall not be liable for any settlement of any such claim, action,
suit, proceeding or investigation, effected by GBC without the written prior
consent of ACC, which consent will not be unreasonably withheld.
After the closing of a transaction or the termination of this agreement,
to the extent GBC is requested by ACC to, or otherwise required to attend or
participate in shareholder meetings, regulatory or other hearings,
depositions, investigations, preparatory meetings, or other like sessions
relating to services provided or transactions proposed or closed which have
been, rightfully or wrongly, connected with this engagement, ACC will be
responsible to pay, when invoiced, GBC's out-of-pocket expenses and $500 per
day for any day within which we appear at or participate in such sessions.
VII. GOVERNING LAW
This agreement will be governed by and construed in accordance with the
laws of the State of New York.
IX. TERMINATION
The Company may terminate this agreement at any time for any reason upon
written ten day notice. Regardless of termination, however, GBC will retain
the right to indemnification and the related provisions; fees payable or fees
to be due for any sale or merger transactions which are agreed to in a
definitive purchase and sale or merger agreement before termination or which
close prior to March 1, 1995 with any corporate party with whom discussions
were held during our engagement; and any unpaid expenses (through the
termination date.)
If the foregoing meets with your understanding and approval, please sign
and date this letter in the space provided below, whereupon this letter shall
constitute a binding agreement.
Sincerely,
Gagan, Bennett & Co., Inc.
By: /s/Hugh F. Bennett
Hugh F. Bennett, Director
Accepted and Agreed
to this _____ day
of March, 1994
ACC CORP.
By: ___________________________
Richard T. Aab
Chairman & CEO
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER
31, 1993
REVENUE
Toll revenue for the year ended December 31, 1994 increased by 17.6%
to $118.3 million from $100.6 million in 1993. This increase was due to the
continued expansion of the company's university program in the U.S., Canada,
and the U.K., and growth in both the commercial and residential customer
bases in Canada through affinity programs and expansion throughout western
Canada. At December 31, 1994, the company had approximately 200,000
customers compared to approximately 98,000 at December 31, 1993, an increase
of more than 100%.
Billable long-distance minutes, which are a measure of the company's
volume, increased 29.3% to 883 million for the year ended December 31, 1994
from 683 million minutes in 1993. This increase reflects the success of the
company's sales and marketing programs in all geographic areas, particularly
in Canada and the U.K. However, the rate of growth of billable minutes is
higher than the rate of growth of toll revenue due to declining prices, on a
per minute basis, in the Canadian long-distance marketplace attributable to
increased competition. The company believes that prices will continue to
decline slightly in 1995.
For the year ended December 31, 1994, leased lines and other revenue
increased by 52.8% to $8.1 million from $5.3 million in 1993. This increase
was due to growth in data line sales in Canada as well as increased local
service revenue generated through the University Program in the U.S.
The following chart shows the total revenue contribution from each of
the company's operating units (net of intercompany) as well as billable long
distance minutes (in 000's):
Year ended December 31,
Percent Percent
Total revenue 1994 of Total 1993 of Total
United States $54,599 43.2% $45,150 42.6%
Canada 67,728 53.6% 60,643 57.2%
United Kingdom 4,117 3.2% 153 .2%
Total $126,444 100% $105,946 100%
Billable voice minutes
United States 445,619 50.5% 378,778 55.5%
Canada 422,149 47.8% 304,295 44.5%
United Kingdom 15,225 1.7% --- ---
Total 882,993 100% 683,073 100%
The following chart shows the breakout of customers by type for each
operating unit as of December 31, 1994:
U.S. CANADA U.K.
Commercial 6,872 16,940 794
Residential 19,979 53,103 517
Student 59,213 33,492 9,556
Totals: 86,064 103,535 10,867
OPERATING EXPENSES
Network costs increased to $79.4 million for the year ended December
31, 1994, from $70.3 million in 1993, due to the increase in billable long
distance minutes. Network costs, as a percentage of revenue, decreased to
62.8% for the year ended December 31, 1994 from 66.3% in 1993 due to the
company's increasingly efficient utilization of its leased facilities through
economies of scale, reduced contribution rates in Canada, and a more favorable
mix of traffic from increased residential and student usage during off peak
hours.
The following chart shows revenue and cost, on a per minute basis,
for each operating unit, for the year ended December 31, 1994:
U.S. CANADA U.K.
Toll revenue per
billable minute $0.115 $0.149 $0.268
Cost per billable
minute $0.070 $0.116 $0.177
Depreciation and amortization expense increased to $9.0 million for
the year ended December 31, 1994 from $5.8 million in 1993. This increase
was primarily attributable to assets placed in service in the fourth quarter
of 1993 and the first three quarters of 1994 related to the company's
continued expansion of its network throughout Canada, the installation of
switching centers in Vancouver, British Columbia, Syracuse, New York, and
London, England, and increased on-site equipment at universities in the U.S.
Expressed as a percentage of revenue, these costs increased to 7.1% in 1994
from 5.5% in 1993, reflecting the "up front" cost of installing equipment in
these locations in anticipation of billable minute volume growth.
Selling expenses for the year ended December 31, 1994 were $15.0
million compared with $9.1 million in 1993. This increase of 64.8% was
primarily attributable to increased marketing costs and sales commissions
associated with the rapid growth of the company's operations in Canada and in
the U.K. During the year ended December 31, 1994, the company added
over 100,000 customers compared to approximately 46,000 added in
1993. The total costs of the marketing effort related to these customers are
reflected in the results for the year while the revenue generated by the
majority of these customers (universities and students) did not begin until
the end of the third quarter corresponding to the beginning of the fall
semester for most colleges and universities.
Expressed as a percentage of revenue, selling expenses were 11.9% for
the year ended December 31, 1994 compared to 8.6% in 1993. This increase was
primarily attributable to aggressively expanding the company's marketing
territory into western Canada by constructing a switching center in
Vancouver, British Columbia; opening sales offices in Calgary, Alberta and
Winnipeg, Manitoba; and the start-up of a nationwide marketing campaign in the
U.K. during the second half of 1994.
General and administrative expenses for the year ended December 31,
1994 were $29.2 million compared with $19.7 million in 1993. This increase of
48.2% was primarily attributable to increased personnel costs and customer
service costs associated with the growth of the company's customer bases in
each country. Also included in general and administrative expenses for the
year ended December 31, 1994 was approximately $3.0 million in start-up costs
related to the company's entry into the local service market sector in New
York State which occurred during the fourth quarter of 1994. Expressed as a
percentage of revenue, general and administrative expenses were 23.1% for the
year ended December 31, 1994 compared to 18.6% in 1993.
SPECIAL CHARGES
During the third quarter of 1994, the company initiated the process of
converting its network to equal access for its Canadian customers. Costs
associated with this process included maintaining duplicate network
facilities during transition, recontacting customers and the administrative
expenses associated with accumulating the data necessary to convert the
company's customer base to equal access. The company believes that equal
access will allow it to reach a broader range of customers at a lower cost
due to the elimination of autodialers and access codes. This process was
completed during the fourth quarter of 1994 at a total cost of $2.2 million,
which has been reflected as a charge to income from operations for the year
ended December 31, 1994.
OTHER INCOME (EXPENSE)
Net interest expense increased to $1.9 million for the year ended
December 31, 1994, compared to $0.2 million in 1993, due primarily to the
company's borrowings on lines of credit throughout 1994.
On March 21, 1994, the company announced that it had signed a letter
of intent to merge with LDDS Communications, Inc. (LDDS). While the company
and LDDS were negotiating the terms of the definitive agreement, there were
significant decreases in the market prices of the common stock of both
companies that changed the economics of the transaction in such a way that
made it necessary to reevaluate the terms of the proposed share exchange.
The company and LDDS could not come to an agreement on this issue and
terminated negotiations. The company had accumulated $0.2 million in
expenses related to this transaction which it wrote off as terminated merger
costs in 1994.
Foreign exchange gains and losses reflect changes in the value of
Canadian and British currencies relative to the U.S. dollar for amounts lent
to these foreign subsidiaries. Foreign exchange rate changes resulted in a
net gain of $0.2 million for the year ended December 31, 1994, compared to a
$1.1 million loss in 1993 due to the company's program of hedging against
foreign currency exposures for intercompany indebtedness which began at the
end of 1993.
During 1994, the company increased its income tax provision to
provide for a valuation allowance equal to 100% of the amount of the company's
foreign tax benefits which had been recorded at December 31, 1993. These
benefits had been accrued based on the company's history of profitability
in Canada. However, given the magnitude of the Canadian subsidiary's losses
for 1994, the company believes that a valuation allowance is necessary to
reflect the uncertainty of recognizing the income tax benefit of those losses
in the future.
Minority interest in loss of consolidated subsidiary reflects the
portion of the company's Canadian subsidiary's income or loss attributable to
the approximately 30% of that subsidiary's common stock that is publicly
traded in Canada. For the year ended December 31, 1994, minority interest in
loss of consolidated subsidiary increased to $2.4 million from $1.7 million in
1993 due to the increase in net losses generated by ACC TelEnterprises in
1994 when compared to 1993.
During the third quarter of 1993, the company recorded a gain of
$11.5 million, net of taxes, from the sale of the operating assets and
liabilities of its cellular subsidiary, Danbury Cellular Telephone Co. The
operating loss from these operations was $1.3 million for the year ended
December 31, 1993.
The company's net loss for the year ended December 31, 1994 was
$11.3 million compared to net income of $11.9 million in 1993. The 1994 net
loss is the result of the implementation of equal access in Canada, expansion
into new markets in Canada, start-up costs related to the U.K. and local
telephone service in the U.S., and the recording of the valuation allowance
against deferred tax benefits. The 1993 net income was primarily attributable
to the gain on the sale of the company's cellular assets.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO THE YEAR ENDED DECEMBER
31, 1992
REVENUE
Toll revenue for the year ended December 31, 1993 increased by 27.4%
to $100.6 million from $79.0 million in 1992, while billable long distance
minutes increased 43.8% to 683 million minutes in 1993 from 475 million
minutes in 1992. These increases were primarily due to the growth of the
company's Canadian operations and to the continued expansion of the company's
university program in the U.S.
Leased lines and other revenue increased 96.9% in fiscal 1993 to
$5.3 million, compared to $2.7 million for the prior year, due to growth in
data line sales in Canada as well as increased local service revenue generated
through the U.S. university program.
The following chart shows the total revenue contribution from each of
the company's operating units, as well as billable long distance minutes
(000's):
Year ended December 31,
Percent Percent
1993 of Total 1992 of Total
Total revenue
United States $45,150 42.6% $39,278 48.1%
Canada 60,643 57.2% 42,402 51.9%
United Kingdom 153 .2% --- ---
Total $105,946 100% $81,680 100%
Billable voice minutes
United States 378,778 55.5% 305,400 64.3%
Canada 304,295 44.5% 169,600 35.7%
United Kingdom --- --- --- ---
Total 683,073 100% 475,000 100%
The following chart shows the breakout of customers by type for each
operating unit as of December 31, 1993:
U.S. CANADA U.K.
Commercial 5,841 10,538 ---
Residential 12,172 23,266 ---
Student 32,274 11,809 2,500
Totals: 50,287 45,613 2,500
OPERATING EXPENSES
Network costs increased 34.4%, to $70.3 million in 1993 from $52.3
million in 1992. This increase was related to the company's increased
overall growth in long distance toll revenue and billable long distance
minutes. Network costs as a percentage of revenue were 66.3% in 1993
compared to 64.0% in 1992. This increase was indicative of the higher costs
associated with the growing Canadian operations. Beginning in the fourth
quarter of 1992, the company was required to pay an increased level of
contribution charges for access lines leased in Canada. While the rate of
these charges was reduced somewhat during the second quarter of 1993, their
effect for the year ended December 31, 1993 was to increase network costs by
approximately $5.3 million from 1992.
The following chart shows revenue and cost, on a per minute basis,
for each operating unit for the year ended December 31, 1993:
U.S. CANADA
Toll revenue per billable minute $0.115 $0.187
Cost per billable minute $0.070 $0.134
Depreciation and amortization expense increased to $5.8 million in
1993 from $3.9 million in 1992. This increase was primarily attributable to
equipment related to the company's continued expansion of its network
throughout Canada, increased on-site equipment at universities in the U.S.
and the amortization of customer bases acquired throughout 1992 and 1993.
Selling expenses increased 279.2% to $9.1 million for the year ended
December 31, 1993, compared to $2.4 million in 1992. This increase was
primarily attributable to the increased marketing costs associated with the
initial rollout of the Canadian residential sales program in 1993. As a
percentage of revenue, selling expenses were 8.6% in 1993 compared to 2.9% in
1992.
General and administrative expenses increased 13.8% to $19.7 million
for the year ended December 31, 1993 compared to $17.3 million in 1992. This
increase was primarily attributable to $1.4 million of expenses incurred in
1993 related to the start-up of operations in the U.K. and the company's
expansion in Canada. As a percentage of revenue, general and administrative
expenses were 18.6% in 1993 compared to 21.1% in 1992.
SPECIAL CHARGES
During the third quarter of 1993, the company wrote down the value of
various assets by approximately $12.8 million. Included in this charge were
the write-down of intangibles (customer bases and goodwill), organization
costs of past acquisitions including receivables associated with the
acquisitions, revaluation of dialer and station equipment in preparation for
equal access in Canada, and a revaluation of the company's 180-mile microwave
system. This write-down was included as a charge to income from operations
for the year ended December 31, 1993.
OTHER INCOME (EXPENSE)
Interest income decreased to $0.2 million in 1993 from $0.3 million
in 1992, due primarily to reduced operating cash flow from long distance
operations, offset somewhat by the investment of the proceeds of the company's
sale of its cellular operations.
Interest expense increased to $0.4 million in 1993 compared to $0.2
million in 1992, due primarily to short-term borrowings during the first half
of 1993 used to finance the company's university program in the U.S.
During the third quarter of 1993, the company completed an initial
public offering of common stock of ACC TelEnterprises Ltd. in Canada. The
company sold approximately 30% of this subsidiary's common stock to the public
for approximately $22.0 million (Can.). This resulted in a net gain of
$9.3 million (U.S.), after expenses related to the offering. The company
does not anticipate additional offerings of this stock in the near term.
Foreign exchange loss for 1993 was approximately $1.1 million,
including $0.8 million due to the repayment of intercompany debt to the U.S.
parent company, using the proceeds of ACC TelTenterprises Ltd.'s public
offering. The loan had previously been considered of a long-term investment
nature. The remaining $0.3 million in losses resulted from the normal
recurring operations of the company. There were no material foreign exchange
gains or losses in 1992.
The company recognized an income tax benefit in 1993 of $3.7 million
compared to an income tax provision of $2.3 million in 1992. The benefit
recognized in 1993 is primarily attributable to the assets written down during
the third quarter of 1993. Additionally, no deferred taxes were provided on
the gain on sale of subsidiary stock due to the company's ability to defer
taxable income on this transaction indefinitely. The company adopted the
provisions of Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" in 1993. The effect of adopting this statement was
immaterial to the company's financial statements.
During the third quarter of 1993, the company recorded a gain of
$11.5 million, net of taxes, from the sale of the operating assets and
liabilities of its cellular subsidiary, Danbury Cellular Telephone Co. The
operating loss from these operations was $1.3 million in 1993 compared to
$1.7 million in 1992.
The company's net income was $11.9 million for fiscal 1993 compared to
$1.9 million in fiscal 1992. This increase was primarily attributable to the
gains on the sale of cellular operations and the sale of subsidiary stock,
which were offset somewhat by the write-down of assets and foreign exchange
losses recorded in 1993.
MERGER OF LOCAL EXCHANGE SUBSIDIARY
In October, 1994, the company signed a letter of intent to merge its
local exchange subsidiary, ACC National Telecom Corp., with US ONE
Communications Corp. ("US ONE"). ACC will own 30 percent of the common stock
of the newly formed entity. In return for its 30% ownership, the company
will contribute its upstate New York local exchange operations including
regulatory approvals, a switching center in Syracuse, New York, and its
existing local service customers. The company will also provide the
surviving entity with a line of credit of $3.5 million. The merger, which
is subject to US ONE acquiring equity capital and regulatory approval, is
expected to close during the first half of 1995.
ACC National Telecom Corp. is currently generating operating losses
of approximately $0.5 million per quarter which will be eliminated once the
merger is completed. Subsequent to the merger, the company will reflect 30%
of the net income or loss of US ONE as a non-operating item in its financial
statements. The company anticipates that US ONE will have significant start
up losses in 1995, however, the company will only recognize losses to the
extent of its investment, which is estimated to be approximately $2.0 million
at the time of the merger.
CAPITAL RESOURCES AND LIQUIDITY
To date, the bulk of the company's working capital needs have been
met through funds generated from operations and from the company's
lines of credit. In addition, the company has used the proceeds from the
public offering of ACC TelEnterprises Ltd. common stock and the sale of its
cellular operations, both in 1993, to fund the expansion of its operations in
Canada and the U.K., respectively.
The company's principal need for working capital is to meet its
selling, general and administrative expenses as its business expands. In
addition, the company's resources have been used for asset additions,
customer base acquisitions and the payment of dividends to its shareholders.
Capital expenditures for fiscal 1994 were approximately
$20.7 million. Major capital expenditures in 1994 included the installation
of switching centers in London, England, Vancouver, British Columbia, and
Syracuse, New York. The company has also upgraded many of its existing
switching centers and installed telephone PBX equipment and cable at various
universities in exchange for long-term contracts.
The company has various credit arrangements with banks consisting of
lines of credit, equipment loans, and leasing arrangements. At December 31,
1994, the company had total borrowing capacity of $30.0 million from lines of
credit, of which $26.6 million was outstanding, $0.2 million was reserved for
letters of credit, and $3.2 million was available.
Subsequent to December 31, 1994, the company obtained a commitment
letter from a group of banks to enter into a financing agreement to convert
its demand lines of credit into a $30.0 million term line of credit bearing
an interest rate of prime plus one and one-half percent which expires on
April 1, 1996. In accordance with the provisions of Financial Accounting
Standards Board Statement No. 6, the outstanding lines of credit borrowings
at December 31, 1994, under the agreements in effect as of that date, are
included as a component of long-term debt. At December 31, 1994, after the
classification of the lines of credit to long-term status, the company had a
working capital deficit of approximately $2.5 million. Outstanding
borrowings are collateralized by certain assets of the company and the proposed
financing agreement contains certain financial covenants. While the company
believes its cash flow from operations and this new financing are sufficient
to meet the cash requirements of its current operations for at least the
next twelve months, the company must obtain additional financing in order
to grow at its historic rates and achieve its long-term objectives. The
company is currently negotiating with several entities to obtain additional
long-term debt and/or equity financing to support this future growth.
<TABLE>
ACC CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in 000's except share and per share data)
<CAPTION>
December 31, December 31,
1994 1993
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,021 $1,467
Restricted cash 272 798
Accounts receivable, net of allowance
for doubtful accounts of $1,035 in
1994 and $1,008 in 1993 20,499 16,005
Other receivables 5,433 2,307
Prepaid and other assets 1,124 1,900
Total current assets 28,349 22,477
Property, plant and equipment:
At cost 62,618 39,482
Less-accumulated depreciation and
amortization (18,537) (12,406)
44,081 27,076
Other assets:
Restricted cash 157 1,807
Goodwill and customer base 6,884 5,318
Deferred installation costs, net 1,639 1,536
Other 3,642 3,504
12,322 12,165
Total assets $84,752 $61,718
Current liabilities:
Lines of credit $ __ $1,500
Current maturities of
long-term debt 1,613 924
Accounts payable 10,498 2,737
Accrued network costs 10,443 8,883
Other accrued expenses 8,053 5,527
Dividends payable 208 3,619
Total current liabilities 30,815 23,190
Deferred income taxes 3,675 1,356
Long-term debt 29,914 1,796
Minority interest 1,262 3,870
Shareholders' equity:
Common stock, $.015 par value
Authorized-50,000,000 shares
Issued-7,652,601 in 1994 and
7,537,472 in 1993 115 113
Capital in excess of par value 20,070 19,557
Cumulative translation adjustment (1,013) (565)
Retained earnings 1,524 13,684
20,696 32,789
Less-
Treasury stock, at cost (726,589 shares
in 1994 and 710,048 in 1993) (1,610) (1,283)
Total shareholders' equity 19,086 31,506
Total liabilities and
shareholders' equity $84,752 $61,718
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN 000'S, EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
For the Years Ended December 31, 1994 1993 1992
<S> <C> <C> <C>
REVENUE:
Toll revenue $118,331 $100,646 $78,988
Leased lines and other 8,113 5,300 2,692
126,444 105,946 81,680
OPERATING EXPENSES:
Network costs 79,438 70,286 52,314
Depreciation and amortization 8,966 5,832 3,919
Selling expenses 15,032 9,128 2,409
General and administrative 29,196 19,679 17,250
Equal access costs 2,160 - -
Asset write-down - 12,807 -
134,792 117,732 75,892
Income (loss) from operations (8,348) (11,786) 5,788
OTHER INCOME (EXPENSE):
Interest income 124 205 276
Interest expense (1,989) (420) (197)
Terminated merger costs (200) - -
Gain on sale of subsidiary stock - 9,344 -
Foreign exchange gain (loss) 169 (1,094) -
(1,896) 8,035 79
Income (loss) from continuing operations
before provision for (benefit from) income taxes
and minority interest (10,244) (3,751) 5,867
PROVISION FOR (BENEFIT FROM) INCOME TAXES 3,456 (3,743) 2,267
Minority interest in loss of
consolidated subsidiary 2,371 1,661 -
Income (loss) from continuing operations (11,329) 1,653 3,600
Loss from discontinued operations (net of income tax benefit
of $667 in 1993 and $878 in 1992) - (1,309) (1,660)
Gain on disposal of discontinued
operations (net of income tax provision
of $8,350) - 11,531 -
NET INCOME (LOSS) ($11,329) $11,875 $1,940
Net income(loss) per common and common equivalent share:
Continuing operations ($1.60) $0.24 $0.52
Discontinued operations - (0.18) (0.24)
Gain on disposal of discontinued operations - 1.64 -
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE ($1.60) $1.70 $0.28
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
Selected Consolidated Financial Data
The selected data presented below for and as of the end of each of the five
years ended December 31, 1994, 1993, 1992, 1991, and 1990 are derived from the
consolidated financial statements of the company, which statements have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports thereon. This data should be read in conjunction with the
related consolidated financial statements and notes incorporated in this report.
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENT DATA 1994 1993 1992 1991 1990
For the Years Ended December 31,
<S> <C> <C> <C> <C> <C>
Revenue $126,444 $105,946 $81,680 $51,126 $37,560
Operating expenses before asset write-down and equal
access costs 132,632 104,925 75,892 47,680 34,478
Equal access costs 2,160 - - - -
Asset write-down - 12,807 - - -
Income (loss) from operations (8,348) (11,786) 5,788 3,446 3,082
Other income (expense) (1,896) 8,035 79 (201) (246)
Income (loss) before taxes (10,244) (3,751) 5,867 3,245 2,836
Provision for (benefit from) income taxes 3,456 (3,743) 2,267 1,155 1,017
Minority interest in loss of consolidated subsidiary 2,371 1,661 - - -
Income (loss) from continuing operations (11,329) 1,653 3,600 2,090 1,819
Discontinued operations, net of tax - 10,222 (1,660) (1,197) -
Net income (loss) ($11,329) $11,875 $1,940 $893 $1,819
Net income(loss) per common
and common equivalent share:
Continuing operations ($1.60) $0.24 $0.52 $0.36 $0.35
Discontinued operations - 1.46 (0.24) (0.21) -
Net income (loss) ($1.60) $1.70 $0.28 $0.15 $0.35
Weighted average number of shares 7,068,481 7,024,925 6,882,033 5,801,769 5,181,608
CONSOLIDATED BALANCE SHEET DATA (1) 1994 1993 1992 1991 1990
as of December 31,
Current assets $28,349 $22,477 $16,251 $11,120 $6,583
Current liabilities 30,815 23,190 27,889 12,577 6,618
Net working capital deficit (2) (2,466) (713) (11,638) (1,457) (35)
Accounts receivable, net 20,499 16,005 14,104 9,540 4,800
Property and equipment, net 44,081 27,076 21,951 15,794 13,584
Total assets 84,752 61,718 45,450 29,292 22,454
Short-term debt (2) 1,613 2,424 11,525 3,071 890
Long-term debt (2) 29,914 1,796 12,747 6,111 1,805
Shareholders' equity 19,086 31,506 22,711 21,670 12,201
(1) Balance sheet data from discontinued operations is excluded
(2) Subsequent to year-end 1994, the company signed a commitment letter with its
banks to change the nature of the short-term debt to long-term. See Note 10
to Consolidated Financial Statements.
</TABLE>
<TABLE>
ACC CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN 000'S)
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($11,329) $11,875 $1,940
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,966 5,832 3,941
Deferred income taxes 5,411 (3,826) 154
Non-cash compensation - - 200
Minority interest in loss of consolidated subsidiary (2,371) (1,661) -
Gain on sale of subsidiary stock - (9,344) -
Unrealized foreign exchange loss 150 109 -
Foreign exchange loss on repayment of intercompany
debt - 760 -
Gain on disposal of discontinued operations - (11,531) -
Current income taxes on gain - (7,575) -
Loss from discontinued operations - 1,309 1,660
Asset write-down - 12,807 -
(Increase)decrease in assets:
Accounts receivable, net (5,019) (3,184) (4,767)
Other receivables (3,621) (666) 62
Prepaid and other assets 726 (1,798) (637)
Deferred installation costs (1,147) (1,037) (1,204)
Other (2,206) (961) (641)
Increase(decrease) in liabilities:
Accounts payable 7,784 (607) 1,596
Accrued network costs 1,754 738 2,224
Other accrued expenses 1,995 (3,068) 3,233
Total adjustments 12,422 (23,703) 5,821
Net cash provided by (used in) operating activities 1,093 (11,828) 7,761
Cash flows from investing activities:
Cash received from sale of discontinued operations 2,538 41,000 -
Capital expenditures, net (20,682) (17,594) (8,891)
Payments on notes receivable - 244 (72)
Acquisition of customer base (2,861) (2,786) (3,810)
Net cash provided by (used in) investing activities (21,005) 20,864 (12,773)
Cash flows from financing activities:
Net (payments) borrowings under lines of credit 25,102 (8,536) 7,761
Proceeds from long-term debt, other than lines of
credit - - 6,918
Repayment of long-term debt, other than lines of
credit (1,591) (10,286) (999)
Repurchase of minority interest (226) - -
Proceeds from issuance of common stock 189 15,815 568
Dividends paid (4,241) (816) (710)
Net cash provided by (used in) financing activities 19,233 (3,823) 13,538
Effect of exchange rate changes on cash 233 (20) 108
Net increase (decrease) in cash from continuing operations (446) 5,193 8,634
Cash used in discontinued operations - (4,080) (8,607)
Cash and cash equivalents at beginning of year 1,467 354 327
Cash and cash equivalents at end of year $1,021 $1,467 $354
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,656 $1,847 $1,136
Income taxes $280 $8,633 $331
Supplemental schedule of noncash investing activities:
Equipment purchased through capital leases $3,077 $390 $1,634
Other assets purchased with long-term debt $540 - -
Purchase of customer base with long-term debt - $942 -
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(Amounts in 000's except share and per share data)
<CAPTION>
Capital in Cumulative
Common Stock Excess of Treasury Translation Retained
Shares Amount Par Value Stock Adjustment Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 7,353,770 $110 $18,086 ($1,338) ($24) $4,837 $21,671
Stock options exercised 58,850 1 216 - - - 217
Stock grants - - 222 55 - - 277
Warrants exercised 37,500 1 274 - - - 275
Dividends ($.11 per common share) - - - - - (735) (735)
Cumulative translation adjustment - - - - (933) - (933)
Net income - - - - - 1,940 1,940
Balance, December 31, 1992 7,450,120 $112 $18,798 ($1,283) ($957) $6,042 $22,712
Stock options exercised 87,352 1 759 - - - 760
Dividends ($.62 per common share) - - - - - (4,233) (4,233)
Cumulative translation adjustment - - - - 392 - 392
Net income - - - - - 11,875 11,875
Balance, December 31, 1993 7,537,472 $113 $19,557 ($1,283) ($565) $13,684 $31,506
Stock options exercised 102,375 2 363 - - - 365
Employee stock purchase plan shares
issued 12,754 - 150 - - - 150
Repurchase of shares to exercise
options - - - (327) - - (327)
Dividends ($.12 per common share) - - - - - (831) (831)
Cumulative translation adjustment - - - - (448) - (448)
Net loss - - - - - (11,329) (11,329)
Balance, December 31, 1994 7,652,601 $115 $20,070 ($1,610) ($1,013) $1,524 $19,086
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation:
The consolidated financial statements include all accounts of ACC Corp.
(the company) and its principal operating subsidiaries, which include: ACC
Long Distance Corp., ACC TelEnterprises Ltd. (parent company of ACC Long
Distance Ltd.), ACC Long Distance UK Ltd., ACC National Telecom Corp., and
ACC Local Fiber Corp. All operating subsidiaries are wholly-owned, with the
exception of ACC TelEnterprises Ltd. (See B. below). All significant
intercompany accounts and transactions have been eliminated.
The accompanying consolidated financial statements reflect the results
of operations of acquired companies since their respective acquisition dates.
B. Sale of Subsidiary Stock:
On July 6, 1993, the company's then wholly-owned Canadian subsidiary,
ACC TelEnterprises Ltd., completed an initial public offering of 2 million
common shares for $11.00 (Can.) per share. The company received net proceeds
of approximately $20.7 million (Can.) after underwriters' fees and before other
direct costs of the offering of $1.3 million (Can.). As a result of the
offering, ACC Corp.'s ownership was reduced to approximately 70 percent.
The company recognized a gain of $9.3 million (U.S.) after related
expenses on this transaction due to the increase in the carrying amount of the
company's investment in ACC TelEnterprises Ltd. No deferred taxes have been
provided for on this gain as the company has the ability to defer the
recognition of taxable income related to this transaction indefinitely.
Minority interest represents the approximately 30 percent non-company
owned shareholder interest in ACC TelEnterprises Ltd.'s equity primarily
resulting from the 1993 public offering. Assuming the sale of subsidiary
stock occurred on January 1, 1993, then, on a pro forma basis, the minority
interest in loss of the consolidated subsidiary would have been approximately
$1.6 million for the year ended December 31, 1993. This pro forma information
has been prepared for comparative purposes only. During 1994, the company
repurchased 58,300 shares of ACC TelEnterprises Ltd. stock for approximately
$3.69 per share.
C. Revenue:
The company records as revenue the amount of communications services
rendered, as measured by the related minutes of traffic processed, after
deducting an estimate of the traffic which will neither be billed nor
collected.
D. Property, Plant, and Equipment:
The company's property, plant, and equipment consisted of the
following at December 31 (000's):
1994 1993
Equipment $53,700 $34,447
Computer Software 4,648 2,451
Other 5,270 2,584
TOTAL $62,618 $39,482
Depreciation and amortization of property, plant, and equipment is
computed using the straight-line method over the following estimated useful
lives:
Leasehold improvements Life of lease
Equipment, including assets under
capital leases 2 to 15 years
Computer software 5 to 10 years
Office equipment and fixtures 3 to 10 years
Vehicles 3 years
Equipment and computer software includes assets financed under capital
lease obligations. A summary of these assets at December 31, is as follows
(000's):
1994 1993
Cost $7,360 $4,283
Accumulated amortization (3,482) (2,797)
TOTAL $3,878 $1,486
Betterments, renewals, and extraordinary repairs that extend the life
of the asset are capitalized; other repairs and maintenance are expensed.
The cost and accumulated depreciation applicable to assets retired are removed
from the accounts and the gain or loss on disposition recognized in income.
E. Deferred Installation Costs:
Costs incurred for the installation of local access lines are
amortized on a straight-line basis over a three-year period which represents
the estimated useful life of these lines. Accumulated amortization of deferred
installation costs totaled approximately $3.3 million and $2.4 million at
December 31, 1994 and 1993, respectively.
F. Goodwill and Customer Base:
All of the company's acquisitions have been accounted for as purchases
and, accordingly, the purchase prices were allocated to the assets and
liabilities of the acquired companies based on their fair values at the
acquisition date. The excess of the purchase price over the net assets
acquired related to these acquisitions approximated $2.1 million at December
31, 1992, and was being amortized as goodwill on a straight-line basis over 10
to 20 years. Accumulated amortization of goodwill approximated $1.2 million
at December 31, 1992. During the third quarter of 1993, the company evaluated
all of its intangible assets and wrote off the remaining balance of this
goodwill as described in Note 2.
The company amortizes acquired customer bases on a straight-line basis
over 5 to 7 years. Accumulated amortization of customer base totaled $1.7
million and $0.7 million at December 31, 1994 and 1993, respectively.
The company continually evaluates its intangible assets in light of
events and circumstances that may indicate that the remaining estimated useful
life may warrant revision or that the remaining value may not be recoverable.
When factors indicate that intangible assets should be evaluated for possible
impairment, the company uses an estimate of the undiscounted cash flow over
the remaining life of the intangible asset in measuring whether that asset is
recoverable.
G. Common and Common Equivalent Shares:
Per share amounts are computed on the basis of the weighted average
number of common and common equivalent shares outstanding during the period.
Common Stock equivalents include options calculated using the treasury stock
method and warrants using the if-converted method. Fully diluted earnings
per share are not materially different from primary earnings per share.
The weighted average number of shares outstanding for the year ended December
31, is computed as follows:
1994 1993 1992
Weighted average
number outstanding:
Common shares 6,911,185 6,804,555 6,666,407
Common equivalent shares 157,296 220,370 215,626
7,068,481 7,024,925 6,882,033
All references to common and common equivalent shares have been retroactively
restated to reflect a February 4, 1993 three-for-two stock dividend.
H. Foreign Currency Translation:
Assets and liabilities of ACC TelEnterprises Ltd. and ACC Long
Distance UK Ltd., operating in Canada and the United Kingdom, respectively,
are translated into U.S. dollars using the exchange rates in effect at the
balance sheet date. Results of operations are translated using the average
exchange rates prevailing throughout the period. The effects of exchange
rate fluctuations on translating foreign currency assets and liabilities into
U.S. dollars are included as part of the Cumulative Translation Adjustment
component of Shareholders' Equity, while gains and losses resulting from
foreign currency transactions are included in net income. In 1993, the
company recognized a foreign exchange loss of approximately $0.8 million due
to the repayment of intercompany debt from its Canadian subsidiary. This
debt had previously been considered of a long-term investment nature and
gains and losses had been included in Cumulative Translation Adjustment on
the company's balance sheet.
I. Income Taxes:
The company adopted Statement of Financial Accounting Standards
(SFAS) 109 "Accounting for Income Taxes" in 1993. Deferred income taxes
reflect the future tax consequences of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each
year-end. The cumulative effect of this change was not material to the
financial statements of the company.
J. Cash Equivalents and Restricted Cash:
The company considers investments with a maturity of less than 3 months
to be cash equivalents.
Under the terms of the agreement to sell the company's cellular
operations, $2.0 million of the purchase price had been placed in an escrow
account. This amount was included in restricted cash on the company's
balance sheet at December 31, 1993 and was distributed to the company in
October, 1994.
In connection with an agreement described in Note 7, the company
had placed approximately $0.6 million in an escrow account. This amount was
included in restricted cash on the accompanying balance sheet at December 31,
1993. During 1994, approximately $0.2 million of this amount was paid to an
officer of the company. The remaining amount of $0.4 million is included on
the accompanying balance sheet at December 31, 1994.
K. Currency Forward Contracts:
The company enters into contracts to buy and sell foreign currencies
in the future in order to protect the U.S. dollar value of certain currency
positions and future foreign currency transactions. The company does not
engage in speculation. The gains and losses on these contracts are included
in income in the period in which the exchange rates change. The discounts
and premiums of the forward contracts are amortized over the life of the
contracts.
At December 31, 1994, the company had foreign currency contracts
outstanding to sell forward the equivalent of $19.0 million of Canadian
dollars and $7.9 million of pounds sterling and to buy forward the U.S.
dollar equivalent of $2.4 million of pounds sterling. These contracts mature
throughout 1995.
At December 31, 1993, the company had one foreign currency contract
outstanding to sell forward the equivalent of $7.5 million of Canadian
dollars. The aggregate fair value, based on published market exchange rates,
of foreign currency contracts at December 31, 1994 and 1993, was $22.7
million and $5.6 million, respectively.
L. Reclassifications:
Certain reclassifications have been made to previously reported
balances for 1993 and 1992 to conform to the 1994 presentation.
2. Operating Information
As shown in the accompanying consolidated financial statements, the
company has incurred a consolidated net loss from operations of approximately
$11.3 million for the year ended December 31, 1994 and has a working capital
deficit of approximately $2.5 million as of December 31, 1994 after
classification of lines of credit as long-term debt due to the company's
obtaining a commitment letter to enter into a new financing agreement
subsequent to year-end (see Note 10).
The company provides 24-hour long distance telephone service to
commercial and residential subscribers in the northeastern United States and
throughout Canada and the United Kingdom through existing communications
networks leased by the company. Service is provided to all points in the
United States, Canada, and the United Kingdom, as well as over 249 other
international destinations.
At December 31, 1994, approximately $12.0 million of the company's
telecommunications equipment was located on 25 university, college, and
preparatory school campuses in the northeastern United States. Each of these
institutions has signed agreements, with minimum terms ranging from three to
eleven years, for the provision of a variety of services by the company.
Concentrations with respect to trade receivables are limited due to
the large number of customers comprising the company's customer base and
their dispersion across many different industries and geographies.
A. Discontinued Operations:
In 1993, the company recorded a gain of $11.5 million or $1.64 per
share, net of a provision for income taxes of $8.4 million, related to the
sale of the operating assets and liabilities of its cellular subsidiary,
Danbury Cellular Telephone Co. The proceeds of the sale were approximately
$43.0 million, of which $41.0 million was received in October, 1993, with the
remaining $2.0 million to be held in escrow with payments scheduled through
April, 1995. In October, 1994, the company received $2.0 million in complete
settlement of the escrow agreement. The results of the cellular business
segment have been reported separately as discontinued operations in the
consolidated statements of income.
Summarized results of the cellular business segment are as follows
(000's):
Nine Months ended Year ended
September 30, December 31,
1993 1992
Revenue $3,891 $3,993
Loss before income taxes (1,976) (2,538)
Benefit from income taxes 667 878
Net loss ($1,309) ($1,660)
The results of the cellular business segment for the nine months ended
September 30, 1993 included approximately $0.8 million of corporate interest
expense related to that segment.
B. Asset Write-Down:
In 1993, the company recorded a non-cash pretax charge of $12.8
million related to write-downs of certain assets of the company's U.S. and
Canadian operations. The U.S. write-downs included goodwill, customer base,
and fixed assets. The write-down of intangibles amounted to approximately
$1.2 million. The intangibles written off resulted from the acquisition of a
number of businesses since 1985. Changes in the company's operations since
those companies were acquired, as well as an evaluation of the future
undiscounted cash flow from those acquisitions, led the company to the
conclusion that the purchased intangibles no longer had value.
The write-down of fixed assets in the U.S. totaled approximately $5.1
million which represented the excess of net book value over estimated
recoverable value for certain assets. These assets were written down due to
technological changes which made it uneconomical for the company to continue
to use these assets in the production of revenue. Included in this amount
was approximately $3.0 million of equipment related to the company's 180 mile
microwave network in New York State.
The Canadian write-down included approximately $2.8 million for
acquired customer base and accounts receivable and $3.8 million for
autodialing equipment. The write-down of the customer base and accounts
receivable was due to the future undiscounted cash flow from those
acquisitions being significantly less than originally anticipated.
The write-down of autodialing equipment reflected the excess of net
book value over estimated recoverable value for those assets as a direct
effect of the decision of the Canadian Radio-television and
Telecommunications Commission on July 23, 1993, which resulted in the
implementation, starting in July, 1994, of equal access for companies in
Canada. These assets were fully depreciated at December 31, 1994.
C. Equal Access Costs:
During 1994, the company initiated the process of converting its
network to equal access for its Canadian customers. Costs associated with
this process were approximately $2.2 million and include maintaining
duplicate network facilities during transition, recontacting customers, and
the administrative expenses associated with accumulating the data necessary
to convert the company's customer base to equal access.
D. Merger of Local Exchange Subsidiary:
In October, 1994, the company signed a letter of intent to merge its
local exchange subsidiary, ACC National Telecom Corp., with US ONE
Communications Corp. US ONE Communications will be the name of the surviving
company and the company will own 30% of the common stock of the newly
formed entity. The merger, which is subject to US ONE acquiring equity
capital and regulatory approval, is expected to close during the first half
of 1995.
In return for its 30% ownership, the company will contribute
its upstate New York local exchange operations including regulatory
approvals, a switching center in Syracuse, New York, and its existing local
service customers. The company will also provide the surviving entity with a
line of credit of $3.5 million.
3. Long-Term Debt, Lines of Credit, and Financing Arrangements
A. Long-Term Debt:
The company had the following long-term debt outstanding as of
December 31, (000's):
1994 1993
Lines of credit $26,602 $ --
Capitalized lease obligations payable in
total monthly installments of $183 including
interest rates ranging from 7% to 14%,
maturing through 1999, collateralized by
related equipment 4,925 2,134
Note payable to Agent bearing interest at 8%,
for purchase of customer base --- 586
$29,914 $1,796
Maturities of long-term debt,
including capital lease obligations,
are as follows at December 31, 1994:
YEAR AMOUNT
1995 $ 1,613
1996 28,194
1997 1,024
1998 554
1999 142
Thereafter ---
$31,527
B. Lines of Credit:
As of December 31, 1994, the company may borrow up to $30.0 million
under two separate bank-provided line of credit agreements. Subsequent to
December 31, 1994, the company obtained a commitment letter to enter into a
new financing agreement to extend its lines of credit for a period greater
than twelve months. In accordance with the provisions of Financial
Accounting Standards Board Statement No. 6, the outstanding lines of
credit borrowings at December 31, 1994 have been classified as long-term
debt.
One agreement is an unsecured working capital line for up to $15.0
million at the bank's prime rate. Outstanding principal under this line of
credit is due on demand. At December 31, 1994, the company had available
approximately $3.1 million under this line of credit. The weighted average
interest rate for borrowings during 1994 and 1993 was 7.42% and 6.49%,
respectively. This agreement is subject to at least annual renewal and is
scheduled for renewal in June, 1995.
In 1993, the company entered into a line of credit agreement with a
bank to borrow up to $11.0 million at the bank's prime rate plus 1% until the
company completed the public offering of ACC TelEnterprises Ltd. common stock
in July. The line was then reduced to $6.0 million. During 1994, this line
of credit was increased to $15.0 million. Outstanding principal under this
facility is due on demand. At December 31, 1994, the company had available
$66,000 under this line of credit. The weighted average interest rate for
borrowings during 1994 and 1993 was 7.8% and 7.0%, respectively.
These lines of credit are guaranteed by ACC Long Distance Corp.
4. Income Taxes
Effective January 1, 1993, the company changed its method of
accounting for income taxes from the deferred method to the liability method
required by SFAS No. 109, "Accounting for Income Taxes." As permitted under
the rule, prior years' financial statements have not been restated. The
cumulative effect of adopting this Statement as of January 1, 1993 was
immaterial to net income.
The following is a summary of the U.S. and non-U.S. income (loss)
from continuing operations before provision for (benefit from) income taxes
and minority interest, the components of the provision for (benefit from)
income taxes and deferred income taxes, and a reconciliation of the U.S.
statutory income tax rate to the effective income tax rate:
Income (loss) from continuing operations before provision for (benefit from)
income taxes and minority interest (000's):
1994 1993 1992
U.S. $1,301 $6,177 $4,261
Non-U.S. (11,545) (9,928) 1,606
($10,244) ($3,751) $5,867
Provision for (benefit from) income taxes (000's):
Liability Liability Deferred
Method Method Method
1994 1993 1992
Current: U.S. ($ 867) --- $1,479
Non-U.S. --- ($ 410) 410
($ 867) ($ 410) $1,889
Deferred: U.S. 1,298 (865) 38
Non-U.S. 3,025 (2,468) 340
4,323 (3,333) 378
$3,456 ($3,743) $2,267
Provision for (benefit from) deferred income taxes (000's):
Liability Liability Deferred
Method Method Method
1994 1993 1992
Difference between tax and
book depreciation and
amortization $2,178 ($2,023) $ 465
Difference between tax and
book basis of assets written
down --- (1,298) ---
Valuation allowance 6,851 603 ---
Software development costs 502 --- ---
Other temporary differences 171 (12) (87)
Net operating loss (5,379) (603) ---
$4,323 ($3,333) $378
Reconciliation of U.S. statutory income tax rate to effective income tax rate:
Liability Liability Deferred
Method Method Method
1994 1993 1992
U.S. statutory income tax rate (34.0%) (35.0%) 34.0%
Non-deductible goodwill and
customer base 1.2 20.3 0.6
Foreign income taxes,
including valuation allowance 66.6 (2.4) 3.0
Gain on sale of subsidiary
stock --- (87.2) ---
Other --- 4.5 1.1
Effective income tax rate 33.8% (99.8%) 38.7%
Deferred income tax assets and liabilities reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. At December 31, 1994, the company had unused tax benefits of
approximately $6.0 million related to non-U.S. net operating loss
carryforwards totaling $15.2 million for income tax purposes, of which $7.7
million have an unlimited life, $2.5 million expire in 2000, and $5.0 million
expire in 2001. In addition, the company had $1.5 million of deferred tax
assets related to non U.S. temporary differences. The valuation allowance
was increased by $6.9 million to approximately $7.5 million to offset the
related non-U.S. deferred tax assets due to the uncertainty of realizing the
benefit of the non-U.S. loss carryforwards.
The following is a summary of the significant components of the
company's deferred tax assets and liabilities as of December 31, 1994 (000's):
1994 1993
Deferred tax assets:
Depreciation and amortization - non U.S. $1,472 $1,330
Deferred compensation 145 204
Other non-deductible reserves and accruals 199 813
Non-U.S. operating loss carryforwards 5,982 603
Less - valuation allowance for non-U.S.
deferred tax assets (7,454) (603)
Net deferred tax assets $344 $2,347
Deferred tax liabilities:
Depreciation and amortization (3,675) (1,356)
($3,331) $991
5. Common Stock
In June, 1993, the company's shareholders approved an amendment to
the company's certificate of incorporation increasing the number of shares of
common stock the company is authorized to issue to 50 million shares.
A. Employee Stock Option Plan:
In October, 1994, the company's shareholders approved an amendment to
the Employee Stock Option Plan whereby options to purchase an aggregate of 2
million shares of common stock may be granted to officers and key employees
of the company. The exercise price of the stock options must not be less than
the market value per share at the date of grant, and no options shall be
exercisable after ten years and one day from the date of grant. Options
generally become exercisable on a pro-rata basis over a four-year period
beginning one year after the date of grant.
Changes in the status of the stock option plan during 1994, 1993, and
1992 are summarized as follows:
1994 1993 1992
Options outstanding at
beginning of year 464,125 531,000 334,850
Options granted 655,000 145,000 255,000
Options exercised (102,375) (87,375) (58,850)
Options forfeited (231,500) (124,500) ---
Options outstanding at
end of year 785,250 464,125 531,000
Number of options at
end of year:
Exercisable 193,125 196,125 135,750
Available for grant 302,303 375,803 396,303
Range of prices:
Granted during year $14.25-19.25 $15.00-19.75 $9.67-11.33
Outstanding at end of year $2.83-19.75 $2.83-19.75 $2.83-11.33
Exercised during the year $3.30-11.33 $2.83-10.92 $2.25-3.30
B. Employee Stock Purchase Plan:
In October, 1994, the company's shareholders approved an employee
stock purchase plan which allows eligible employees to purchase shares of the
company's common stock at 85% of market value on the date on which the annual
offering period begins or the last business day of each calendar quarter in
which shares are purchased during the offering period, whichever is lower.
Common stock reserved for future employee purchases aggregated 487,246 shares
at December 31, 1994. There were 12,754 shares issued at an average price of
$11.89 per share during the year ended December 31, 1994. There have been
no charges to income in connection with this plan other than incidental
expenses related to the issuance of shares.
C. Warrants:
In 1991, a warrant to purchase 37,500 common shares at $7.33 per
share was granted to a consultant for research and analysis performed for the
company. This warrant was exercised in 1992.
D. Stock Grants:
In 1992, the company granted a total of 30,444 common shares to
several officers of the company. The fair market value of the shares at the
date of grant approximated $0.3 million and was reflected as compensation
expense in 1992. These shares were issued from the company's treasury stock.
6. Treasury Stock
In 1992, the company granted the total of 30,444 common shares noted
above. These shares were issued from treasury stock at an average cost of
$1.81 per share.
In January, 1994, an officer of the company exercised stock options
to acquire 99,000 shares of the company's common stock at $3.30 per share by
delivering to the company 16,542 common shares at the then current market
price of $19.75 per share.
The average cost of all treasury stock currently held by the company
is $2.22 per share.
7. Commitments and Contingencies
A. Operating Leases:
The company leases office space and other items under various
agreements expiring through 2004. At December 31, 1994, the minimum
aggregate payments under non-cancelable operating leases are summarized as
follows (000's):
Year Amount
1995 $2,389
1996 2,379
1997 2,202
1998 2,123
1999 1,986
Thereafter 7,433
$18,512
B. Employment and Other Agreements:
The company has entered into employee continuation incentive
agreements with certain key management personnel. These agreements provide
for continued compensation for a period equal to the lesser of one year or
until the individual finds new employment, in the event of a change in
control of the company. At December 31, 1994, the company's maximum
potential liability under these agreements totaled approximately $2.9 million.
In connection with the sale of its cellular assets, the company has
entered into an agreement with one of its officers. The agreement calls for a
fee of approximately $0.6 million to be paid as a result of the closing of
the sale of the company's cellular assets. This amount was placed in an
escrow account at the time of the sale. The agreement requires, among other
things, that the officer remain an employee of the company through July 1,
1996. During the year the officer had an outstanding loan from the company
in the amount of $0.2 million. Subsequent to year-end, the agreement was
amended to accelerate the vesting provisions and funds from the escrow
account were used to repay the loan.
C. Purchase Commitment:
In 1993, ACC Long Distance Ltd. entered into an agreement with one of
its vendors to lease long distance facilities totaling a minimum of
$1.0 million (Can.) per month for eight years. The company currently leases
more than $1.0 million (Can.) per month of such facilities from this vendor.
This commitment allows the company to receive up to a 60 percent discount on
certain monthly charges from this vendor.
D. Defined Contribution Plans:
The company provides a defined contribution 401(k) plan to
substantially all U.S. employees. Amounts contributed to this plan by the
company were $167,000, $137,000, and $19,000 in 1994, 1993 and 1992,
respectively. The company's Canadian subsidiary provides a registered
retirement savings plan to substantially all Canadian employees. Amounts
contributed to the plan by the company were $62,000 (Can.) and $28,000 (Can.)
in 1994 and 1993, respectively.
E. Legal Matters:
The company is subject to litigation from time to time in the
ordinary course of business. Although the amount of any liability with
respect to such litigation cannot be determined, in the opinion of
management, such liability will not have a material adverse effect on the
company's financial condition or results of operations.
8. Geographic Area Information (000's)
Year ended December 31, 1994:
United United
States Canada Kingdom Eliminations Consolidated
Revenue from
unaffiliated
customers $54,599 $67,728 $4,117 $ --- $126,444
Intercompany
revenue 6,698 2,175 1,004 (9,877) ---
Total revenue $61,297 $69,903 $5,121 ($9,877) $126,444
Income (loss)
from continuing
operations before
income taxes $ 1,300 ($5,742) ($5,802) --- ($10,244)
Identifiable assets
at December
31, 1994 $119,325 $30,073 $10,422 ($75,068) $84,752
Year ended December 31, 1993:
United United
States Canada Kingdom Eliminations Consolidated
Revenue from
unaffiliated
customers $45,150 $60,643 $153 $ --- $105,946
Intercompany
revenue 9,039 2,939 185 (12,163) ---
Total revenue $54,189 $63,582 $338 ($12,163) $105,946
Income (loss)
from continuing
operations before
income taxes $ 6,177 ($8,150) ($1,778) --- ($ 3,751)
Identifiable assets
at December
31, 1993 $142,821 $ 28,620 $1,832 ($111,555) $ 61,718
Year ended December 31, 1992:
United
States Canada Eliminations Consolidated
Revenue from
unaffiliated
customers $39,278 $42,402 $ --- $81,680
Intercompany
revenue 11,002 2,153 (13,155) ---
Total revenue $50,280 $44,555 ($13,155) $81,680
Income (loss)
from continuing
operations before
income taxes $4,261 $1,606 $ --- $5,867
Identifiable assets
at December
31, 1992 $57,644 $26,324 ($17,132) $66,836
Intercompany revenue is recognized when calls are originated in one country
and terminated in another country over the company's leased network. This
revenue is recognized at rates similar to those of unaffiliated companies.
Income from continuing operations before income taxes of the Canadian and
United Kingdom operations includes corporate charges for general corporate
expenses and interest. There were no significant U.K. operations prior to
1993.
9. Related Party Transactions
In February, 1994, the company's Board of Directors approved a plan
to move the company's headquarters to a new facility in Rochester, New York.
The new location is in a building owned by a partnership in which the
company's Chairman has a fifty percent ownership interest. A special
committee of the company's Board of Directors reviewed the lease to ensure
that the terms and conditions were at arms-length prior to approval of the
plan. Minimum monthly lease payments for this space range from $44,000 to
$60,000 over the ten year term of the lease, which began on May 1, 1994.
The company also pays a pro-rata share of maintenance costs. Total rent and
maintenance payments under this lease were approximately $0.2 million during
1994.
During 1994, the company entered into an agreement with a software
development company of which the company's Chairman is the majority
shareholder. The agreement calls for the development of certain customized
telecommunications software to be licensed to the company. The agreement
requires the company to pay approximately $0.4 million over an eight month
period. Through December 31, 1994, payments totaling $0.1 million had been
made under this agreement.
10. Subsequent Event
Subsequent to December 31, 1994, the company obtained a commitment
letter from a group of banks to enter into a financing agreement to convert
its demand lines of credit into a $30.0 million term line of credit bearing
an interest rate of prime plus one and one-half percent which expires
April 1, 1996. Outstanding borrowings on this facility are collateralized
by certain assets of the company and the proposed agreement also contains
certain financial covenants.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of ACC Corp.:
We have audited the accompanying consolidated balance sheets of
ACC Corp. (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluatiing the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ACC Corp. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Rochester, New York
March 30, 1995
<TABLE>
Supplemental Information
Selected Quarterly Financial Data
(unaudited)
For the year ended December 31, 1993:
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Revenue $24,897 $24,040 $25,949 $31,060
Revenue less network costs 8,367 8,843 7,286 11,164
Income (loss) from:
Continuing operations 813 895 (268) 213
Discontinued operations (486) (362) (451) (10)
Gain on disposal of discontinued operations - - - -
Net income (loss) $327 $533 ($719) $203
Net income(loss) per common
and common equivalent share:
Continuing operations $0.12 $0.13 ($0.04) $0.03
Loss from discontinued operations (0.07) (0.05) (0.06) -
Gain on disposal of discontinued operations - - - -
Net income (loss) per share $0.05 $0.08 $1.54 $0.03
</TABLE>
<TABLE>
For the year ended December 31, 1994:
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Revenue $32,335 $28,807 $28,409 $36,893
Revenue less network costs 11,970 9,933 10,660 14,443
Income (loss) from:
Continuing operations 346 (1,024) (8,456) (2,195)
Discontinued operations - - - -
Gain on disposal of discontinued operations - - - -
Net income (loss) $346 ($1,024) ($8,456) ($2,195)
Net income(loss) per common
and common equivalent share:
Continuing operations $0.05 ($0.15) ($1.20) ($0.30)
Loss from discontinued operations - - - -
Gain on disposal of discontinued operations - - - -
Net income (loss) per share $0.05 ($0.15) ($1.20) ($0.30)
</TABLE>
Investor Information
Common Stock Transfer Agent and Registrar
KeyCorp Shareholder Services, Inc.
127 Public Square, 15th Floor
Cleveland, Ohio 44114-1306
NASDAQ Information
ACC Corp.'s stock trades on The NASDAQ Stock Market under the symbol ACCC.
Price Range
Sale Price
Quarter Ended: High Low
December 31, 1994 19 13-3/4
September 30, 1994 19-3/4 12-3/4
June 30, 1994 24-1/4 13
March 31, 1994 26-1/4 17
December 31, 1993 22-1/2 17-1/4
September 30, 1993 19-1/2 12-1/4
June 30, 1993 16-3/4 10-1/2
March 31, 1993 25-1/2 14-1/4
Note: The information presented above has been adjusted to reflect a 3 for 2
stock dividend that was distributed on February 4, 1993. On February 28,
1995, the closing price for the Company's stock was $16.50 per share as
published in The Wall Street Journal.
Dividend and Shareholder Information
ACC Corp. paid a dividend on its common stock of $.50 per share in January,
1994 and $.03 per share in February, May, August, and November 1994, and in
February, May, August, and November 1993. As of February 28, 1995 the
company had approximately 5,000 shareholders of its common stock, based upon
the number of shareholders of record and the number of beneficial owners
holding its shares in street name at brokerage firms and banks as reported
by its proxy solicitor.
Additional Information
To obtain additional information about the Company, its finances, operations,
or services, or to acquire a copy of the ACC Corp. Form 10K annual report to
the Securities and Exchange Commission, contact the Chief Financial Officer,
ACC Corp., 400 West Avenue, Rochester, New York, 14611. Or, call the ACC
Investor Relations Hotline at (716) 987-3400.
Free copies of ACC Corp. news releases are available by fax by calling
Company News on Call at 1-800-758-5804, extension 007207.
Exhibit 21
Subsidiaries of ACC Corp.
State, Province or Country of
Name Incorporation
ACC Albany Telecom Corp. Delaware
ACC Binghamton Telecom Corp. Delaware
ACC Buffalo Telecom Corp. Delaware
ACC Credit Corp. Delaware
ACC Global Corp. Delaware
ACC Local Fiber Corp. New York
ACC Long Distance Corp. New York
ACC Long Distance Corp. Delaware
ACC Long Distance of Arizona Corp. Delaware
ACC Long Distance of California
Corp. Delaware
ACC Long Distance of Connecticut
Corp. Delaware
ACC Long Distance of Florida Corp. Delaware
ACC Long Distance of Georgia Corp. Delaware
ACC Long Distance of Illinois Corp. Delaware
ACC Long Distance of Indiana Corp. Delaware
ACC Long Distance of Maine Corp. Delaware
ACC Long Distance of Maryland Corp. Delaware
ACC Long Distance of Massachusetts
Corp. Delaware
ACC Long Distance of Michigan Corp. Delaware
ACC Long Distance of New Hampshire
Corp. New Hampshire
ACC Long Distance of New Jersey Corp. Delaware
ACC Long Distance of Ohio Corp. Delaware
ACC Long Distance of Pennsylvania
Corp. Delaware
ACC Long Distance of Rhode Island
Corp. Delaware
ACC Long Distance of Vermont Corp. Delaware
ACC Long Distance of Washington Corp. Delaware
ACC Long Distance Ltd. Ontario, Canada
ACC Long Distance Inc. Ontario, Canada
ACC Long Distance UK Ltd. United Kingdom
ACC Long Distance Sales Corp. Delaware
ACC National Long Distance Corp. Delaware
ACC National Telecom Corp. Delaware
ACC Network Corp. New York
ACC Network Ltd. Ontario, Canada
ACC New York Telecom Corp. Delaware
ACC Radio Corp. New York
ACC Rochester Telecom Corp. Delaware
ACC Service Corp. Delaware
ACC Syracuse Telecom Corp. Delaware
ACC TelEnterprises Ltd. Ontario, Canada
Danbury Cellular Telephone Co. Connecticut
ACC Cellular Corp. (not organized;
dissolution pending) Delaware
Cel Tel Corp. (dissolution pending) Delaware
United Bluegrass Cellular Corp.
(dissolution pending) Delaware
Network Consultants (a general partnership;
dissolution pending) New York
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statements on Form S-8
File Nos. 33-30817, 33-36546, 33-52174, 33-87056 and 33-75558.
/s/ ARTHUR ANDERSEN LLP
Rochester, New York
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE DATA IN THIS SCHEDULE ARE EXTRACTED FROM ACC CORP.'S AUDITED 1994 FINANCIAL
STATEMENTS AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000783233
<NAME> ACC CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 1,021
<SECURITIES> 0
<RECEIVABLES> 21,534
<ALLOWANCES> 1,035
<INVENTORY> 36
<CURRENT-ASSETS> 28,349
<PP&E> 62,618
<DEPRECIATION> 18,537
<TOTAL-ASSETS> 84,752
<CURRENT-LIABILITIES> 30,815
<BONDS> 29,914
<COMMON> 115
0
0
<OTHER-SE> 18,971
<TOTAL-LIABILITY-AND-EQUITY> 84,752
<SALES> 118,331
<TOTAL-REVENUES> 126,444
<CGS> 79,438
<TOTAL-COSTS> 132,632
<OTHER-EXPENSES> 2,160
<LOSS-PROVISION> 2,345
<INTEREST-EXPENSE> 1,989
<INCOME-PRETAX> (10,244)
<INCOME-TAX> 3,456
<INCOME-CONTINUING> (11,329)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,329)
<EPS-PRIMARY> (1.60)
<EPS-DILUTED> 0
</TABLE>
